Faculty Profiles
Africa Rising
Mahajan Finds Thriving Markets, Vast Business Opportunities and Optimistic Consumers Throughout Continent
In his previous book, the award-winning “The 86 Percent Solution,” Vijay Mahajan gave readers a look at the market potential in developing countries—where 86 percent of the world’s population lives. This includes all of Africa, but Mahajan focused mainly on the emerging economies in Latin America, Asia and the Middle East. “Like many people living in the developed world, I saw Africa as more of a charity case than a market opportunity,” says Mahajan, a marketing professor.
To set the record straight, he embarked on a journey across Africa, traveling thousands of miles and listening to hundreds of stories from business leaders, entrepreneurs and consumers over the course of three years.
“What I found was that Africa is a place of extraordinary complexity, wealth and creativity,” Mahajan says. “Whatever its challenges—and there are many, from diseases such as AIDS and malaria to corruption to all-out war to the current global recession—the signs of Africa’s promising future were everywhere.”
The trip is captured in Mahajan’s new book, “Africa Rising: How 900 Million African Consumers Offer More Than You Think” (Wharton School Publishing).
In the book, Mahajan makes his case for Africa as a compelling business opportunity in many ways. He begins by detailing the economic data. Few know that Africa’s economic strength is greater than India’s, which has a comparable population.
“Africa has some of the poorest nations in the world, but it is wealthier across the continent than India,” Mahajan says. If Africa were a single country, it would have had $978 billion in total gross national income in 2006, Mahajan says. This places it ahead of Brazil, Russia and India—and 12 countries in Africa are wealthier than China in per capita income.
From there, Mahajan breaks down the African market into three segments—Africa One, the small minority of people with incomes similar to top-earners in the West; Africa Two, the vast middle class; and Africa Three, the underclass whose members are striving to reach Africa Two.
Mahajan focuses on Africa Two and argues that the sheer size of this market means it will be the driver of consumer spending in the future. This is the segment businesses should target, Mahajan says, though he also spends time discussing opportunities in both the highly competitive upper-class market of Africa One and the poor populations of Africa Three.
“In Africa Two, we are talking about 300 to 500 million people,” Mahajan says. “They may not be rich, but collectively they have immense buying power.” This group includes teachers or nurses, people who work in tourism, the hospitality industry or the service sector, he says.
Mahajan also emphasizes the impact the youth market in Africa will have on the continent’s economic trajectory. As populations in Europe and America decline with decreasing birth rates, Africa’s will continue to grow—and grow younger. An astounding 41 percent of Africa’s population is under the age of 15, and they are quickly becoming better educated and globally savvy.
Africa’s youth is extremely optimistic, Mahajan says. They are known as “cheetahs” and have no recollection of the colonial past experienced by older generations, the “hippos.”
“The sky is the limit for the cheetahs,” Mahajan says. “Everywhere you go you see the desire to do well and the desire to move up. Opportunities abound for businesses to build connections with this huge market.”
The African Diaspora also has a role to play in Africa’s economy, Mahajan says. The total disbursed population is estimated at around 100 million people. Unlike past generations that might have left the continent altogether and never looked back, today’s Diaspora remains engaged. They are instrumental in the African economy, sending money home to families, making investments and contributing to charitable causes.
Eric Hirst, associate dean for graduate programs at McCombs, uses the book in his Global Connections South Africa class, a half-semester course that culminates in a two-week trip to the country to visit businesses and learn about the culture first hand.
“Mahajan sets a very positive tone for thinking about opportunities in Africa,” Hirst says. “The discussion of Africa One, Two and Three was especially helpful. Each has unique needs and desires. Each has an African viewpoint that colors their world. Companies looking to grow their businesses in Africa are well-served knowing more about those groups.”
As Mahajan was writing the book, he often conversed with Florence Atiase, an accounting lecturer at McCombs who is from Ghana.
“Mahajan tells a story that we don’t hear much about in terms of development in Africa,” Atiase says. “He also makes this point very clearly that it is very difficult to speak of Africa as one, but that there is a trend of market growth and local entrepreneurship.”
The book contains hundreds of stories—from anecdotes about the local buying habits of everyday consumers to meetings with influential business leaders such as Mo Ibrahim, the founder of the telecommunications company Celtel.
Ibrahim told Mahajan, “Yes, we have all of these problems, but Africa is a very big place. There are 53 countries, and maybe there are severe problems in just four or five countries.”
Ibrahim also said that despite the West’s often bleak media coverage of Africa, the reality isn’t that bad from a business standpoint. “When there is a gap between reality and perception, there is good business to be made,” he noted.
