It is widely accepted that the SME opportunity is very large across Africa, despite the inherent difficulty in quantifying it. While it is doubtless worth pursuing said prospect with a focused approach and tailored strategy, very few players seem to have found the way to successfully serve this complex segment to date.
Several key pitfalls specific to the reality of ICT solutions and services, and SMEs in the emerging markets in Africa, position SMEs as an untapped segment with vast elbow room for players who come up with innovative offerings and bundles to gain traction and capture a significant share of this latent demand. Pitfalls such as the existence of an unregistered informal segment; and the tendency to provide one-size-fits-all value propositions still need to be overcome.
In this whitepaper, we discuss the broad topic of the “SME opportunity in Africa”. In addition to highlighting the key drivers of adoption of ICT services, Delta Partners’ understanding of the main pitfalls that are preventing a faster adoption of these services in Africa are presented along with different potential strategies and considerations around their suitability, concluding with Delta Partners’ view on the challenges ahead, and proposing, based on Delta Partners’ extensive experience across emerging markets, potential measures that might be considered to overcome these challenges.
“The opportunity” is real… but uncertain
The much-vaunted, so-called “SME opportunity” is undeniably real (see Exhibit 1). The size of the formal SME segment is quite substantial. Despite discrepancies among sources1, a general consensus exists about the significance of this segment. On the other hand, the informal segment2, although always highly uncertain in size and composition, is estimated to be even larger in most of the cases. For instance, in Nigeria and South Africa, the informal segment is estimated to account for 73% and 59% of the total SME segment respectively.
Even if the number of formal and informal SMEs remains relatively stable in the next years3, the overall level of adoption and assimilation of ICT services within all sub-groups is expected to skyrocket (see Exhibit 2). Most of the ICT revenues today in the SME segment still come from communication services, while adoption of cloud services in particular is expected to grow the most in the mid-term.
Moreover, total ICT expenditure by all players, including SMEs, is expected to increase hand in hand with economic growth in Africa, as has happened consistently in the recent past (see exhibit 3). The total B2B ICT market for telecom operators in Africa could easily surpass the USD 60 Billion by 2016, being the expansion of telecom operators into new areas of ICT and the growth in adoption and assimilation of ICT services by SMEs two key drivers.
The opportunity, though, might not be equally interesting for all types of players. Given essential differences in terms of level of sophistication of the offering, nature of the client base, and internal capabilities, the opportunity for an incumbent might significantly differ from that of a challenger.
On the other hand, if the right strategy is not implemented, the CSP could end up triggering cannibalisation within certain sub-groups, while a strong, end-to-end ICT offering might act as a powerful “tool” to increase loyalty and retention levels, and minimise churn.
Drivers of adoption of ICT by SMEs in emerging markets
To be able to effectively target SMEs, it is key to understand what makes them, and will make them, adopt ICT services today and in the mid-term future.
A solid core ICT value proposition
Among all factors, the existence of a solid core ICT value proposition through which one is able to optimally fulfil the end-user needs within this segment, complemented as much as possible by additional comprehensive services that offer a one-stop-shop scheme, seems to be the most critical so far. The most successful value propositions today are those with an attractive set of core communication services covering voice (including Closed User Groups, tiered pricing plans, VoIP, low international calling tariffs) and data (including, for example, shared bundles, and zero- rating for certain traffic flows such as those generated by business SaaS applications).
Other ICT services, such as those that form a basic, cloud offering (see
Exhibit 4) that is easily understood by the customers, might act as a catalyst for a “leap frog” effect that could speed up the assimilation of more advanced ICT services, complementing the core offering with a set of cloud/network-centric ICT solutions able to further drive cost savings.
Although SMEs might be willing to pay a premium for convenience and reliability, affordability is a key decision factor (the smaller and/or the more informal the SME is, the more important and decisive affordability is).
Initiatives supporting the SME segment
The existence of local, regional, and global public (see Exhibit 5) and private initiatives supporting the development of the SME segment is also a factor that has historically fostered the development of SMEs.
Governments have often significantly contributed to a faster development of SMEs through programmes of very different nature, ranging from training and mentoring, to offering different subsidies for the acquisition of ICT equipment, or the contracting of specialised ICT services. Other broader initiatives (e.g. “Broadband National Plans”), and specific policy environments (e.g. existence of tax rebates linked to R&D), also contribute to this development directly and/or indirectly.
