Transnational Marketing Volume: 2, No: 1, pp.

39 - 59
Journal ISSN: 2041-4684 & e-ISSN: 2041-4692
Article history: Received 26 Feb. 2014; accepted 18 July 2014

Sustainable distribution in SUBRAT SARANGI

emerging markets – African SANJAY PATRO
perspective RAVI SHEKHAR KUMAR

Abstract
The paper focuses on studying the impediments for new entrants into emerg-
ing markets from a perspective of the African economies and proposes a con-
ceptual framework for a sustainable distribution system. While there is a lot of
research on emerging economies, African markets have remained relatively un-
touched, even more so from the distribution perspective. Furthermore, the
speed at which business transformations are happening in these markets, re-
quires academic research to keep pace with such changes. The paper proposes
four broad impediments to distribution and a set of sub-dimensions - i.e. polit-
ical and security, cultural, ethnic and economic diversity, infrastructural gaps,
channel structures and governance, to name a few. The proposed conceptual
framework defines the strategic interventions, namely, connecting with the
masses, inclusive growth, leveraging existing networks and financing micro en-
terprises to build a sustainable network in the African markets. The methodol-
ogy for the study is an integrative analysis of existing literature, case examples
and personal experience on entry strategy consultancy1 in Africa and other
emerging markets.

Keywords: sustainable distribution; African emerging economies; channel

profitability; multilevel distribution; inclusive growth; micro financing.

Introduction
Global markets have witnessed huge shifts following the crisis in Europe,
while the US economy show no signs of improvement. Countries like India,
China, Russia and Brazil which were the prime movers of world economy in
the late 90’s and 00’s have been experiencing a decline in actual GDP growth
rate. This has encouraged companies to enter the African markets as part of
their sustainable growth strategy. This paper addresses the impediments faced
by new market entrants into Africa from a distribution standpoint. Findings
from this paper contributed to the body of research on African emerging
markets by suggesting a conceptual framework for setting up a sustainable


Subrat Sarangi, Associate Professor at KIIT School of Management, KIIT University, Bhu-
baneswar, India. E-mail: subrat@ksom.ac.in.

Sanjay Patro XLRI, Jamshedpur, India. E-mail: sanjay@xlri.ac.in.

Ravi Shekhar Kumar, XLRI, Jamshedpur, India. E-mail: ravishekhar@xlri.ac.in.
1 Sarangi, Subrat has provided advisory services to government bodies and corporate on entry

strategy across a mix of products into countries like Kenya, Tanzania, Zanzibar, India and
Bangladesh
 SUSTAINABLE DISTRIBUTION

distribution system. The framework proposes four strategic dimensions to

ensure effective distribution in the African continent, namely, connecting with
the masses, inclusive growth, leveraging existing distribution networks and
financing micro enterprises. The recommendations are based on the innova-
tive practices in distribution that have helped successful companies in these
markets and the underlying strategies that have improved the overall cost to
serve and hence sustained channel profitability. New entrants in the context
of the paper refers to both - companies which are first timers to a country, as
well as companies already operating in a country, but expanding into new
markets within the country or launching new variants, brands or product lines
and therefore need to realign their distribution system for a different custom-
er base. For example, Coke entering Botswana for the first time would be a
new entrant in a new market, whereas, Coke which has a presence in Kenya
launches a new cola drink in a small package size targeting the rural bottom of
the pyramid (BOP), necessitating distribution expansion and realignment, is
an example of the later.
Existing literature on emerging economies has revealed various nuances of
these markets compared to the developed world. Mahajan, Pratini and Wind
(2000) and Dawar and Chattopadhyay (2000) have reasoned that the sheer
scale and size of multinational enterprises (MNE’s) should propel the compa-
nies to enter emerging markets. But the bigger challenge for the African con-
tinent has been the level of preparedness of the small, under-developed and
40 impoverished nations to support and enable the entry of the big brands. The
issues are even more complex reaching the last mile customers in the rural
hinterlands given the heterogeneity of customer base, available infrastructure
and the level of acceptance, with the prevailing awareness and safety levels.
The findings of Karnani (2007) suggest that running a viable business in the
rural bottom of pyramid (BOP) markets is most challenging. Further, seminal
work of Hoskisson, Eden, Lau and Wright (2000) on Transaction Cost Theo-
ry (TCT) stressed the importance of high transaction costs in emerging mar-
kets against developed markets, suggesting that MNEs planning to enter Af-
rican markets will need to adopt differential strategies to earn profits. Re-
search done on emerging markets and BOP customers (Prahalad and Ham-
mond, 2002; London and Hart, 2004) indicate that firms need to operate with
a different perspective to be successful. The lack of a strong legal framework
increases the overall risk of doing business due to corruption and security is-
sues (Nelson, Tilley and Walker, 1998). Researchers who have worked on Re-
source Based Theory (RBT) argue that firms would need to create strategic
tradability around resources to sustain competitive advantage (Penrose, 1959;
Barney, 1991; Oliver 1997). Sheth and Sisodia (2001) propose a new set of
marketing mix elements – acceptability, affordability, accessibility and aware-
ness (4As) as more relevant for emerging economies. Dadzie et al. (2012) have
compared the elements of marketing mix i.e. product, price promotion and
place and the 4As in an African market (Ghana) and proposed that the later
definition explains market performance impact more adequately. Their find-

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 SARANGI, PATRO & KUMAR

ings also support a contemporary approach in marketing strategy for emerging

markets, driven by demand aggregation based on the 4As, rather than demand
differentiation. Thus, a summarization of extant literature on the emerging
economies suggest that on one hand the new entrant is challenged with a huge
entry barrier, whilst on the other, opportunities for growth and sustainability
point towards the markets in Africa.
The paper begins with context setting, by stressing the impact of African
markets on global economy and current body of knowledge from a marketing
strategy perspective. It is followed by the methodology section and subse-
quently the impediments to effective distribution for new entrants. Further,
the paper focuses on the critical success factors through case study examples
leading to a set of propositions and recommendations for a sustainable distri-
bution framework. The paper concludes with a section on implications for
managers associated with these markets and scope for future research.

