Global players in the South African market sends signal that we are ready for another evolution
By Daniel Novitzkas
Natural evolution is a messy and chaotic process, yet it often goes unnoticed because of the slow, gradual pace required for any significant change. Since we cannot observe natural evolution in real time — and marvel at how a single common ancestor gave rise to both the elephant and the dassie — we tend to see evolutionary changes in man-made processes and institutions instead.
The business landscape, driven by neo-liberal principles of unrestrained creation and destruction, serves as one of the clearest representations of evolution in the modern world. As long as companies and organizations are allowed to compete on relatively equal terms, the marketplace determines the fittest players, who compete and struggle to carve out their niche.
Throughout this process, less-suitable business models fade, and dominant forms of operation rise to the forefront. The survivors consolidate their processes, secure suppliers, refine their logistics, and update their marketing strategies. However, as long as the market continues to show signs of growth, these dominant players will face challenges from newcomers seeking to capture their share.
While this may be an overly simplistic view of economic forces, the evolutionary process is clearly observable across numerous industries worldwide. Locally, we have a number of markets that are still far from maturing and will continue to thrive on competition to accelerate their growth.
For example, consider data (big or otherwise): the collection of information has grown exponentially over the past 15 years, and all signs point to this trend continuing.
Nearly all large South African companies need to collect and track data related to their operations, partners, and consumer bases. If they’re not already doing so, the question is no longer “if,” but “when.” It is no surprise, then, that, much like in South Africa’s online retail space, large international players are eyeing the domestic market as ripe for expansion. Alibaba, China’s e-commerce giant, is tentatively testing the waters in the region. Having launched an Africa Local Public (ALP) cloud service across multiple data centers in Johannesburg, it plans to expand to Mozambique and Cape Town, with eyes set on Botswana, Zambia, and Namibia in the future.
When Amazon announced its entry into South Africa, players in the online retail space were initially concerned. Prior to the arrival of the North American giant, much energy was devoted to forecasts predicting that Amazon’s proven success and scale would allow it to dominate, potentially cannibalising local competitors and luring customers with promises of competitive prices and an integrated ecosystem of services and products.
Yet, eight months after its arrival, the former bookstore has failed to make the expected impact. Much of Amazon’s lower-than-anticipated market penetration can be attributed to two key aspects of natural evolution: 1) a dominant predator in one ecosystem is not necessarily suited to others and must still adapt to survive, and 2) existing players possess their own agency, allowing them to proactively adapt.
While Amazon struggled to navigate the unfamiliar terrain (Amazon Sub-Saharan Africa Managing Director, Robert Koen, directly acknowledged initial shortcomings in product selection), some established players adapted quickly, bypassing both the giant and the obstacles in their path.
Much like Amazon, Alibaba will need time to adjust to the South African (and broader Southern African) context. Domestic companies already operating in this space have the experience needed to navigate the market. In anticipation of Alibaba’s expected growth, these local players can begin to invest in their offerings, ensuring they maintain their competitive edge in a rapidly growing industry.
Alibaba’s domestic competitors would do well to lean on the expertise of others who are able to prepare the organisation for the expectant changes to the industry over the coming years by seeing to the creation of increased capacity with greater usage, to offer more options for customers and clients.
Despite initial concerns about the entry of large foreign multinationals into South Africa’s markets, we should not rush to assume the worst. Competition, especially at the level brought by multinationals, is ultimately beneficial for the industry — and for us as consumers — offering better products at more competitive prices, as long as local players do not ignore this clear indication of the growing demand for continued digital innovation and infrastructure.
The fact that global players are entering the market signals that we are ready for this evolution.
South African companies will continue to experience the economic shakedown and consolidation of any industry in which demand has yet to mature and stabilize. Companies operating within the e-commerce landscape specifically should look to Alibaba’s entry as recognition that their work in the space has been conducted skillfully and on solid assumptions of the future of the industry. Assumptions of defeat at the hands of multinationals overlook domestic competitors’ institutional knowledge and experience, along with tried-and-tested means of operating in the local context.
Alibaba may be large, but they still need to adapt. And who is to say we cannot have multiple predators in our ecosystem? After all, lions and leopards exist side-by-side, each able to thrive in very different ways and without diminishing the other’s existence.
Daniel Novitzkas is the chairman at Specno.
BUSINESS REPORT