On the other hand, many private companies, most commonly CSPs and Internet companies, have also led (and are currently leading) efforts to speed up the degree of sophistication of SMEs when it comes to ICT assimilation. Some well-known examples of such initiatives launched by private companies are those of Google, or initiatives such as the SME Evolution Program4 currently running in many MEA countries.
education, education, education
Low digital literacy, a traditional constraint for the digitisation of SMEs in Africa, is being tackled proactively by both public and private players, contributing to the expected boost in ICT adoptions in the segment.
It is imperative to keep educating SMEs around ICT and the advantages of adopting, and assimilating, different ICT services. It is very important to increase SMEs’ awareness of the positive effects of jumping on the ICT bandwagon, not only to reduce costs, but also to foster growth.
An increasing degree of confidence in technology in general tends to significantly contribute to higher adoption as a result of lower reluctance and/or fear of adopting new technologies.
Key pitfalls to be overcome
Unfortunately, emerging markets present particular pitfalls of a very diverse nature, and are not always easily overcome by the CSPs.
Lack of adequate fixed infrastructur
High-capacity, low-latency, reliable fixed infrastructure is only available (and not always) in main cities and towns, requiring the smart rollout of fixed, and alternative mobile technologies, to formal and informal SMEs in both urban and rural areas.
The unregistered informal segment
The informal segment very frequently comprises prepaid consumers who require alternative registration methods to be accurately identified as an SME. There is a lack of proper, reliable information from international and local sources documenting the SME segment in general, and even less when it comes to the informal segment. Also, few adequate mechanisms exist to control this segment.
To overcome this problem, some CSPs are trying to directly expand their knowledge of the formal and informal SME segment themselves through the launch of different initiatives such as the creation of special portals through which formal and informal SMEs can register in order to access certain benefits.
Tendency to develop one-size-fits-all value propositions
In a 95% consumer environment, the mass of SMEs, registered and informal, is served with sub-optimal consumer value propositions that need to evolve to assume an increased presence of ICT. The same value propositions used to target the residential or enterprise segments are often used to target SMEs, and very few CSPs have offerings specifically designed for the SME segment (see Exhibit 6).
On the other hand, insufficient management focus on the SME segment (e.g. with management teams absorbed by the “problems” and challenges linked to the historically more profitable segments) is one of the major reasons why these value propositions do not evolve in the right direction and do not attract incremental SME revenues. However, it is not clear to what extent dedicated resources need to be allocated to the SME segment.
Benefiting from the SME opportunity
In order to benefit from the SME opportunity, CSPs need to define specific strategies, and put in place a set of specific measures, to overcome the key challenges ahead.
Getting to know the SME segment better
Getting to know both the formal and informal SME segments better by conducting ad-hoc studies as needed (e.g. to complement available public information, to be able to micro-map SME revenue pools per segment and geographic area) and implementing the required platforms (e.g. registration portals) among other initiatives.
Especially critical is to better understand who has control over ICT and/or is the decision maker in this regard in each category of SMEs, and the real needs of local SMEs. CSPs should never assume that “1 size fits all”. SMEs are not, and do not want, the same as enterprises or residential customers (see Exhibit 7).
Choosing the right go-to-market approach
The ICT landscape is very often crowded with global, regional, and local players expanding along the value chain to capture new sources of revenues. CSPs should carefully evaluate, and select, which partnerships should be pursued to better target and serve SMEs in a highly dynamic, highly competitive, and highly fragmented space.
In general, there is a lack of channels that allow CSPs in emerging markets to reach SMEs in an effective manner. However, this constitutes as well an advantage for CSPs, since they are well positioned to be the ones to successfully develop these channels, and therefore are in a position that allows them to add value to SMEs.
The recent launch of dedicated
platforms (see Exhibit 8 for an example) that aggregate multiple cloud applications5 to speed up time-to-market, and try to boost mass adoption of cloud ICT services, is a good example of CSP’s attempt to innovate on this front.
CSPs should also decide to what extent to rely on direct channels versus indirect channels, and the right balance to be implemented, and thoroughly think how to leverage the strengths of a set of partners.
It could also be interesting to think how PoS systems and the core CRM system could be combined for an optimised, holistic go-to-market strategy. Another innovative go-to-market approach that a CSP could think of following would be the launch of an MVNO 100% focused on the SME segment, to become the “brand of choice” within this segment.
Last but not least, channels need to factor the organisational limitations within the SME into their go-to-market approaches. SMEs often find it difficult to attract and retain skilled staff, often do not have a coherent ICT strategy in place, and are very frequently unable to evolve and adapt to new, more-efficient operational models enabled by the ICT solutions deployed.