Methodology
Methodology adopted for the study is an integrative analysis of existing litera-
ture; case examples of successful companies in the emerging economies; and
personal experience on entry strategy advisory in Africa and other emerging
markets by the lead author. The case studies chosen for analysis are – P&G’s
corporate social responsibility (CSR) initiative in Africa; Nestlé’s “Shared Value 41
Creation” and inclusive growth approach in Equatorial African Region (EAR);
Mars Inc., sustainable cocoa farming in West Africa (Ghana and Côte
d’Ivoire) under the iMPACT project streamlining the upstream supply chain;
GZIs success story in West Africa; Avon’s success story in Venezuela and
Brazil; Polar Beer, Nestlé & Coke’s multilevel distribution strategy in Vene-
zuela; and Unilever’s Project Shakti, ITC Ltd.’s e-Choupal and India Post’s rural
India focus. The reason for selecting case studies spread across emerging
economies in Africa, Latin America and Asia is because the challenges faced
by the MNE’s in tackling the business environment in non-African countries
bear a similarity with the African markets in terms of the 4As, though to a
varying degree.

Impediments to distribution
Business environments in the emerging markets, be it Africa, Asia or Latin
America, has always posed challenges for new entrants or incumbent compa-
nies expanding into untapped territories. Sheth (2011) in his seminal work on
the impact of emerging markets on marketing has identified five broad market
characteristics, namely, market heterogeneity, sociopolitical governance, un-
branded competition, chronic shortage of resources and inadequate infra-
structure. In the context of Africa, our research findings reveal four basic di-

Transnational Press London www.transnationalmarket.com

 SUSTAINABLE DISTRIBUTION

mensions (Sarangi and Mishra, 2013) challenging distribution, which are dis-
cussed below.
1. Macro Factors
a. Political & Security: Political and security risk is a key macroeconomic
variable evaluated by companies, while deciding on entering new markets or
expanding business presence. However, macro factors are a bigger impedi-
ment for a company entering a new market compared to an incumbent player.
From a new country perspective, this is explained as ‘administrative’ distance
between the two geographies on account of political hostility and dissimilari-
ties (Ghemawat, 2001). African markets have always been known for political
unrest, military coups and lawlessness. The coup in Sudan followed by the
undisputed rule of President Bashir; 43 years long dictatorship of Col. Qadda-
fi in Libya; civil wars in Sierra Leone; bloody coups in DRC and Ethiopia are
a few standing examples of political unrest in Africa. Poor security and legal
infrastructure also makes it difficult to reach certain demand pockets within
the rural and urban markets due to increased crime rate. For example, the lead
author while evaluating a distribution tie in Tanzania for a leading cookies
exporter from Oman, experienced the following anecdotal evidence.
“I do not share any detail pertaining to cash transactions with vendors, even to the se-
cond in command in the company. I also keep changing my vehicles and route regularly
and all the vehicles that I use are fitted with bullet proof glasses. I consciously decided to
take extra precautionary measures after I was robbed at gun point just a few yards out-
42 side my office.”
The above factor prevents new entrants from even looking at markets with
high security and political risk.
b. Policies, Taxes & Legislations: Emerging markets have traditionally
been considered protectionists, by imposing legal and commercial restrictions.
Countries like Uganda, Burundi and Rwanda have been friendly to MNEs in
terms of external policies. But the experience of retail giants in Kenya has
been mixed, with both South African Metro Cash & Carry & Lucky 7 exiting
the country after a brief period; though Nakumatt (started by a Kenyan na-
tional of Indian origin) has grown over the years with presence in 4 countries
(Kenya, Rwanda, Tanzania and Uganda), numbering about 40 stores and re-
ported turnover of $ 450 million in 20122. Some of the commercial re-
strictions faced by companies are in terms of no-entry on vehicles in specific
areas during certain time periods of the day to multiple tax levies at different
entry points (legal or locally imposed illegally) and the need for multiple li-
censes and permits to do business. A classic example is experienced in Ghana
where local trade associations levy taxes for doing business in local markets.
Such associations are typically headed by Ohemma’s or market queens who
control prices, quantity of sale and who sell (Oritz, Campbell and Hyman,

2 http://www.bloomberg.com/news/2013-04-08/kenya-s-nakumatt-seeks-50-million-for-new-
africa-store-openings.html

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 SARANGI, PATRO & KUMAR

2010). As a result, reach and penetration especially for the rural hinterland is a
concern.
c. Information: Market intelligence on size of markets, consumer buying
practices and preferences, logistics infrastructure, different service providers,
and commercial terms for agreement are essential for a company to expand its
distribution set up. For example, Vale, the leading mining company during its
project phase in Mozambique had to resort to the assistance of procurement
market intelligence consulting firms based in India for advisory on contract
structure, service providers and supply chain risk mitigation strategy3. Another
example which can be cited is how the fishermen from the coastal areas of the
state of Kerala, India could not sell their catch due to lack of information on
market timings. But with the telecom revolution, this problem was solved as
they got information on their mobile phones and reached the ports at the
right time to sell their catch to the traders (Craig and Douglas, 2011). Thus,
firms seek reliable information on connectivity - roads, railways and air; couri-
er service providers; cargo handling agencies; market research firms; insurance
service providers; warehousing infrastructure and cold chain services, to name
a few, which is challenge for the under-developed and impoverished African
markets.

