A successful relationship with a government goes beyond tit-for-tat. This reciprocity is not collaboration and quickly devolves into a mere balancing of accounts. A productive relationship with frontier market governments is built by pursuing common goals, holding each other accountable. Jeff Immelt of General Electric discovered that this collaborative approach addressed many of the drawbacks that make companies hesitate to enter these high-growth markets. For him, this relationship with the government is central:

“If we see opportunities in a country, and it’s worth the effort, we’ll want to invest. And truly, if we see that the government is on board, and the people who can be agents of change are stakeholders, then we say, ‘Okay, we’re ready. Let’s go.’ But it’s a game that takes two.”

Jay Ireland explains how the collaborative relationship plays out in this dialogue process between company and country at General Electric:

“Part of the difficulty is that everyone has to be held accountable. At the top of the pyramid, the government controls the environment that allows businesses to thrive, so if our supply chain is to create jobs, it needs this supportive environment. Then, at the project level, the government must grant land, permits, etc. Part of the discussion is to determine who your counterpart is, and that takes a lot of time. You have to be sure that the people attending the meeting have the power to move things forward, and there must be measurable progress on both sides.”

I work with a large international company ranked in the Fortune 200, which maintains a successful relationship with the government of the African country where it operates, despite fierce competition for a limited-term patent. Whenever the company and the government agree on a project, they define obligations and progress indicators on both sides. The relationship is driven by a joint permanent structure with very clear responsibilities. It didn’t start out this way, and it took more than a year for both parties to embrace the idea that how they fulfilled their obligations would either advance or halt the project. Today, it’s taken for granted.

Across Africa, SABMiller is seeking to increase the share of local ingredients in its products to create more local jobs. If the relationship were reciprocal, based on a “you scratch my back, I’ll scratch yours” approach, the project would likely fall through. Graham Mackay describes the collaborative relationship he needs with the government to optimize this effect:

“Beer is different from other alcohols. It’s a very strong multiplier of local jobs because of the volume of agricultural raw materials needed and the dispersion of the distribution network. But the bulk of the beer price is made up of taxes, and the most cost-effective way to control costs is by importing in bulk. So, in order to create this multiplier effect of jobs within the country, we asked the government to reduce taxes on local products, making it profitable to source locally.”

Collaboration also allows companies to introduce the government to market dynamics that affect the project. Due to the historic political sympathies on the left in many African countries, many government officials have little understanding of market economics. Graham Mackay has occasionally encountered this, and collaboration has been helpful:

“Governments are reluctant to believe in price elasticity. They assume that we are just passively collecting taxes, so they think it doesn’t matter to us whether the tax is higher or lower. Except, in terms of price, it does make a difference. These are debates and demonstrations that take time.” (…)

This text is an excerpt from the book “These Businesses That Succeed In Africa” written by Jonathan Berman.

We invite you to read the following article “WHY ARE THE CHINESE WINNING?

Comments (0)

Leave a Reply

Your email address will not be published. Required fields are marked *