Getting the basics right
CSPs should focus first on getting the basics right before starting to expand the offering with a suite of ICT solutions that better address the needs of SMEs of different sectors.
Focus should be first on strengthening the core offering and bundles (voice and data), and leveraging core capabilities (e.g. connectivity, infrastructure) and knowhow to develop a basic value proposition through which optimally fulfil the needs of SMEs. Then, the value proposition should be complemented, and gradually expanded, with intuitive, more-advanced cloud solutions that do not require high availabilities and/or extremely low latencies. CSPs should then put special focus on those cloud solutions closer to their core strengths and on developing others through partnerships instead. CSP should also think of verticalisation to maximise value provided for, and impact generated to, larger SMEs in concrete high-volume/high-potential sectors^6.
CSPs should not neglect devices (e.g. tablets, laptops, PCs), which often play a critical role in the adoption and assimilation of ICT services, and which should constitute an integral part of the overall value proposition. B2B2C is also another area in which significant effort should be placed, and provide solutions to an SME that enable it to better serve its customers and/or to offer its customers new P&S that foster its growth.
When developing the ICT value proposition for SMEs, attributes such as simplicity, clarity, agility, and cost-effectiveness should be kept in mind at all times and at all levels7. And CSPs should drive migration from “consumer” to official “SME lines” in a smart way, minimising cannibalisation and maximizing ARPU upside.
The following exhibit (see Exhibit 9) shows some of the most interesting ICT elements that are being offered in the region by some leading players:
Delivering the customer experience demanded by SMEs
More and more, SMEs expect CSPs to deliver an end-to-end, excellent “SME customer experience”. To start with, this requires that CSPs adjust (and create when needed) key business processes to better serve SMEs.
Developing trust, and delivering on the promise of effectively supporting SMEs, is also crucial in the hope that SMEs will ultimately rely on CSPs to satisfy their mission-critical needs, and more importantly, to try to convince SMEs to churn and leave the CSP they have always been loyal to. But it all should be done profitably^8.
Some measures implemented to offer a better attention to this segment include offering a special call centre number to deal with SME requests with high priority, setting up special service counters in own shops, and conducting strong tracking of key metrics and a more-strict escalation of incidences as required.
Having the required internal capabilities in place
Building, developing, and strengthening the internal capabilities required to properly serve SMEs is commonly an area in which CSPs do not pay the required attention. We can differentiate between two broad categories: human capabilities and technical capabilities.
CSPs need to expand their human capabilities by incorporating qualified resources, and attracting the required knowhow on certain key roles such as Product Management. CSPs should also strengthen their internal market research capabilities, and internal knowledge around ICT and the latest trends in the ICT industry. Delivering a series of customised training sessions might be required to address the different gaps identified. From a technical point of view, CSPs should understand whether or not their B/OSS stacks are agile enough to support the new requirements, and whether or not the required infrastructure to offer the desired ICT services is already in place.
Last, but no least, CSPs should be able to build and evolve these capabilities in an effective manner, and fast enough to cope with the dynamism of the sector. Developing an internal, special “SME Programme” might speed up the company’s overall efforts to get operationally ready to deliver the desired customer experience to this segment.
Boosting awareness of the benefits of ICT
As discussed in the previous chapters, successfully boosting the awareness of the benefits of different ICT services and solutions is a key success factor. It is necessary to educate the market on a continued basis, focusing on the business benefits of adopting ICT.
CSPs should take SMEs along the path of adoption and assimilation of ICT solutions, and even think about the possibility of bundling training with the different ICT solutions offered; training not only about the specific solution being acquired, but also about other ICT solutions that might be of the interest of the SME.
It is worth it for CSPs in Africa to target SMEs, but only if a holistic, tailor-made strategy is designed to overcome the challenges highlighted, and carefully implemented to excel in all and each of the critical areas identified in this whitepaper.
Delta Partners is very well positioned to help CSPs on this topic. The company has worked on over 15+ advisory engagements in the past year in the B2B space alone, advising CSPs on building or transforming their B2B mobile and/or fixed-line business, and assisting operators in the end-to-end definition of their ICT strategy or in specific areas in the ICT space.
These engagements cover activities such as defining the best competitive positioning; setting up a new B2B unit to take end-to-end control of business clients’ lifecycle; identifying new ICT opportunities through a bottom-up market sizing exercise and assessment; analysing the existing SME customer base across value segments, products and location; building an SME customer level data mart to understand churn, as well as upsell and growth opportunities; identification of potential acquisition targets; and devising proof-of-concepts to validate different innovative approaches.
Is your company ready to effectively benefit from the SME opportunity in your market?