2. Diversity
a. Culture and Ethnicity: Africa is the second largest continent and the
second most-populous (after Asia) with 54 individual countries. A comparison 43
with Asia (44 individual countries) indicates that the continent is more frag-
mented in terms of political borders, diverse cultures and languages. The Maa-
sai’s of Kenya and Tanzania, Tuareg of North and Western Africa, and Bam-
buti from Central Africa are stand out examples of indigenous groups with
distinct culture and societal practices4. For example, the Baganda tribe of
Uganda and Kikuyu of Kenya are so different in their cultures that demand
patterns widely vary, increasing the number of SKUs (stock keeping units) for
the channel. The complexity is reflected in the number of Bantu speaking
tribes inhabiting the East African region - Baganda, Banyoro, Batoro in
Uganda, Kikuyu, Akamba, Meru, Embu, Taita, Giryama, Digo in Kenya and
Pokomo, Chagga, Yao, Segeju, Zaramo in Tanzania5. Given the diversity in
the ecosystem in terms of primary occupation, vegetation and food habits, the
consumer buying behavior is radically different across tribes and regions. For
example, from Maasai’s (the cattle grazers) to the Kikuyu’s (farmers) ; Bugan-
da tribe in the west bank of fertile Lake Victoria to the native Africans in the
Darfur region of Sudan; and the pygmies of Central Africa, the diversity in
culture poses a formidable challenge to serve a heterogeneous consumption
pattern.

3 Personal experience of lead author

4 http://education.nationalgeographic.com/education/encyclopedia/africa-human-geography/
?ar_a=1
5 http://www.elateafrica.org/elate/history/bantumigration/bantuintro.html

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 SUSTAINABLE DISTRIBUTION

b. Economic: With cultural and ethnic diversity, economic disparity is

also very high, be it the urban or the rural markets. A sharp contrast between
the emerging economies in Asia and Latin America, as against the African
economies is in the concentration of BOP and non BOP customers in urban
areas and the hinterland. Be it the slums of Dharavi in Mumbai or the “Bar-
rios6” (Cerrutti and Bertoncello, 2003) in Caracas, the disparity in disposable
income is huge. The marketer has to reach out to segments with a daily in-
come of less than 2$ to those earning 20$ or more, with varying choices of
brand, pack size and buying frequency. In contrast, the concentration of high-
er income groups in cities like Nairobi, Kampala or Dar Es Salaam is mainly
restricted to specific localities and the disposable income divide in the urban
slums are not as significant. For example, the challenge for a marketer is lesser
to distribute in the Mathare and Kibera slums of Nairobi since choice spread
is limited. As far as the hinterland is concerned, the economic conditions are
similar within the rural markets given similar employment opportunities and
income levels.

3. Market Structures
a. Spatial: Density of population and demand concentration determines
channel viability. Given the topography of Africa and high dispersion of pop-
ulation, channel design is complex. The average density of population in
20107 (persons per square kilometer) across Africa was 33.3 as compared to
44 the world average of 50.6 and the least developed countries at 39.1. Countries
like Botswana (3.4), Namibia (2.6), Angola (15.7) are far below the average,
whereas there are countries with a fairly high population density i.e. Egypt
(78), Morocco (79.1), Ghana (101.1) and Kenya (70.5). Thus, depending on
target country, the distribution strategy will vary.
b. Channel Structures and Governance: Marketing channel structures
and their governance are distinctly different in emerging economies. Orga-
nized formal channels with two level structures to specialist distributors (Ire-
land, 2008), brokers and consignment agents coexist. Case example of rural
Nigeria (Borno and Jos Plateau region) reveals two distinct types of markets
(Porter, 1993) – Kunnu and the rural periodic ones (similar to village “Haats”
in India). While Kunnu’s are interior bush type markets specializing in sale of
beer and cooked food and form an integral part of the social set up; rural pe-
riodic markets are for conventional buying and visited by wholesalers from
neighboring commercial centers. While the village heads and elders are re-
sponsible for the governance of Kunnus, periodic markets are more formal
and have vendors from far flung areas. Similarly in Ghana, trade associations
governed by local market leaders (Ohemmas) determine the channel structure
and governance. Thus, companies need to be innovative to overcome the
chaos while distributing in these markets.

