Global competition, local presence: Can African startups compete with big tech?
Good morning savvy entrepreneurs and tech enthusiasts!
The thrill of ever building a startup today is so that you solve a pertinent problem in society and you can compete in the global stage. When tech nerds get cranking in their garages building what they hope to be a revolutionary tech someday they don’t envision Google would be coming to take a big piece of their lunch.
The African tech scene is a vibrant landscape of innovation, with startups sprouting up across the continent, offering solutions tailored to local needs and challenges. These ventures are not only driving economic growth but also transforming lives by providing access to services that were once out of reach for many. Yet, as these startups gain traction and begin to disrupt traditional industries, they face a looming threat: the entry of global tech giants into their territories.
If every time an entrepreneur thought of an idea to solve a problem he or she was faced with in his or her community and then dismissed it because any of the big tech companies were already building a similar technology we would not build anything new. There’s nothing new under the Sun. What may be new is the how. The danger with being an innovator in Africa now is having your service become just another feature in a bigger ecosystem or in most cases just become irrelevant.
When a big tech firm of Amazon’s magnitude enters a new market, it’s not just a competitor, it causes a seismic shift in the landscape. This has been evident with the launch of Amazon.co.za in South Africa, sending ripples of concerns through the local e-commerce ecosystem. Takealot, the homegrown South African success that has become synonymous with online shopping and in the process becoming the leading e-commerce retailer in the country is finding itself under immense pressure since the entry of Amazon into the market.
When a company of Amazon’s size comes for your lunch, rest assured they are coming for all of it, crumbs and all. Business experts and analyst are often bullish about competition, quick in pointing out what the small entities need to improve. Analysts are quick to suggest the need for upstarts like Takealot to refine their value propositions and enhance their customer experiences to stay relevant. The need to also match Amazon’s fast shipping times, and improve logistics and supply chains. Ultimately, the call is all is fair in business and war. Innovate or die to bluntly put it. Innovate with what resources when your competitor is a trillion dollar company that can swallow you in one big gulp?
We don’t only see this in South Africa or in e-commerce only. We see similar moves happening in fintech, ride-hailing and logistics.
Fintech: Mobile money platforms like M-Pesa in Kenya revolutionised financial inclusion, but now face competition from the likes of Google Pay and Apple Pay. Of course, M-Pesa has the advantage of ubiquity and that it offers virtual banking services through the sim-card. Once you insert a sim card onto your you are ready to transact whereas Google Pay and Apple Pay are closed loop systems, not perfect match for the African market. But what happens when they decide to offer offline functionality, integration with local banks, acceptance in the informal market?
Ride-hailing: Local ride-hailing apps like Bolt (formerly Taxify) and Yassir have gained popularity, but now contend with Uber's aggressive expansion as it is now present in Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Tanzania, and Uganda
The question is: can local startups, with their limited resources and local focus, withstand the onslaught of global giants armed with vast capital, advanced technology, and established brand recognition?
We sure can come up with an exhaustive list of survival strategies in form of a list for these startups, but are they enough? Amazon’s entry in South Africa for example will set off a pricing war beneficial to South African consumers, with promises of cheaper products, faster deliveries, easier access to international brands, and better support. But what of local e-commerce startups? Takealot, already unprofitable despite heavy funding, may struggle against Amazon’s financial might. Who wouldn’t, against a $2 trillion company?
What should be done?
While the challenges are daunting, they are not insurmountable. African startups can employ several strategies to navigate this competitive landscape or else, they die unfortunately. Naively, I’d say one of the strategies that a startup can have is to position itself for an exit like what Paystack did.
Embracing Collaboration: It’s been established that when a big tech company enters a new market it doesn’t become just another competitor, it causes a seismic shift in the landscape. So perhaps instead of viewing global players as adversaries, local startups can explore partnerships that leverage their strengths. For instance, in the case of Takealot they could integrate with Amazon's fulfillment network to expand their reach, while still maintaining their brand identity and customer relationships.
Focusing on Niche Markets: Global players often target mass markets, leaving gaps for startups to cater to specific needs or underserved segments. By specialising in areas where they have deep local knowledge and expertise, startups can carve out a sustainable niche.
Leveraging Regulatory Support: Governments can play a crucial role in levelling the playing field by implementing policies that encourage fair competition and protect local businesses from predatory practices. This could include measures such as data localisation requirements or preferential treatment for local startups in government procurement.
Investing in Talent and Technology: To compete with global players, African startups need to invest in developing their talent pool and adopting cutting-edge technologies. This could involve partnering with universities and research institutions, as well as attracting diaspora talent back to the continent.
Building Strong Brands: A strong brand can be a powerful differentiator in a crowded market. By focusing on building trust, loyalty, and emotional connection with customers, startups can create a competitive advantage that transcends price and convenience.
What can be done at policy level?
If you're a tech enthusiast, you've probably noticed Europe's penchant for suing American tech giants and China's knack for replicating and improving upon their technologies. But what about Africa? We mostly just consume. Europe's legal battles are strategic: they protect their startups, prevent unfair competition, enforce rules, and safeguard privacy. China's Great Firewall, while partly ideological, also shields their massive market from foreign dominance, fostering homegrown innovation. In Africa, are we doing enough to safeguard our startups from predatory practices?
Governments have a crucial role to play in fostering a thriving tech ecosystem in Africa. They can create regulations that ensure fair competition, invest in digital infrastructure like broadband connectivity, and promote local innovation through funding, tax incentives, and educational programs. Furthermore, governments can facilitate access to capital by establishing venture capital funds and connecting startups with investors, while also championing local content and developing digital skills in the workforce. These combined efforts will empower African startups to compete and innovate on the global stage.
Parting words
The path forward for African startups is clear: innovate or die. While the threat of global tech giants looms large, it is not a death knell for local innovation. Through strategic partnerships, niche specialisation, technological prowess, and unwavering support from policymakers, African startups cannot only survive but thrive. The challenge is immense, but the opportunity for growth, impact, and a vibrant tech ecosystem is even greater. In this dynamic landscape, innovation is not just a buzzword, but a survival imperative for African startups to carve their own path in the global digital economy.
Catch you on the next one.
Insightful!
great read