I live in the quiet developing suburbs on the outskirts of Nairobi. Next to my flat are two hotels serving two different classes of the community.
One, for the purpose of this piece, I will call Crapple Inn. It is a large fancy three star-hotel, I think. With multiple posh rooms and a menu that is 90% composed of foreign dishes costs, it attracts clientele only from the higher echelons of society.
The other is the rather cleverly named Crapple Out. Crapple Out is essentially a kiosk. A place for the average Kenyan, the working-class man.
A meal at Crapple Inn costs 3$0, way above the average Kenyan income, 16% of whom are still below the poverty rate of $1.90 a day. A meal at Crapple Out costs around 0.50 cents, quite affordable for virtually any Kenyan.
While I may go for dates in Crapple Inn, I order my meals from Crapple Out.
In a few years, Crapple Inn will fold after years of losses while Crapple Out like most small hotels of its kind will experience almost exponential growth and become as large as its ‘competitor’. Only this time it will actually have a lot of paying customers.
The most surprising fact? Crapple Inn is owned by a multinational chain of hotel businesses while Crapple Out is currently owned and operated by a group of five ambitious young women.
How is it that five young African women know more about the Nairobi hotel industry than a multinational chain of hotels? Well, the answer is a little complicated but if I was to summarize it in one word it would be; hubris.
Crapple Inn’s eventual demise is what happens when a larger company thinks itself too big or too good to fail. Due to their success in their own markets, they think they know all there is to know about all other markets. That couldn’t be further from the truth.
Human culture is very diverse. Even in the same country, there could be more than one cultural driving force. Applying the same strategy to conquer all markets will fail no matter how much money you throw at it.
Take the case of mobile money in Africa, specifically Kenya. Safaricom’s M-Pesa has been a resounding success in the country helping to bridge the baking gap for millions of underserved people all across the country. Today there are more M-Pesa accounts than there are Kenyans all transacting more than a billion dollars annually. It has been a huge hit.
Well Vodafone, Safaricom’s parent company saw this success and thought they could replicate in India. With more than 92.5% of the population not having access to bank accounts, a high mobile penetration rate and an economy that was cash reliant, India presented the perfect opportunity for another mobile operation.
However, despite being an early entrant into India’s digital payment market, so far Vodafone has been unable to succeed and instead has had to cede leadership to Paytm, a domestic Indian digital wallet, now with over 200 million users.
Why didn’t mobile-money work in India when the country had the perfect demographics?
Well, Indians really like to use cash. Over 90% of transactions in India are in cash. Cash culture is so ingrained in India that even debit cards failed. India has the lowest debit/credit card point-of-sale system (POS) penetration in the world with only 693 machines per million people.
Culture when not understood or appreciated enough can be a stopping force for multinationals trying to enter new regional markets.
Unfortunately, a lot of multinationals continue to make the same mistake when trying to enter African markets. The result has been a failure to meet revenue targets for some while others have simply bowed out and called it quits citing difficult business conditions.
Crapple Out’s and Vodafone’s failure in India show that ‘business conditions’ are not the most important issue when it comes to Africa. It is attitude. Foreign companies, especially those from the West, adopt the same mentality they used to conquer their own markets, in Africa. This is a big mistake, one steered by some very big assumptions made about the African market.
These assumptions and many others are some of the key mistakes foreign companies continue to make about Africa. If they are going to succeed they will have to re-adjust their worldview to fit in a culture that they do not fully understand or appreciate.