6Unplanned shantytowns in Venezuela

7United Nations, Department of Economic and Social Affairs, World Population Prospects:
The 2012 Revision

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 SARANGI, PATRO & KUMAR

c. Infrastructure: Infrastructure continues to be the greatest bottleneck

in building efficient and organized distribution systems. Sheth (2011) appro-
priately explained infrastructure inadequacy, an emerging market characteris-
tic, as:
“Infrastructure includes not only physical roads, logistics, and storage but also market
transaction enablers, such as point-of-sale terminals, and basic banking functions, let alone
credit cards. It also means lack of communication, information, and transaction technologies,
such as telephones and electricity. While the large metro areas may have adequate infrastruc-
ture, in general this is not the case in the rest of the market.”
In addition to the above, cold chains, concrete market buildings, health
and sanitation facilities are some of the other infrastructural gaps, more so in
the Sub-Saharan West African region of Mali, Benin, Niger, Côte d’Ivoire,
Burkina Faso, Togo and Senegal. Availability of clean drinking water on a sus-
tainable basis, endemic electricity shortages and access to domestic and cross
border markets for trade impede overall growth prospects in the region
(Heaps et al., 1999). For example, electricity demand per capita ranges8 from
around 48 kWh per capita in Burkina Faso to 290 kWh per capita in Côte
d’Ivoire, compared to an average of 500 kWh per capita for Africa which is
only 20% of world average at 2000 kWh (Gnansounou, 2008).
d. Domain Knowledge and Skills: The paper focuses on skill gap in
people resources as an impediment for distribution in contrast with many
other researchers highlighting the non-people based resource inadequacy. In 45
order to design, operate and sustain an efficient distribution system, domain
knowledge on supply chain processes i.e. order management, inventory man-
agement, warehouse management, purchase order generation and processing,
vehicle tracking and working capital management are some of the core skills
required by the intermediaries. In addition, soft skills on team management
and communication (both written and verbal) are critical considering the cul-
tural and language disparities, especially for MNEs due to the cross national
channel linkages (Mehta, Anderson, Dubinsky, Polsa and Mazur, 2010). For
any new entrant to operate efficiently, availability of skilled manpower is im-
perative.
e. Technology: The role of technology cannot be ignored to design cost
effective and agile distribution systems. Barring a few countries in the African
continent i.e. South Africa, Egypt and Kenya, technology adoption, especially
automation systems in distribution is very limited. Some of the impediments
faced by new entrants are:
i. Technology awareness and support system availability (hardware and
software vendors, service providers for maintenance and upkeep)

8https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=

8&ved=0CEEQFjAF&url=http%3A%2F%2Fwww.wartsila.com%2Ffile%2FKenya%2F12785
34299437a1267106724867-Africa-yearns-for-
electrici-
ty.pdf&ei=pt4cVPHuBMG0uATKsYJA&usg=AFQjCNHfoijYcY5u_C_sQfL2Ya2AJzk92w

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 SUSTAINABLE DISTRIBUTION

ii. Financial ability to invest by the intermediaries

iii. Willingness to invest by intermediaries due to increased accountability
and inability to engage in wrong practices
iv. Channel viability

4. Financial Adequacy: Financial adequacy has been analyzed under two

broad heads. Firstly, access to capital is nothing but funding from different
financing institutions i.e. banks, NBFC’s9 (Non-Banking Financial Compa-
nies), micro financing agencies, Non-Governmental Organizations (NGOs)
and other Government and Semi Government bodies. Secondly, the paper
also lays thrust on the viability of setting up a distribution network and the
returns on investment given the high transaction costs and diseconomies of
scale. Companies can succeed in markets only with a sustainable channel
structure which is not just profitable, but also generates enough returns to
sustain economic downturns and other external disruptions (e.g. famine, civil
wars, political unrest).
1. Access to Capital: Except for a few of the relatively advanced coun-
tries i.e. South Africa, Morocco, Egypt and Tunisia that boast of a strong
growth in the services sector with an organized banking system, the rest of the
continent lacks an efficient and accountable financing system. Sporadic efforts
have been made by governments and international bodies from time to time,
but have failed due to corruption and mishandling of funds. However, the
46 situation has improved over the last 5 - 7 years in oil exporting nations like
Nigeria, Angola, Algeria; and high growth countries like Ghana, Kenya,
Uganda and Cameroon (Leke, Susan and Wamelen, 2010). The challenge
therefore lies with the new entrant in identifying reliable sources of funds to
set up the network.
2. Channel Profitability: As an outcome of the impediments discussed in
the paper so far, channel viability is a big question mark. More so, sustaining
profitability and investing in the channel with a long term view is a greater
challenge. The new entrants not only has to ensure that all its intermediaries
make desired profits, but also meet the strategic goals, in terms of market
share, distribution reach and service levels. Hence, costs to serve has to be
optimized while reaching out to a widely dispersed and heterogeneous cus-
tomerbase.

Critical success factors – case examples

After having discussed in detail the challenges faced by a new entrant, we ana-
lyze selected case examples of successful companies and their critical success
factors.

