South Africa is an emerging market of great interest to UK businesses,
and for good reason. The two countries have historic connections, share a
common language and have considerable similarities in terms of culture
and ways of doing business. In 2011, the UK and South African
governments set targets to double bilateral trade by 2015. Support and
advice are close to hand and, for the right business, there are profits
to be made.
Untapped markets
Africa is a vast continent, containing around 15% of the world's
population. However, many businesses still treat it with a sense of
trepidation. Many business leaders have never travelled far beyond its
borders, and some have never been to Africa at all. Needless to say, the
continent does not rank highly on their list of potential export
destinations. However, South Africans believe their country is a great
first step into this mighty continent and that it is a good place to
base operations.
Avi Lasarow, an entrepreneur who works as honourary counsul promoting
business relations between the UK and South Africa, says the country is
advancing economically and is a key emerging market. "South Africa is
ahead of other African nations and compares well with the otherBrics countries
as a place to do business," Lasarow says. "I believe it is poised for
growth as its investment levels look good when compared to its debt
levels. Small businesses should view South Africa as the 'gateway to
Africa'."
Networking
Businesses interested in the country are well advised to attend
networking groups here in the UK that are run and attended by South
Africans. Businesses in the UK will need partners in South Africa as it
is too far away to manage from home. Typically, South Africans are
direct, open and happy to make recommendations and offer advice.
The South African Chamber of Commerce is a good first port of call.
Other key organisations include the government body UK Trade and
Investment (UKTI), which runs trade missions to export destinations.
James Durrant, a director of the South African Chamber of Commerce, says
South Africans in the UK are keen to help entrepreneurs and investors.
"There are a lot of South Africans in the UK and particularly in
London," he says. "If they don't know the answer, they will know someone
who does and will be able to network you around."
Similarities
The UK and South Africa share similar legal and financial systems and
business is conducted in much the same way. For entrepreneurs such as
James Kight, founder of £23m turnover business Printerland, it seemed
like a comparable market to that in the UK. His business, which sells
printers and ink, entered South Africa in late 2012 and is now on target
to make around 12 million Rand (£764,000) in its first year.
"It is a similar market to the UK. There's only a small time
difference, there are no language barriers and it is a big, emerging
market," he explains. "Also, prior to the World Cup, a lot of money was
spent on infrastructure, in particular broadband, so it ticked a lot of
boxes for us."
Nevertheless, Kight spent two years researching the market and talking
to suppliers and manufacturers based in South Africa before committing.
He adds: "A lot of our suppliers are over there and so we were able to
speak to them. In the UK, we sell primarily to the education sector and
small and medium-sized businesses, and we thought we could replicate the
business in South Africa."
Risks and opportunities
With salaries and rents lower than in the UK, South Africa makes sense
for a lot of companies. Infrastructure is improving, but it is an
emerging market and this means there are also stark differences. "South
Africa is an emerging market and so there are risks. If there weren't,
it wouldn't be an emerging market," advises Durrant. "Crime and
corruption absolutely exist and you have to be aware of what is around
you."
Rainbow nation
South Africa's apartheid history still looms over the country and
policies enacted in the 1990s, designed to elevate the black population,
are still in place. Black Economic Empowerment (BEE) affects growing
companies as it demands that a certain percentage of employees,
directors and shareholders are black, once these companies reach certain
thresholds.
Businesses planning to gain government contracts, or even to work with suppliers that hold such deals, should be aware of how this legislation will affect them.
South Africa is known as the rainbow nation due to its multi-racial
composition and entrepreneurs would do well find out about its history
and political situation.
Choosing a base
South Africa is about five times the size of the UK, although its
population is smaller, at 48.6 million. When setting up in South Africa,
businesses tend to head to either Cape Town or Johannesburg, which have
populations of 3.35 million and 3.6 million respectively, as they offer
the most opportunities and a good quality of life. The capital,
Pretoria, the home of its government, is close to Johannesburg. The
other major city, Durban (2.8 million), is a major manufacturing hub and
has a busy port.
Commitment
Setting up operations in a country such as South Africa is a major
commitment as, in spite of its similarities, it is a considerable
distance away and the process will require significant effort and
resources. Successful entrepreneurs advise that finding partners,
researching well and then committing fully to the project is the best
approach.
Peter Bauer is the founder of Mimecast, a cloud-based email management
company. Bauer chose a business contact he knew well to run Mimecast's
operations. "When you go into any new market, people will be able to
smell whether you are serious about it. You can't dabble and you have to
be serious if you want to make it work," says Bauer.
Similarly, when Kight established Printerland South Africa, he chose a
close business colleague: "We did a lot of research and went into it
confidently. Entrepreneurs need loyal people on the ground from day one,
as you can't manage the business from the UK."
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