The bottom line is that Africa will soon have a billion consumers, Mahajan says. “And just like consumers in other developing countries, they want the best for their children, better than what they had,” he says. “They need food, clothing, soap and shelter, and they desire cell phones, medicine, cosmetics, music, television, toys, computers and movies. While there are challenges, entrepreneurs and business leaders are finding opportunities in almost every industry and every country across the continent.”
beijing journal
For China, Olympics Just the Beginning
by John Doggett
My wife, Haiping “Patty” Tang, MBA ’00, and I went to Beijing for the Olympic Games. Because Haiping is from China, I was lucky enough to experience the Olympics with Chinese family and friends. It was an exceptional experience, and the atmosphere in Beijing was absolutely electric.
We were also in China in 2001 when Beijing was awarded the Games. None of our friends thought Beijing would win, and the city was in a dour mood. When the announcement was made, you could feel China’s psyche instantly transformed. In addition to winning the Olympic bid, China would also join the World Trade Organization in December 2001. The Chinese believed that these events marked their country’s rightful return to the center of the world stage.
The Chinese are well on their way to becoming a global economic powerhouse, and they have the discipline to make it happen. The Olympics were a part of that goal. Many criticized the Chinese government for spending so much on the Games—$65 billion—an outlay five times the amount Greece spent on the 2004 Athens Games. Critics argued that it was an obscene amount for a “poor” country like China to spend on an event that lasts only two weeks.
But the Chinese government viewed it as a good business investment. And since they had more than $1.8 trillion in foreign exchange reserves, $65 billion amounted to a rounding error. The Olympics were a part of China’s marketing plan—a global branding effort meant to pay dividends long after the Games ended.
Beyond the public face the Games offered, the preparation transformed Beijing’s infrastructure. They created new subway lines. They built a bullet train that connected Tianjin, a city of 11 million people, with Beijing. They constructed new office buildings, condos, hotels, parks, streets—in addition to all of the sports venues.
The government was targeting three distinct audiences with the Olympics. The first audience was the Chinese people themselves. The message was simple: You should be proud of your country, its past and its future. The second target was the West.They wanted to shock and awe the West and show them a modern China that wasn’t backward or repressed.
The final, and perhaps the most important, target audience was the Third World. This is an area that some in the West forget about when discussing China’s rise. China has significantly expanded its trade and political ties with Africa, Latin America and the rest of Asia. The message to them was clear: Let’s work together. You no longer have to put up with the arrogance of the Americans, Europeans and Russians. You can get all you need from China.
The actual sporting events were also a part of the marketing plan. After China was given the Olympics, the government identified sports that were “low-hanging fruit” for winning gold medals. These were sports where the global talent pool wasn’t deep, such as weightlifting, judo and fencing. They selected candidates, trained and supported them and timed their development to peak in August 2008. China wanted to win more gold medals than America. China won only five gold medals in Seoul in 1988. When the Beijing Games ended, China won 51 gold medals, and America won 36. Thirty-one of China’s gold medals came from these “minor” sports, and 60 percent of those gold medals were won by female athletes. This didn’t happen by accident.
As the Games unfolded, China was transfixed. One of my taxicab drivers—believe it or not—listened to table tennis and diving on the radio. All over China, they tuned every television to the Olympics. In every major park, they beamed the Olympics onto large screens, or even the sides of buildings. We were fortunate to see women’s soccer, men’s volleyball, baseball and track and field. Each venue was world class, and security—although pervasive—was very efficient and very organized.
Going in, I was worried the air would be dirty. I’ve been in Beijing when the sand is blowing in from the desert, the smog is worse than Los Angeles and Houston combined, and you can actually feel the air with your hand. However, during the Olympics, the air was remarkably clean. It may have looked pretty hazy during the first few days, but it wasn’t smog or pollution. All they had to do was temporarily close more than 400 factories, send all migrant workers home, force 50 percent of the cars to stay home each day and a few other things that only the Chinese government can do.
I tell business students at McCombs that they need to learn as much as they can about China. In their lifetimes, China could become the number one economy in the world. Since I started taking full-time MBA students to China as part of the McCombs Global Connections program in 2003, China’s economy has expanded enormously, and Chinese businesses are markedly more sophisticated in a mere six years. No other country is erecting as many new buildings as China—and many of their new skyscrapers are architectural marvels. When our students return to UT, Austin seems like a sleepy ghost town in comparison.
The Olympics are now only a memory, and the world is struggling with an economic crisis of historic scale. For a while, many Chinese thought they would be immune to the contagion that is devastating the economies of so many countries. It is now clear that China won’t be spared. Nevertheless, China’s investment in the Olympics will pay off for years to come. The transformation of China that the Olympics helped ignite has forever changed how the world views China.
John Doggett, senior lecturer in management, travels to China frequently. Since 2003, he has returned annually with full-time MBA students as part of the McCombs Global Connections program, which exposes students to business and culture throughout the world. The China program begins with six weeks of pre-trip lectures on the cultural, economic and political background of doing business there. The two-week trip itself includes company visits, meetings with alumni and a consulting project for a private or public corporation doing business or wanting to do business in China.