9NBFC’s are companies registered under Company’s Act 1956 of India engaged in the business
of loans and advances, acquisition of shares, stock, insurance business, or chit business, but
does not include agriculture or industrial activity; or the sale, purchase or construction of im-
movable property

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 SARANGI, PATRO & KUMAR

 ColaLife’s innovative distribution model in Zambia10: ColaLife is a non for

profit organization started by Simon Berry and his wife Jane with a noble
cause of distributing simple medicines i.e. oral rehydration salts and Zinc sup-
plements to the most remote areas in developing countries. However, the dif-
ficulty was in reaching the hinterland with a manageable distribution cost. Co-
laLife realized that they needed to be innovative and had to leverage an exist-
ing distribution network which was already established and running efficiently.
Thus, it partnered with the network of Coca-Cola in Zambia as the first trial
and post its success, ColaLife is currently working in Tanzania as well.
What ColaLife did differently was coming up with an innovative packaging
solution (AidPod) for the anti-diarrhea kit – Kit Yamoyo, which would use
the unused space in the Coca-Cola crates. AidPod was designed as a wedge-
shaped container that would fit inside the unused space between the necks of
the bottles in a crate. The design also kept in mind the usability of the kit as a
container for mixing the solution and storing it in a hygienic manner for fu-
ture use, by replacing the lid. Besides, the pack size, which was earlier de-
signed for 1 liter of water, was reduced (based on appropriate dosage) to fit
the kit. The kit also provided a level indicator showing the amount of water to
be added to aid the illiterate mass in the target markets. In order to make the
network sustainable, Simon and his team also incentivized the local micro-
enterprises (wholesalers make on an average of about 20% profit on the kits),
that were stocking and selling Coca-Cola. Without investing on any monitor-
47
ing and tracking platform, the model has made best use of mobile technology
using an SMS-based system to track delivery confirmation and initiate pay-
ments to the local sales outlet who confirms delivery and the intermediary
who delivered the AidPod.
Figure 1. Yamoyo Kits packed in Coca-Cola crates

10 http://www.colalife.org/about/colalife-about/

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 SUSTAINABLE DISTRIBUTION

Figure 2. Yamoyo Kit used as a cup and storage device

48 ColaLife example is a demonstration of reducing cost to serve by leverag-

ing on existing networks (that of Coca-Cola) and bi-directional (Vachani and
Smith, 2008) distribution of products for two organizations using the same
channel. Bi-directional distribution in this example includes delivery of both
Coca-Cola crates and Yamoyo Kits to the point of sale and collection and/ or
initiation of payments to the channel and claiming special offers on next pur-
chase for the kits.
 P&G’s approach in Africa11: P&G has adopted a Corporate Social Re-
sponsibility (CSR) route in Africa to expand its presence in the region. The
company targeted two products (sanitary pads and packaged water) to expand
and increase awareness in countries with 60% demand being for unbranded
products (Sheth, 2011). With the help of NGOs they reached out to more
than 15,000 school children distributing about 3.2 million sanitary pads way
back in 2008, thus popularizing the Always brand. The initiative had the mo-
tive of ‘Always Keeping Girls in School’ and provided each girl from the tar-
get schools with free pads for every month in each school term. In addition,
the girls also received education on issues of feminine hygiene, puberty and
menstrual protection. As an outcome of this program, enrolment of girls in-
creased in both primary and secondary schools in the selected areas.

11 http://www.proudlyafrican.info/Kenya/Procter-and-Gamble-Top-Corporate-Company
.aspx#

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 SARANGI, PATRO & KUMAR

For packaged drinking water (PUR), P&G tied up with NGOs and distrib-
uted free sachets in schools with unsafe water sources. An awareness drive
was also carried out on the importance of drinking purified water and educat-
ing on low cost PUR technology that purifies up to 10 litres of contaminated
water with one sachet12. Since the inception of the program in 2007, P&G has
reached more than 400,000 children with the free samples.
The success story of P&G is a classic demonstration of bringing inclusive
growth by engaging the community and driving away suspicion and pre-
conceived notions about international companies and brands. As a subsequent
step, such initiatives also provide a platform to build a scalable channel to
reach the last mile customers by appointing some of the village representa-
tives as sales agents and distribution points.
 Mars partnership for African Cocoa Communities of Tomorrow (iMPACT)13:
Mars Inc., the leading chocolate producer with a turnover of more than
$33Billion USD and presence across 21 countries has adopted sustainable
cocoa production and sourcing in West African countries of Ghana and Côte
d’Ivoire. Termed as iMPACT (The Mars Partnership for African Cocoa
Communities of Tomorrow) addresses the environmental, economic and so-
cial needs of cocoa communities in Ghana and Côte d’Ivoire, which account
for about 60% of world cocoa production. The project has been implemented
through a strategic alliance with partners Africare, International Cocoa Initia-
tive (ICI), International Foundation for Education and Self-Help (IFESH), 49
Rainforest Alliance (RA), Sustainable Tree Crops Program (STCP) and the
German Federal Ministry for Economic Cooperation and Development
(BMZ).Since 2008, iMPACT has reached out to 26 farming communities in
the Western African region contributing to healthy living, education, training
and enhancing farming skills, improving the financial management and land
improvement programs, thus resulting in sustainable cocoa farming and inclu-
sive growth for the firm. This initiative has not only promoted the brand Mars
globally, but also reduced the entry barriers of doing business in Ghana and
Côte d’Ivoire establishing a strong upstream supply chain for cocoa sourcing.
Specific health awareness initiatives on usage of mosquito nets, AIDS aware-
ness campaigns, clean drinking water and sanitation has significantly reduced
incidences of water and insect borne diseases among the communities. The
Vision for Change program, which is targeted at bridging gender gap has em-
powered women through greater participation in cocoa productivity training
programs, reduced school dropout rates and improved earnings. Project iM-
PACT has been able to transform lives of cocoa farmers in the Western Afri-
can region by providing them with a profitable, socially rewarding and envi-
ronmentally sustainable source of livelihood.

