Firas Marafie is the senior partnerships lead at what3words
The Middle East: the quick buck, the pot of gold, or is it?
With venture investment increasing over the past couple of years, and with 2020 culminating in a record $654 million pouring into startups, the Middle East and North Africa (Mena) ecosystem is showing signs of promise.
And while watching from afar, the temptation to just “jump in” is there, it’s wise to first do the right homework.
For those looking to enter or expand to the Mena region, what are the things you want to consider when planning your market entry?
Ticket sizes vs. volumes
Companies can make this mistake when they’re planning out their Mena strategy. Their interest is anchored by the general perception of availability of wealth and “large deals”. And because of this, the Mena newcomer might also expect a highly active merger and acquisition market.
So what are some of the misconceptions that could arise here? Many of these “large deals” might have originated by a disproportionately small number of groups. Therefore, if you aren’t able to break into such networks, then your Mena motivation risks being misguided.
What any company will want to look for as a market entry strategy is a local base of potential users, businesses, and partners. The promising news is that we are seeing this emerge in the larger volumes in markets such as Saudi Arabia and Egypt, with more of the same expected to occur, especially in North Africa, where population sizes are larger.
Time to set up
A fundamental question to consider when entering any market is how to enter; more importantly, what is the most effective way to enter?
The basic questions you might ask are:
What do I need to get set up legally?
How much time can I expect this to take?
In the time it takes to do this, would my market opportunity have changed? (Relevant to fast growing markets, where speed is an advantage).
How might you explore this? Although strict requirements around local ownership laws are softening in some markets, you might want to test the waters before you jump in. If you’re a software business, you have the advantage of being able to provide your product without the need for physical consultation or inventory.
Otherwise, you can look to licence your product or intellectual property. This opens up several forms of opportunity such as a partnership with a local player that is already plugged into the industry and infrastructure. The local partner might benefit from your product or technology, making it valuable for them to act as your distributor or enabler.
For you, this is a way to test the appetite for your product on a local business platform, minimising your risk and cost while benefiting from set-up speed, and an ability to execute more quickly. It’s also a quick way to learn and get local feedback on your product. Though some complications can arise if sales and training are not adequate, having a partner who understands how to communicate and implement your product is key.
Where to enter
Going back to an earlier point, does your business need volumes or select clients? This will impact the countries you might start in or pursue at all.
If you’re in enterprise sales, your main goal might be to sell to governments and the largest corporations. And therefore, with fewer prospects, trying to nail the exact market might not matter as much as breaking into one to establish your foothold. This type of targeting is very different from a business offering a consumer product that requires volumes (large population) to succeed. For the latter, you might choose to target Saudi Arabia or Egypt specifically.
Alongside this, you’ll also want to consider the subcultures and behaviours that exist in each market. Mena is bucketed together as one region with a common language, but tech literacy, demographics, cultural behaviours, stages of market development, and even colloquial language (due to dialect) can vary greatly. Markets have their own idiosyncrasies.
Lastly, obtaining accurate and up-to-date information has traditionally been a challenge in the region. Though this is improving a lot as the nature of interacting and transacting shifts to digital and online products, making data more transparent and accessible. Also, the emergence of platforms such as Wamda and MAGNiTT has helped map the landscape of markets, investors, and startups, bringing detail and insights that were not easily available before.
Approaching your customer
If you’re a consumer tech business, you have the luxury of testing receptivity from overseas; the digital nature of marketing and product usage makes this simple. This can help you gather local and qualitative feedback that might not be apparent when you’re doing your research and putting together a standard business case.
As for your bigger ticket Enterprise Sales, these might take more time and require your physical presence, given the more traditional nature of clients in this sector.
For corporate prospects, many companies might be branches or subsidiaries of foreign multinationals, meaning the decision making does not actually happen in the Mena office. You’ll definitely want to know ahead of time if this is the case in your segment; do this research before you attempt to expand (and save yourself a lot of time!).
Truly understand the local customer; they might have different needs and expectations from your product. And if you don’t serve those needs, you won’t succeed.
This goes back to understanding your barriers to entry. A key lesson that new entrants sometimes underestimate: what made you successful in other markets might not make you successful across Mena. That’s why it’s crucial to listen and adjust to the feedback you get.
It’s also important to know what forms of local substitutes to your product exist. This might not always be as easy to discover beforehand, but qualitative research and surveying can come in handy. These may be products and services that work as substitutes in the mind of the local consumer, or because of the local infrastructure. You must try to understand how the local consumer thinks and how they are inclined to behave rather than trying to force-fit your product onto them.
What are the questions a user asks when they are going through your solution, and what are the other interconnected problems that your product might not be solving?
Navigating the landscape
In a market where access and authority are still quite centralised, it’s useful to know who you can partner with and who you’re competing with. For example, if you are competing with a government product, this can be risky as it may restrict your prospects or prevent you from entering that space at all.
Though there is another side to this coin. Many governments run generous programmes to attract companies and talent with innovative technologies and ideas, much of this is to develop an ecosystem and healthy competition. This presents opportunities to plug in: innovation mandates, accelerator programmes, and corporate partnerships.
Investment may also be part of your plan. While many spend a lot of time thinking and strategising around the sovereign wealth funds, there is an investor ecosystem of development banks, corporate innovation arms, and family offices looking to deploy capital.
With a gross domestic product (GDP) contribution of 60 per cent and a workforce contribution of 80 per cent, family offices can be great partners, especially if you are seen as a strategic fit for their operations.
The catch here is that these opportunities and relationships take time to build. And this ties back to the important question of your commitment and time horizon for being in the market; you will get tested on this from all angles.
The culture in Mena is very relationship oriented. The approach to business is not transactional, and generally speaking, there is little urgency. People want to get to know you, and with so much growth and novelty hitting the market, there are many options to choose from.
Survival and continuity
Surviving means that you need to be in it for the long term as things will take time. There can be a perception of false promise, but we think this comes from a culture of “not saying no”, and so the savvy entrant will develop a sense for which opportunities are real and which are not.
Lastly: understand and localise. As mentioned, despite being in a geographic cluster, each market has its own idiosyncrasies. And while this point may seem obvious, the key message is that success in one market does not guarantee success in another. For example, you might succeed in Dubai with a product that is not localised for Arabic; whereas you may not be able to do the same in Saudi Arabia, if you plan to go mass.
So, you’re expanding to the Middle East you say?