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African Expansion


Friday December 4, 2015

Unilever, one of the world’s largest consumer goods manufacturers, is expanding its business in Sub-Saharan Africa, according to CNN. Its products now reach 30–40 percent of that continent’s population. That’s 300–400 million people.

“While in the past Unilever has imported a lot of its products into Africa, it is now expanding its manufacturing base on the continent,” Earl Nurse writes for CNN. “The company has recently opened an ice cream factory in South Africa, a mayonnaise factory in Côte d’Ivoire, and a plant producing Vaseline in Kenya.” 

Unilever’s Executive Vice President for Africa Bruno Witvoet says in the article that he sees opportunity in Africa for manufacturing growth. He also says building manufacturing capacity domestically in Africa is an important element for businesses that want to reach that market.

Last month, The Economist painted a different picture of manufacturing in Africa, suggesting that it had missed its chance at a manufacturing boom. The publication cites the UN’s Economic Commission for Africa, which reports that, from 1980 to 2013, the African manufacturing sector’s contribution to the continent’s total economy actually declined from 12 percent to 11 percent, “leaving it with the smallest share of any developing region.”

Although it isn’t unusual for countries with growing economies to deindustrialize and shift to a more service-based economy, The Economist suggests, many African countries are still poor. If there aren’t factories in those countries, it means there aren’t higher-paying factory jobs.

According to The Economist, Africa presents three distinct disadvantages for manufacturing:
  1. It has a weak infrastructure: Electricity is expensive, roads are inadequate, and ports are overly congested.
  2. It has a lot of natural resources, which may seem like a benefit, but it actually has had some negative consequences for manufacturing. Although the continent’s economies have benefited in the past from the export of oil, diamonds, gold, and other commodities, they have been importing goods such as cars and appliances. Now, commodity prices have fallen, and local production of goods isn’t adequate.
  3. Lastly, Africa has a complicated geography. It contrasts with Asia, where there are leaders and followers. For example, in the 1970s, as Japan grew in its manufacturing sophistication, it moved its labor-intensive manufacturing to Taiwan. Now, “light manufacturing is leaving China for neighboring Bangladesh and Vietnam rather than distant Africa, despite its promise of plentiful cheap labor.”
The Economist article does highlight some bright spots in Africa’s manufacturing, namely Ethiopia, Tanzania, and Rwanda. In Ethiopia, for example, the government has worked to attract foreign investment, and its manufacturing has grown more than 10 percent each year between 2006 and 2014. “Domestic firms learn from being in the same value chain as a foreign firm,” says John Page, senior fellow, global economy and development for Brookings Institution. “Firms buying from local suppliers tend to raise local quality by sending managers and technicians to them. This helps them to produce more sophisticated goods.”

Creating value via manufacturing

This week, we’re examining the complexity of building manufacturing capacity in Africa—the lessons and the challenges. Let me present the simple definition of value creation, as it appears in the APICS Operations Management Body of Knowledge Framework: “Value creation is taking raw material or knowledge and converting it into a product or service that has more value to the customer than the original material or data. Value is created using transformational processes.”

Although the potential consumer and labor pool is tremendous on the African continent, significant challenges remain. Harnessing the power of value creation and building systems and infrastructure around that idea, similar to what Unilever has done, could help expand enterprises and economies in Africa. Workforce education remains a vital element of this kind of expansion. The APICS Certified in Production and Inventory Management program provides professionals with the critical ability to understand and evaluate production and inventory activities within a company's global operations.

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