12 http://growinginclusivemarkets.org/media/cases/Developing%20Countries_P&G_2008
.pdf
13 http://www.giz.de/fachexpertise/downloads/giz2011-en-mars-impact.pdf

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 SUSTAINABLE DISTRIBUTION

 GZ Industries (GZI), exploiting the underserved African market14: GZI is a

leading aluminium can manufacturer based in the Western African nation:
Nigeria is riding on the growing demand for beer and canned soft drinks in
the continent by countering all odds. The company supplies more than 1.2
billion cans annually to global firms in Nigeria i.e. SABMiller, Heineken,
Guinness and Coca-Cola with a further capacity addition of 600 million cans
through the second factory. As a part of its growth story in Africa, GZI has
invested $100 million USD in a new factory in Kenya with a capacity of 450
million cans, which is their first foray outside of Nigeria. The company has
attracted investment from Nigerian investment and financial advisory firm
Verod Capital, the private equity arm of Standard Chartered Bank and Lon-
don Stock Exchange-listed investment group Ashmore. GZI has overcome all
odds in terms of skilled manpower availability, taxes and legislation issues, low
consumer buying power, governance and security concerns by creating job
opportunities for the local youth in Nigeria. GZI realizes the potential of the
African market in terms of demand for beer and soft drinks, since the birth
rates in other parts of the world have slowed down significantly, whereas
population growth in Africa is on the rise. Most African countries depend on
can imports, which GZI terms as “air being imported into the continent” and has
faced all odds by training local youth and creating jobs. While power disrup-
tions, road infrastructure and funds have been some of the detractors, GZI
has leveraged their understanding of the local culture, language, and environ-
50 ment to their advantage. The case of GZI stands out as an example of creat-
ing sustainable and inclusive growth in the Western African region, which is
now being replicated in Kenya and progressively to other parts of the conti-
nent.
 Nestlé’s “Shared Value Creation” and inclusive growth approach in Equatorial
African Region (EAR)15: Nestlé has adopted the approach of ‘Shared Value Crea-
tion’ as the strategy to build presence in EAR. Some of the initiatives planned
to expand coverage and creating friendliness with local population are:
o Improving awareness on nutrition, health and wellness of school
children through the Global Healthy Kids Program in Mauritius, Kenya and
Mozambique.
o Improving quality of milk and helping stakeholders across the entire
value chain, especially the 179,000 farmers engaged in the program. This pro-
gram has been implemented in partnership with the East African Dairy De-
velopment Board in countries like Kenya, Uganda and Rwanda.
o Uganda and Tanzania are one of the leading coffee producing coun-
tries in Africa. Nestlé has partnered with the Uganda Coffee Development

14 http://www.howwemadeitinafrica.com/nigerian-aluminium-can-manufacturer-cashing-in-
on-demand-for-drinks-in-africa/37226/
15 http://www.Nestlé.com/Asset-library/Documents/Media/news-and-features/2010-july/
EAR-Press-Release-250610.pdf

© Transnational Marketing Journal

 SARANGI, PATRO & KUMAR

Authority (UCDA) and the Tanzania Coffee Research Institute (TACRI) to

improve the coffee sector as a whole. The project aims at sharing best farming
practices in terms of improving productivity characteristics; higher disease
resistance and better quality.
o Nestlé has targeted women entrepreneurs in DRC by providing assis-
tance to start micro establishments that would sell Nestlé’s products. This
initiative has been running under the banner ‘The New Hope Project’. Thus,
by empowering rural BOP customers, Nestlé has not only set up a distribu-
tion network for itself, but has also given an impetus to demand.
All the above initiatives in EAR define the inclusive growth strategy of
Nestlé to reach the rural BOP. With the initiative aimed at improving coffee
productivity, Nestlé is able to ensure backward linkages for coffee sourcing
and at the same time improve overall economic conditions of farmers and
branding for its products.
 Multilevel distribution in Latin America – Case examples of Avon, Polar Beer,
Coca-Cola, and Nestlé: Avon, a global cosmetics brand has been a huge propo-
nent of multilevel distribution in its go-to-market-strategy. To penetrate into
the middle class and BOP customers in Venezuela, the company appointed
direct sales representatives with extended services i.e. personalized credit and
delivery (Ireland, 2008). The strategy was immensely successful and later the
company adopted the same model in Brazil.
51
Polar Beer exploited the model of multilevel marketing to reach the slums
(which were otherwise difficult to reach given the road conditions and securi-
ty issues) in Caracas by appointing the truckers as distributors. They further
empowered the dwellers by giving refrigerators stocked with beer to be sold
by housewives, thus creating huge entry barriers for competition (Producto,
2000). Coca-Cola also replicated the model of Polar Beer, by distributing coke
stocked refrigerators and appointing housewives as retailers to sell its prod-
ucts (Ireland, 2000). Going a step further, Nestlé exploited the street peddlers
in Venezuela to sell its wafer cookie, Maxicocosette and within no time got
access to a well-entrenched network of several thousands (Ireland, 2008).
The common link that connects all the above success stories in Latin
America has been to avoid upfront investments required for setting up a
channel, while engaging the community in difficult areas and leveraging on the
existing network.
 Unilever’s Project Shakti in rural India16: To increase its penetration in ru-
ral India and establish a strong presence among rural BOP customers, Unile-
ver launched Project Shakti in the year 2000 in the state of Andhra Pradesh.
The model was based on promoting women entrepreneurs in rural India
through micro-financing. The company adopted a tiered network – from Car-

