ASTUTE REGIONAL BUSINESS EXPANSION

Africa is a frontier market and has attracted a lot of global attention in this decade. Kenya is East Africa’s largest economy and is receiving a lot of attention from foreign investors as is the rest of the region.  Perhaps this new trend could create opportunity for your business to expand. A lot of businesses are undertaking a continental and regional expansion. Recently, a number of large businesses from South Africa and Nigeria, Africa’s leading economies are setting up in Kenya.  It is now easier to undertake a continental expansion than it was a few decades ago when the political and regulatory environment in Africa was hostile.

 

This is a simple guideline on what you need to look out for if you decide to expand your business geographically to other African countries. You could still opt to expand by forming an alliance or distributorship agreements. Expert advice of a financial analyst, lawyer and other experts will of course be required to give more detailed advice on how to go about a specific expansion.

Before you can expand regionally, it is important to have an expansion plan which sets out the reason you would like to expand your business. There are many reasons why businesses expand. Some reasons could include a hostile domestic market, taking advantage of opportunities in foreign markets, growth and stagnation in domestic market and brand visibility. If the goals and objectives of the expansion are sound then it is easier to determine which countries would be most ideal for expansion.

 

Once you identify potential host countries then you need to undertake a proper market research and also a detailed due diligence on the selected countries.  The following analysis is very important in undertaking this research. One you should understand the host country’s political environment and also analyze its policy towards foreign businesses. While you would rarely find a country legislating against foreigners, the attitude of the country towards foreign nationals ought to be considered. There are countries whose general culture is hostile and xenophobic against foreigners. Last week, the Government of South Sudan expelled foreign workers therefore affecting many foreign businesses that had invested in South Sudan. Therefore you should also analyze the risk of doing business in a selected host. The risk could be political, cultural, competition and regulatory. If the risk outweighs the benefits then it might be safer to avoid such a host altogether. Some countries have a lot of insecurity and this could pose a real risk for your business.

 

When doing a legal analysis of the selected host, you need to firstly understand its Constitution. Almost every country has a Constitution and most constitutions are the supreme law of the land. You must also understand the laws on the sector of business you intend to enter into and ensure that your business is able to meet these requirements before venturing out. It is important to analyze the ease of business formation in the host country and what the host’s policies are in terms of foreign companies. For example what is the cost of doing business, what is the tax payable and what other liabilities will your business face as a foreign entity.

 

The issue of work permits and immigration has to be met before you can physically establish presence in the host, otherwise your foreign employees risk being imprisoned. There are many more legal issues to analyze before expanding and your lawyer can advise of this.

 

Regionally, it has become easier to do business due to a number of regional treaties that provide for cost reduction and harmonization of business procedures. For example, the ARIPO treaty enables your business secure some types of intellectual property in member states by originating a Kenyan filing.  The Ministry of Trade should be a good resource on the treaties on trade and commerce.

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