What Holds Us Back: Haste

Business leaders succeeding in frontier markets constantly identify such long-term thinking as essential to success. U.S. companies do not always exhibit it. Main One CEO Funke Opeke fears U.S. companies will fail to capture the market opportunity in Africa precisely because it is nascent today, and credits Cummins for avoiding that trap:

If you just looked at what the market opportunity is today, a U.S. company might find it a very small market and so not pay attention or invest. But then the opportunity for later growth—10 percent, 15 percent, 20 percent of their business in the years to come—will be missed. In my sector, I think of opportunities like cloud computing or building data centers. ICT penetration and Internet utilization are so low in Africa today, many U.S. companies would dismiss it. But it’s clearly going to grow exponentially. This is the ideal time for companies with that capability to say, “I’m going to build a data center and help drive these services, so that as the sector grows, I’m the dominant player in that market.” I think there are some American companies that are doing that right, in different sectors. Cummins, in particular, is one company that I see developing such an African strategy, and I see them implementing and growing along that path in countries including Nigeria.

Neville Isdell of Coca-Cola is unambiguous that this is what he thinks prevents U.S. companies from succeeding in Africa most of all:

Number one is that it’s a slow build. U.S. companies, in general, don’t have the long-term view that they need to have. They need to plant seeds for the future. The Germans do it differently. They have a very long-term view and, obviously, some of the Asians are doing exactly the same thing. It’s not just that they have a different business culture, but also the demands on the business are different; the demands on the CEO for quarterly earnings, etcetera, don’t allow that to happen to the same degree in U.S. companies. If a U.S. CEO says he or she’s building something for twenty-five years from now, an investor is likely to say, “Oh, come on. I’m not going to invest in you. You’re wasting my money.”

I asked Neville how he convinced a board and shareholders to take those long bets at Coca-Cola. His answer was wry but also telling. “Well, having shareholders like Warren Buffet helps, ” he said. “Warren looks for long-term value, so he shared this view. But also as a company we have seen this everywhere, so we expect it. Young markets need a long investment horizon.”

In the famously short-term U.S. investment culture, business leaders will need a shared understanding with owners that a viable strategy for success in Africa at scale means a long-term investment. Olam’s Sunny Verghese reflected on his own challenges in conveying to some investors the necessity for long-term investment in frontier markets:

We are very long term in our view in terms of these investments, but today, the average time an institutional shareholder stays in a business has come down to between five and six months from eight years or so, which is what it was in the 1980s. As an owner–manager—I see myself first as an owner and then as a CEO—I find it challenging to put myself in the shoes of a temporary, transient, visiting shareholder of my business and still develop long-term strategies. Instead, we have to continuously put ourselves in the shoes of a continuing shareholder and develop the strategy that maximizes their long-term value rather than a short-term payoff. When we launched the current growth strategy, a couple of investors said to me, “I’m not going to be a shareholder in five and seven years’ time; I’m sure you’re not going to be the CEO in five and seven years’ time, so what really motivates you to take such calls and make such decisions? ” But these are exactly the decisions you need to be making in these markets.

Cummins likewise benefitted from its past experience developing frontier markets. That history gave the company’s investors, board, and management team the confidence to invest in Africa over the long term. Tim Solso describes the company’s experience and its effect on their Africa planning:

We went into India in 1962, Brazil in 1972, and China in 1975, and those three markets were a tremendous value to Cummins during the recession of the last part of 2008 to the middle part of 2010. I was able to build on those investments. That’s why I was able to say, “Where should we be investing so that ten years from now we’re a world leader in that market? ”

If you went back and you looked at our history in India, China, and Brazil, the big returns really only came at the beginning of 2003 and 2004. Now, we probably could have done a lot better in terms of how we manage those businesses. Still, they set a realistic expectation for all of us that that these things just don’t happen overnight.

Africa is a long-term opportunity, and U.S. companies without appetite for that might indeed defer engagement with Africa. For those with the appetite and resources, operating in Africa also has short-term advantages. Among these is the opportunity to raise the culture of entrepreneurship in the firm and develop a cadre of ambitious leaders to support it. SABMiller experienced this firsthand. Graham Mackay describes it:

We had a relatively large number of competent managers who were keen to spread their wings and run a business with more independence. A good part of our initial commercial success depended on that move into Africa in which our managers gained experience in running a business. It was a salutary experience for many of our people to be put for the first time in a generalist environment where the buck stops at them; they’ve got to do everything. They have a very broad responsibility for every activity in the business, rather than a highly specialized role. Even if they were in general management before, it was with a great big mother ship all around them. It is very testing, and very good for your career to do it early on at SABMiller. Increasingly, we’ve seen those African countries as proving grounds for all management.

Jeff Immelt has experienced that executive testing himself over a 31-year career with GE, and considers it a core benefit for managers now working in Africa:

If you ask an American CEO of my generation what the single most interesting and meaningful professional experience is that’s changed his life and made him more reflective, more experienced, and more valuable, it would be globalization.

Learning how to go someplace and be a complete nobody is great experience. Having to build from scratch. I’ve had to work in places where people would say “GE. Is that a division of GM? Do you work for GM? ” It made me a better person and a better manager.

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