Is the South African market too small?

Wouldn't it be far better to pursue a future strategy aiming to have a tiny slice of a massive UK market than to have a monopoly in South Africa?

Is the South African market too small?
Photo by Devon Janse van Rensburg / Unsplash

Technology is making the constraint of geography less of an important factor for entrepreneurs.

Obviously it depends on what you sell, but for many technology-orientated businesses, whether you are sitting in East London in England, or East London in the Eastern Cape it makes no difference as to the potential market you could possibly be serving.

The problem with South Africa

South Africa as a total marketplace is quite big, but South Africa as a marketplace of people who have access to a healthy disposable income is tiny.

In fact, the market of people who have a monthly income that is vaguely comparable to the general population in more advanced economies like the US or UK is at the very most 120 000 people out of a total population of 55 million.

That's only 0.2% of the entire population.

Here's how that translates into economic value:

In the United Kingdom, the amount of money that gets spent just on alcoholic drinks (wine, beer, spirits) in that market in one year, is the same as the amount of turnover South Africa's entire retail sector records for a year - just over R1 trillion.

So if the world is actually your oyster and based the fact that the viable SA market is so small, is there any value in focusing your efforts on serving an exclusively South Africa market?

Wouldn't it be far better to pursue a future strategy aiming to have a tiny slice of a massive UK market than to have a monopoly in South Africa?

Well obviously; and if only things were so simple.

The problems with bigger markets

It would be fantastic if pitching your wares to more advanced marketplaces yielded immediate results like the drawing on the paper promises.

Sadly there are quite a few obstacles blocking the way (just go ask the now ex-CEO of Woolworths about how well their expansion into Australia went; or speak to Truworths or Famous Brands about taking their strategic focus to the UK):

  • Competition is much fiercer in developed markets;
  • nobody knows who you are over there and there are a million other eager entrepreneurs who are far smarter and much better networked than you wanting to start the exact same thing as you;
  • if you are using Rands to build a Pound / Dollar / Euro-asset - you've got serious problems;
  • you don't know the market and probably need to physically be over there to set yourself up properly;
  • things tend to move very slowly in other parts of the world;
  • regulation in developed markets is far stricter than what it is in South Africa;
  • the overall cost of doing business in other markets is crazy and practically prohibitive.

In summary, the complexities of going after bigger markets can easily outweigh the apparent benefits that they appear to offer.

It's obviously not impossible, but it will certainly require a strategy and plan of action that takes these numerous complexities into account.

It's vital to do extensive scenario planning and to do not just the usual scenarios, but to really explore multiple future states and wildcards.

Before you go and spend millions and millions to learn some hard lessons, rather spend the money on building detailed scenarios beforehand (I promise you that it'll be far cheaper and won't cost you your business).

The process of building a business in South Africa then will be very different to the process of building a business in a bigger market and because of that it requires a different mindset to the one that is needed to be successful at home.

Mindset balance

This is where a delicate balance comes in.

It's important to keep that useful 'boer maak 'n plan' attitude as an entrepreneur from way down South, but that can-do spirit needs to be balanced with a measured appreciation of the rules and new culture of a foreign marketplace.

Get the mindset balance right and you have a formidable combination of innovative resourcefulness and regulatory box-ticking that few would be able to replicate, but don't for a second think that this tightrope walk is easy.

We are very much spoilt in South Africa when it comes to doing business (believe it or not) - it's important to mentally break out of that bubble if chasing the riches of bigger, more sophisticated markets is to be successful.