Marcus Goncalves, Associate Professor of Management / Chair, International Business Program, Nichols College, Dudley, MA. USA
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Subjects of Interest
- Frontier and Emerging Markets
- International Affairs
- Private Sector Development
How public policy can drive business internationalization in Africa 19 Dec 2018
Public policy at national and regional levels in Africa can play a significant role in enabling entrepreneurs and their enterprises operate across national boundaries, a process technically referred to as internationalisation. The advantages of doing business across borders, including economies of scale and increase in client base, were discussed in my previous articles in Financial Nigeria.
While there are no standard policies or approaches to support the internationalisation processes, there are multiple factors that lead to the failure of business internationalisation on the continent. These factors mostly border on lack of adequate market entry preparation by African enterprises. Nevertheless, well-targeted public policies can provide the right environment and incentives for businesses to increase their footprints abroad.
Internationalisation support and interventions by the governments and their agencies can enable small and medium-scale enterprises overcome entry barriers to international markets. There are several areas in which actions can be taken to reduce the barriers to the internationalisa-tion of African SMEs. But it is important to first of all understand the nature of these barriers, which may be internal or external.
Internal barriers may include cultural differences, language limitations, lack of human capital, insufficient networks, and lack of access to finance. A survey conducted by the European Commission identified the excessive cost of doing market analysis abroad, purchasing legal consulting services, translating documents, making products adaptable to foreign markets, travel expenses, among others, as critical internal barriers to internationalisation.
External barriers may include national and international bureaucracies as well as formal and informal trade barriers.
To develop sound policies to foster internationalisation of SMEs, governments, as a first step, should gather data regarding the number of enterprises that are ready to internationalise or in the process of internationalising. Once such enterprises are identified, there will be a need to segment them, not just per size and industry, but also per growth orientation. This process is necessary in understanding the local culture as well as macro and microeconomic factors of the target international markets.
To avoid barriers to intra-Africa expansion, there is also the need to address the perceived psychic distance of entrepreneurs when considering target markets across the continent. According to O'Grady and Lane, psychic distance is "a firm's degree of uncertainty about a foreign market resulting from cultural differences and other business difficulties that present barriers to learning about the market and operating there.”
As recommended by the Organization for Economic Co-operation and Development (OECD), public sector agencies should develop programmes and tools to provide grants and incentives for the international trade of products and services. The recommended institutional programmes also include financial and insurance support. Governments across Africa should consider providing export credit insurance, as well as other traditional types of trade-related backing. For instance, to promote export diversification, the Nigerian Export-Import Bank (NEXIM) provides export credit guarantee and export credit insurance, as well as trade information and export advisory services.
Governments are also advised to develop policy measures to support export by providing special funds – and ensuring adequate access to these funds – to finance the internationalisation of national enterprises.
The role of education is also critical in this process. The International Labour Organization’s World Employment Report emphasises the increasing importance of "a variety of foundation skills, such as the ability to learn, to communicate and to analyze and solve problems, all of which are essential to working environments that rely on rapid innovation, and the interpersonal exchange and creation of knowledge."
As I recently conveyed to Danilo Ventura, Secretary-General of the CEEIA (Community of Exporting or Internationalized Enterprises of Angola), in Luanda, it should be high on the agenda of governments and universities to consider an educational reform programme, which focuses on international entrepreneurism and international business. Curriculum contents need to be rapidly overhauled and designed to imbue problem-solving skills that are needed in the knowledge-based economy. For some time now, universities in Europe have been experiencing tremendous changes as a result of the implementation of the Bologna Process, which has harmonized various systems of European higher education and improved standards among institutions of higher learning.
Also, technical and scientific universities in Africa should build partnerships with the private sector to promote technology transfer. Business schools across the globe are increasingly integrating business professionals and entrepreneurs into their programmes. For instance, since 2016, the Angolan government has engaged the prestigious Fundacao Getulio Vargas, in Sao Paulo, Brazil, to help local professionals and executives in Luanda to develop the requisite skills for business success.
Other non-governmental organisations can also support the efforts of government agencies. A key example will be international business networks and communities of practice (CoPs). Entrepreneurs interested in internation-alising can forge alliances to offer advice and mutual support. Such groups can also pull their weight to leverage more financial assistance from the government.
Regional development agencies and other related organisations should also play essential roles in initiating opportunities for local enterprises to establish cross-border networks. For instance, the Project Management Institute, based in the United States, acts as a CoP. It provides not only networking services for its members across the globe, but also the Project Management Body of Knowledge (PMBOK) – a recognized standard for the project management profession – and other certifications to improve the efficiency and effectiveness of its members.
Amy Jadesimi, Managing Director of LADOL Free Zone, an industrial free zone and logistics hub for multinational industrial and offshore companies in Lagos Harbour, Nigeria, captured the essence of collaboration among African countries and businesses in an article published in Forbes in 2017. She said, inter alia: “close collaboration and unions of countries may have fallen out of favour in the West, but the pursuit of a true African Union, has never been more popular or necessary, as intra-African trade can be a catalyst for peace and prosperity.”