16 http://www.hul.co.in/sustainable-living/casestudies/Casecategory/Project-Shakti.aspx

Transnational Press London www.transnationalmarket.com

 SUSTAINABLE DISTRIBUTION

rying & Forwarding Agent (CFA), followed by Rural Distributors (RD) at

district level and finally the Shakti Dealers (SD) in the remote villages. Unile-
ver also appointed Rural Sales Promoters to monitor the performance of
SD’s, providing them with training and advise on a regular basis. The model
has been successfully implemented across 15 states in India and has support-
ed 45,000 female Shakti entrepreneurs by 2010. The differentiator of the
model is door-to-door delivery by SD’s in remote villages at any time of the
day.
Unilever has extended Project Shakti to Kenya and Nigeria, after launching
in other Asian countries, i.e. Bangladesh, Vietnam, Sri Lanka and Indonesia.
The success of Project Shakti has been the ability to arrange micro finance for
the rural entrepreneurs and mobilize momentum through Self Help Groups
(SHG).
On similar lines of Project Shakti, Department of Posts and the Govern-
ment of India has collaborated with private entrepreneurs in remote villages
(Vachani and Smith, 2008). The department takes special care in appointing
these entrepreneurs so that they enjoy credibility in the village. The post offic-
es operate from the local set ups without any significant investment. In addi-
tion, they also offer other services like opening savings accounts, selling insur-
ance policies, and payment of utility bills. Very similar to the Department of
Posts model, is the e-Choupal initiative run by ITC Ltd. in India. E-Choupal is a
technology enabled procurement platform for commodities like soya bean
52 from farmers directly by ITC Ltd, at a fair price determined by commodity
markets. The farmers are also provided education on farming best practices
through a terminal installed at the Sanchalak’s (recruited by ITC Ltd.) home in
the village. Therefore inclusive growth and rural entrepreneurship has been a
very successful model for penetration into rural markets as analyzed in the
success stories above. However, the strategy adopted to reach out to territo-
ries characterized by high criminal activity or difficult terrain has been a bit
different. Companies have resorted to appointing specialist distributors (Ire-
land, 2008) to tap such markets. P&G penetrated the slums in Caracas
through such distributors by providing them exclusive rights. Similarly, in
Zimbabwe social networking has been a very successful strategy to reach out
to the BOP segment, through women clubs and buying clubs (Chikweche and
Fletcher, 2012).
The study of the success stories of firms spread across various parts of Af-
rica and similar markets across the globe as benchmarks lead us to propose
the following set of propositions in the context of a sustainable distribution
system in African markets for new entrants. The recommended propositions
do not differentiate between the average African consumer and the BOP cus-
tomer, since challenges faced by the firms are not radically different. In fact,
many of the initiatives run by the firms have led to raising income levels and
buying power of the BOP customer to a stable income source.
P1: Leveraging existing distribution networks with minimal upfront investments is criti-
cal for a sustainable distribution network.

© Transnational Marketing Journal

 SARANGI, PATRO & KUMAR

P2: Inclusive growth leading to an increase in livelihood opportunities shall trigger de-
mand growth and acceptance of branded products within the customer base.
P3: Multilevel distribution for both the urban and rural markets will be critical to in-
crease reach and create entry barriers for competition.
P4: SHGs, NGOs and micro financing institutions will play a pivotal role in building
sustainable distribution.

Sustainable distribution framework for African markets

This paper so far has identified some of the potential impediments faced by
new entrants in African markets and discussed the critical success factors of a
few successful companies. Based on the findings, a conceptual framework is
proposed in this section. Furthermore, the authors elaborated how the
framework shall help new entrants to address the various impediments and
assist in setting up a sustainable distribution system for the African markets.
The framework does not differentiate between the BOP and average African
customer and is generic in nature. However, the focus of the paper is more
on developing a conceptual model and empirical testing of the framework is
not within the scope of the study. The recommended framework is discussed
below.
The framework has two parts – Part 1 categorizes the various impediments 53
into four groups (Economic, Spatial, Channel Structure and Governance; Se-
curity, Local Political issues, Illegal Taxes, Cultural and Ethnicity, Infrastruc-
ture; and Financial Adequacy); and Part 2 summarizes the four broad strate-
gies to be adopted to address the challenges, resulting in a viable and sustain-
able distribution network for the new entrants.
The strategic intervention of connecting with the masses through social
development programs and CSR initiatives creates the acceptability and
awareness among the uneducated and suspicious customers and works in the
direction of building a customer base, which otherwise would be antagonistic
to the new product and/or service offered. This strategy is applicable more
for the first time entrant in a market, since the existing company is expected
to have built a certain level of awareness and acceptability for its own brand.

