In 2016, savvy investors almost went bankrupt after buying a fast-growing ice cream company in the tropics. What could go wrong? Lots, apparently.
The ice cream company was Fan Milk, and the country was Ghana. At the time of the investment, Ghana faced a worsening electricity supply/demand crisis. Thus, cost of keeping the ice cream cold in the factory and the logistics of getting it to consumers became a liability.
Why does this matter to small-and-medium sized business expanding globally? First, in every case that we’ve worked on, unforeseen developments occur. Second, without an articulated rationale for selecting your market, this potentially rewarding climb becomes ever steeper. Third, a business’ chances of survival increase exponentially by expertly weighing legal, financial and political consequences each potential response.
Scotch + Palm’s process starts well before the crisis. For example, before taking one Hollywood actor’s foundation as a client looking to expand into West Africa, we went through a simple exercise, summarized by the following themes/questions:
- Familiarity and understanding. Do you trust someone local? Have you been on the ground, and do you have an understanding for the culture (and appreciation of the headache that comes with it)?
- How well defined is the problem you are trying to solve? Are you going into a market that —even with all the issues and challenges—will still bring sufficient reward to justify the risk and effort involved? For example, renewable energy, logistics, agriculture and healthcare with consumers rewarding novel, effective and affordable innovations. In subsequent articles I will delve more into these and other industries.
- Are you comfortable with the regulatory environment? This includes the ease of doing business, the action and responsiveness of the government agency that you will need approval from, and the transparency involved. To be sure, particularly where government agencies are involved, corruption and/or bribery is real threat to every foreign business of any size.
What happened to that ice cream goodness? Fan Milk was eventually purchased by Nestlé, as it considered expanding into Nigeria, with a population six times that of Ghana.
Instead, Nestle doubled down in Ghana after working through a modified version of the exercise above. What tipped the scales? We can’t be sure, but publicly, the stated reasons where that:
- Nigeria’s roads were in bad shape and distribution required long road travel
- Electricity was costlier and less reliable (than Ghana’s)
- Various other infrastructure and regulatory challenges did not serve its vision
Nestle was fortunate to have insightful counsel. But can companies without the resources of a multinational be just a fortunate?
Yes. Work with an American Concierge Law + Strategy specialist with cross-border experience. Concierge Law is the practice and process of providing holistic solutions that effectively draw from law, finance, and public policy and are tailored to serve small-and-medium sized enterprise.
Scotch + Palm is a leading Concierge Law firm, Fearlessly Connecting the Dots for emerging companies and investors operating across multiple borders, most notably, across Africa.