3/25/2012

Exporting into Africa: a case study


At a Cape Town presentation to FNB clients in February 2012, Anni Bodington discussed the opportunities and challenges of doing business in Africa as experienced by her company, TESA Palisade Fencing.
This is her story in her own words:
I am not going to go into great academic detail as to why you should or shouldn’t do business in Africa, even though in my opinion, this is a no brainer as 6 out of the 10 fastest growing economies globally are African.
I am an entrepreneur not an economist or soothsayer. Cees is the expert and he is qualified to guide you. I am here to provide you with some light-hearted introspection and sharing of the journey my company has taken into Sub-Saharan Africa, from our perspective, with our opinions, about the problems and victories we have experienced whilst learning about exporting, bearing in mind that I think like an entrepreneur – which means that risk is not something I spend a lot of time thinking about!
Clearly we were naïve when we ventured into exporting as the routes we took was often not clever business, but when opportunities presented themselves, risk and failure were not really uppermost in our minds as the SA construction industry, the arena in which we operated at that time, was heading for the deepest of doldrums.
We wanted a new arena to compete in during 2009 and it seemed the African situation was improving, as I believe it continues to do today and I often hear from my contacts in the USA and Europe that Africa is considered the last investment frontier. We really had no choice at the time we chose to venture into the African market and being ill prepared, we made mistakes and lost more money. But I do however live with the motto of: ‘never give in, never, never, never,’ … so we became smarter and began to learn the ropes and where to look for pitfalls in exporting. We took the risks associated with currency, country and commercial factors in Sub-Saharan Africa, discovered who we were, changed, grew, learnt and even to this day… it is still an adventure and we are nowhere near victory but every year is proving more and more exciting for us.
What we do
TESA, not Teazers, is essentially a manufacturer of Palisade fencing although we do buy products in which we offer to our market as added value. Our core product is steel fencing which is packed in a quite nifty kit form. Our market predominantly is Telecommunications and we sell our fence to networks and turnkey OEM companies who use our fences on what they call base transmission sites, which are cell phone sites that house the towers which you and I see all over the place.
In terms of opposition, in South Africa there are four main players in this fencing market supplying volume into Africa, in our opinion, us being one of them. We are the small kids on the block, with one of the others being listed and another having a Bank in their group of companies enabling them to offer finance of fencing with payment terms of 12 to 24 months, often the terms requested by the African market. This gives them a huge advantage. Two are in Johannesburg, one in Durban and we’re in Cape Town, a disadvantage for us as all steel transported to Cape Town has an added surcharge of R500 per ton and we pay R2 p/kg more for galvanizing in Cape Town than in Durban and Johannesburg.
What gives us our winning edge, we believe and what makes TESA a thorn in the side of this opposition, is the fact that as the small fish, we are flexible, nimble and are able to change direction rapidly depending on our customer requirements. A good example of this was a recent David and Goliath situation when, after a long and arduous battle, TESA was specified for the fencing contract for the entire CELL C 3 and 4 G rollout, much to the dismay of our competitors, who tried unsuccessfully to have this decision overturned.
Other opposition, and a very real challenge, is the product sourced from China and India, but more about that later.
Essential daily operations involve TESA’s team being the middleman between our clients who are OEM’s and their clients, the cellphone networks. Although, the networks sometimes order from us directly and we work with the networks in recommending specification. Although making a fence is not rocket science, you would not believe the politics and technicalities that take place at this level to get our stuff specified. Relationship management is key for successful delivery of service and product.
The kit form works quite well for our customers who collect two boxes, which contain an entire fence for a cell site, from a central warehouse and take it often 100’s of km’s into the middle of nowhere where there is little or no infrastructure, poor road conditions, and the distances between South African ports and northerly destinations are challenging from a transport perspective.
We adapted our design concept to suit the conditions associated with the remote areas where our product is being used and where a spade and spanner is all that is available as equipment to erect the fence. We take for granted our five ton forklift. On a site, they dismantle with a bakkie (truck) and rope. We had to put ourselves in their shoes, adapt the product to smaller lighter loads, hence the kit form.
Some of the challenges
Although payment from OEMs is mostly done from Europe and China, most of them have operations in South Africa, so our sales team spend a lot of time in Johannesburg. These OEMs have operations in country, often with South Africans running the operations. Telecommunications people stay within the industry and migrate between players in the industry.
It works for us when an alliance is formed with an individual and they like our product so even when they change employment they continue to support us. The negative is what we call the brandy and coke brigade.
As TESA does not have operations in the countries like some of our opposition does, we are not on the ground all the time. What happens is a community is formed amongst expats and sometimes decisions about contracts are made over a braai and a bottle of ‘klippies’. There have been times where price and quality have not been considerations for contracts but again, it shows never to underestimate the powers of relationships, even in deep, dark Africa.
We did learn pretty early though that contracting in country is an area we are not ready for as we found out when installing fencing for shopping centers in Angola. Local laws and labor – they expected greasing palms with suitcases full of money – made us realize that we should stick with our core competency, which is manufacturing. We have also learnt that South Africa and South African expats in other African countries are not necessarily that well thought of. And, South Africa, having the second largest African economy and the largest GDP, does not necessarily mean that other African citizens hold us in the same esteem we hold ourselves. It can be perceived that we are deemed to be creating wealth in arenas that belong to other countries.
A bit about the industry
Traditionally companies supplying their RF equipment were strong in this arena and they ventured into turnkey and building sites. Then, Chinese companies entered the fray offering to fund the networks with favorable payment terms, essentially funding rollouts with terms of payment years later once the networks started raking in the bucks.
The result was price slashing on every level, including fence, and the traditional players losing market share to Chinese companies.
We are selling a fence for less now than we did four years ago. The companies, who traditionally dominated the industry, took a pounding with Chinese companies scooping up the contracts. Historically, their reputation for quality and delayed payment terrified companies such as ours. Another worry was the pricing from China for product similar to ours was almost half of our manufacturing cost.
So, we tried a different approach completely and employed a Mandarin-speaking, South African Chinaman, who understood our culture and the Chinese culture. He even says ‘hey boer.’ The rewards were immediate. The largest portion of our business is now ordered by Chinese companies, payment issues have been largely resolved and we all understand exactly what the quality criteria is. But it was a long road.
Initially, our product was constantly rejected due to a misunderstanding on their part of technical specification, payment ran many months overdue, and generally mutual respect was non-existent. But that has all changed and this success can be attributed only to communication, which has resulted in mutual respect.
The moral of this little story is that the understanding of different cultures can win the ultimate success when working across cultures and that would be mutual respect. For us it led to an award in November in Schenzen for Best Overseas Regional Partner from our largest Chinese customer.
From a pricing perspective, naturally the weaker the Rand, the better for us. We also find that we are unsuccessful in East Africa as products shipped from China and India are more competitive in price delivered to these areas. This is not the case for West and Central Africa and we are favorably situated to make this our target market.