Transnational Press London www.transnationalmarket.com

 54
Sustainable Distribution Framework for New Entrants in African
Markets

Economic, Spatial,

© Transnational Marketing Journal

Channel Structure
Part 1
and Governance
INFRASTRUCTURE

Security, Local Political

issues, Illegal Taxes, Financial Adequacy
Cultural and Ethnicity
SUSTAINABLE DISTRIBUTION

Inclusive Growth – Leveraging Existing

Connecting with Empowering Network –
masses – CSR, customers through Multilevel Financing Micro
Awareness Rural Distribution, Enterprises
Part 2
Campaigns through
Figure 3. Sustainable Distribution Framework for African Markets

Entrepreneurship, Specialized
social service SHGs Distributors

SUSTAINABLE DISTRIBUTION NETWORK

 SARANGI, PATRO & KUMAR

Inclusive growth as a strategy reduces the barriers to entry as it provides a

source of livelihood and the entrepreneurs grow with the company. On the
whole, it contributes to the affordability and accessibility through access to
the last mile customer, both in the slums of urban areas and rural hinterlands.
The SHGs over the long run also serve as the conduits to build the desired
skills and domain knowledge to run the channel effectively. GZI in Nigeria
has addressed this concern by employing local youth and investing in training
and skill enhancement as it realizes that in order to meet the domestic demand
for aluminum cans in the fastest growing region in the world, sustainability
could be addressed only through inclusive growth. Similar is the case with the
iMPACT initiative of Mars, Nestle’s drives in EAR or Unilever, ITC, Coca-
Cola and Polar Beer in other global markets outside of Africa.
Leveraging the existing networks (the case of ColaLife in Zambia or Nes-
tle in Venezuela) increase the efficiency of the channel by reducing the cost to
serve and initial capital outlays. This in turn enhances the affordability and
expands the targetable customerbase for the company. Multilevel distribution
as a strategic approach depends on the existing networks in place and hence
provides a multi-dimensional approach to serve specific customer segments
depending on the market structure. Tribal and hilly terrains of the hinterland,
crime infested urban slums, bush markets and Kunnus are some of the typical
examples.
Low population density and a spread of target customer base requires 55
greater channel reach. While leveraging existing networks addresses the issue
to a certain extent, it does not solve the problem in totality. The example of
Shakti dealers and the entrepreneurs of Department of Post, stress the need
for funding of the micro-enterprises in the initial stages. Hence, the role of
micro-financing institutions is critical to promote a sustainable distribution
network. As our study reveals low success rate of micro-finance in Africa,
companies targeting such markets may as well need to evaluate alliances with
these companies and serve as bank guarantors for the appointed entrepre-
neurs. Alternately, larger MNEs may also consider starting subsidiary busi-
nesses in micro-financing. Mahindra and Mahindra Financial Services, an
NBFC from Mahindra group is a classic example of rural financing to en-
hance the sales of tractors (a product category that Mahindra group has inter-
ests in) in rural India.
On the whole, the framework addresses most of the short-term impedi-
ments to successful distribution in African markets. The issues pertaining to
overall infrastructural growth – roads, railways, telecommunication, health and
sanitation and technology adoption would remain as long-term imperatives, to
be addressed by overall economic developments of the region.

Transnational Press London www.transnationalmarket.com

 SUSTAINABLE DISTRIBUTION

Managerial implications
There are a few takeaways from the paper for managers currently doing busi-
ness, considering expansion or those evaluating market entry in the African
continent. The first take away is the challenges that a new market entrant
would face to distribute its products and/ or services in the African continent.
Though the impediments identified are not specific to an industry or product
category or a target country, through specific examples the issues are explicitly
explained covering four broad categories and eleven sub categories. The se-
cond take away is the critical success factors of firms, which have harnessed
these impediments through different go-to-market strategies ranging diverse
markets and cultures, namely, Ghana, Nigeria, Côte d’Ivoire, Zimbabwe,
Rwanda, Zambia, Kenya, Uganda, DRC, Tanzania andVenezuela to name a
few. The strategies drawn from a wide selection of case studies spreading
across the African continent and other emerging markets have addressed not
only the distribution challenges and overall cost to serve the end customer,
but also in generating employment opportunities and thus a sustainable
growth model by overcoming fundamental issues like low purchasing power,
health and sanitation, education, water and power. The last and the most im-
portant takeaway from the paper is the recommended conceptual framework
for a sustainable distribution system for new entrants targeting the African
continent based on thorough analysis of impediments and success factors in
varying contexts. The framework provides a directional path for the managers
56 by suggesting the specific initiatives to address concerns ranging from capital,
socio-cultural, economic and environmental issues in setting up a sustainable
distribution structure. The paper attempts to contribute to the overall body of
research on the African markets, which has yet to attract the attention of a
larger pool of academic research, despite being the future growth driver of
global economy.

Scope for future research

There is ample scope for future research as far as the theme of the paper is
concerned. Firstly, the framework proposed in the paper is conceptual in na-
ture and has not been tested empirically. Besides, since the approach is case
study based and given the dynamic nature of markets, the framework may not
be exhaustive. Therefore, the framework and the propositions listed in the
paper can be taken up for future study and empirical testing. Secondly, the
framework is generic (not specific to a country or service or industry) and
hence there is a scope to do research on specific markets in a target industry
(Business to Business or Business to Customer). Though the study has tried
to capture the nuances of the various regions within the African continent and
has also extended to similar markets in Latin America and Asia, one of the
limitations of the study could be insufficient coverage of a few specific coun-

© Transnational Marketing Journal

 SARANGI, PATRO & KUMAR

tries and the underlying challenges. This could also be considered as an area
of future research by specifically testing the framework in those countries.

Acknowledgement
The authors wish to acknowledge Sudipta Sarangi, Gulf Coast Coca-Cola Bot-
tling Co. Inc., Distinguished Professor of Business Administration, Louisiana
State University, Baton Rouge, for helpful guidance in preparing this manu-
script prior to submission. The lead author would also like to thank his wife,
Dr. Sunita Sarangi and daughter, Ms. Shivani Sarangi for constant encourage-
ment and support.

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