Specialty Food: Do South African Suppliers Really Need to Export?

This article was contributed by Conor Godfrey, SAIBL Associate

Pretend for a moment that you are a small supplier of dried fruit and fruit juices in Mali. Currently, you sell to a small urban clientele that consists of Western and Middle Eastern ex-pats and a small number of middle class Malians. Almost all your products are sold at “Leb Stores” and gas stations. Unfortunately, your fruit juice market is almost saturated, and lower cost dried fruit from Guinea is starting to appear in street stalls and gas stations. What do you do?

Even though you think your products would sell well in North Africa, you do not have the resources to expand. If you can meet stringent quality and sanitary conditions, maybe you can sell your product to the South African retailer Shoprite as they expand across West Africa, but you are not sure if that will tap significantly more Malian consumers then you sell to already.

Now imagine that you are a South African supplier confronted with a similar dilemma—how do you expand with limited resources and capacity? In South Africa, suppliers have a real alternative; integrate into the supply chain of one of South Africa’s major multi-national retailers currently expanding into sub-Saharan Africa. This will not only allow your products to reach new customers but will also help you develop great packaging, sound business practices, and above all thick skin.

South African giants such as MTN and Standard bank operate all over the continent. (see interactive map) Adcock Ignam (pharmaceuticals), Barloworld (power), Old Mutual (Banking), Sanlam (insurance) and dozens of other South African companies are buying their way into other African markets.

Integrating into larger companies’ supply chains will allow suppliers to grow and expand even if they do not have the resources necessary to expand into foreign markets themselves. If Pick N’ Pay carries your brand in South Africa, then their expansion into Swaziland, Botswana, and Namibia might translate into new customers for your products. In this situation, Pick N’ Pay manages the risks associated with entering a new export market; not you.

If your outfit supplies any good or service that most other sub-Saharan countries do not produce in abundance, then integrating into a multi-national corporation’s supply chain will give you a competitive advantage that you might not have in South Africa.

Extractive industries and financial services are not the only options. In fact, contrary to popular belief, natural resources and their associated industries only accounted for a third on Africa’s post-2000 growth. The McKinsey Quarterly Report on growth in sub-Saharan attributed much of the growth to “wholesale and retail, transportation, telecommunications, and manufacturing.” Each of these sectors has multi-national champions operating in South Africa and thus offers opportunities to well qualified South African suppliers.

To achieve the scale necessary to successfully navigate the tendering process suppliers will most likely need to increase their capacity and manage cash flow with their suppliers. Consider partnering with other service providers. Smart partnerships can reduce costs while boosting production capacity.

These partnerships might occur between similar organizations (two vineyards offer a joint set to be sold in a multinational supermarket chain), or two diverse organizations (a craft maker and a parts manufacturer share warehouse space). Of course suppliers can also achieve viable scale by developing a detailed, cost effective sub-contracting plan that includes adequate quality controls. These sub-contractors will also benefit from integrating into a multi-national supply chain and therefore should bend over backwards to perform well as third tier suppliers. Partnering and integrating into supplier chains isn’t as sexy as having your own brand on the shelves, but it is another way to reach new customers all over the globe.