Lauri Elliott

This is an article I wrote for Brainstorm Magazine of South Africa. It appeared in the December 2009/January 2010 issue.

The penetration of mobile phones and mobile data will serve as catalysts for a growing mobile gaming market in South Africa. The question is how well the industry will navigate these opportunities.

Globally, gaming is a hot market – from console, to PC, to online, to mobile. Pyramid Research’s recent report, Mobile Gaming in Emerging Markets, says that mobile gaming will grow at least 20 percent per year from 2009 to 2014 in the Africa and Middle East regions.

Jan Ten Sythoff, research manager for Pyramid Research, says that mobile phone and mobile data penetration serve as catalysts for this market. While Africa has good mobile phone penetration, there are differences between consumers in mature markets like the United States and those in emerging markets like Africa.

Says Matt Benic, a developer with I-Imagine: “While we have high mobile phone penetration, our potential consumers in South Africa typically have low levels of disposable income (also typical of the rest of Africa).”

This means handsets used by consumers are lower-end devices, and the cost of games needs to be lower than in developed markets. In addition, consumers would not necessarily have previous experience with other gaming platforms like consoles and PCs. Says Danny Day, owner of QCF Design: “The first provider that offers a truly engaging, massively multi-player, micro-transaction-enabled game on phones is going to win big.”

Benic says there is also huge opportunity with sports, like soccer, and SMS-based games in South Africa. A “taxi”-driving game might be an appealing concept in South Africa too. This is tapping into what consumers know and feel comfortable with.

Sythoff says the challenges facing emerging markets include game cost, affordable handsets and piracy.

Benic mentions that the misperception that game development is inexpensive is a challenge in the local industry. Companies that would pay to have games developed for advertising and promotional purposes are often shocked when quoted a price.

Furthermore, according to Benic, the lack of sufficient numbers of skilled developers is slowing down the mobile game development industry. And then there is the ongoing issue of the cost of internet access. There are many free and inexpensive tools online to support mobile game development but the data usage expense can be prohibitive for small firms.

Challenges impact the consumer too, says Day. “Poor visibility, commodity-focused instead of product-focused marketing, shoddy after-sales support and lack of penetration by local mobile developers means…potential players have to wade through sheets and sheets of poorly advertised games.” In addition, the games are not localised to suit consumers.

Challenges notwithstanding, Sythoff shares several business models with the potential to succeed in African markets. First, there is gaming for advertising, or adver-gaming: players are allowed to download games for free, but the games contain advertisements. The vendor and developer generate revenue by selling advertising space.

A second potential business model allows consumers to play games for free until they reach a certain level, after which they must pay. This is a good way of getting consumers hooked on a game, providing motivation for them to pay to continue.

In some instances, a game developer will work with a data provider to provide games. Both share the revenues while keeping the price of games lower. Day says QCF Design is looking into another business model – subscriptions.

No matter which business model is employed though, says Benic, a game has to make it the first month it is released.

Sythoff says there are potential spinoffs in digital content and educational games, while Day says his firm “has had some success with mobile-based learning games”.

Sythoff points out that new mobile game developers need to address several issues. First, they have to find channels to reach potential consumers. This will normally result in partnerships with mobile phone operators or aggregators. Second, developers need to consider how they will bill the end-user.

Third, games should be localised to match language and culture.

Unlike the iPhone Appstore, which shook the US mobile game industry by allowing new and more agile mobile developers to enter the market, local developers find it difficult to enter the market. Day says “commissioned game development is currently more lucrative”.

Up, up and away

As for the future, Day provides several insights. “New studios are applying lessons learned from digital distribution games on consoles and PCs to the mobile space. These are studios and products that will change the mobile gaming sector in South Africa.”

Also, says Day: “Watch content creators that produce content for local consumers, as well as the Indian mobile game development industry… (it) will inform developers here.”

Finally, Day says to track MXIT.

“MXIT is a heavyweight in the industry. It’s one to watch for future growth in the mobile game sector, especially if it acts as an aggregator for quality local content.”

The sector will also be tamed. “New gambling control laws and changes to premium cost services should help reign in the `Wild West’ nature of many mobile businesses,” according to Day. This will reduce exploitation of consumers.

Overall, two possible scenarios will develop in South Africa’s mobile game sector. Mobile games will be overtaken by flash- or browser-based games as phones evolve, if the mobile game industry does not respond on time. Or, the industry will shift from its current business models to more customer-focused models, which focus on alternative revenue streams.

Sythoff says the mobile game sector is complex. Navigating this complexity successfully is a key enabler for firms wanting to enter this space. Success will come to firms like Apple, which are able to deconstruct the complexity and tap into the potential of the sector. With the potential revenue stream and under-tapped market, it’s definitely a sector to consider.

Exporting is the commercial activity of selling and shipping good and/or services to a foreign country.  It is typically seen as a growth and expansion strategy for an established firm.  However, even start-up firms can find foreign markets more attractive than home markets. No matter the rationale for exporting, the approach is to enter the market cost efficiently and reach a break-even point as soon as possible. 

An export-ready business has considered the following: (1) company/product/service strengths, (2) rationale and objectives for exporting, 3() growth potential in other markets for products and services, (4) context of foreign country and the industry in the foreign country, (5) legal and regulatory requirements, (6) target market in foreign country, (7) financial requirements and (8) market entry issues.  We zoom in on market entry strategies in our discussion, “Preparing for Exporting – Getting to the Customer,” on AfribizTalk on October 21, 2009.

We were joined by two experts – Dr. Patrick Wilson and Dr. Emeka Nwankwo.  Dr. Patrick Wilson, Administrator of Big-Africa Partnerships Secretariat (BAPS), shared how the technical issue of labeling impacts the marketing of an African good exported to the United States.  Dr. Emeka Nwankwo, CEO of Vertical Optimization LLC, shared the process they use in Export-Path , which illustrates both the issues exporters should address and an approach for success.

Dr.  Pat indicated labeling should be informative, truth and not misleading.  Also, anything you put on labeling you must be able to prove.  Therefore, you should follow the mantra, “Do what you say and document what you do.”

Dr. Pat stressed the importance of having a good relationship with the distributor and buyer of your product in the foreign market.  Since in many cases you will not be local, the distributor and buyer will handle the presentation and placement of your product to your potential customers.  You want to work with those who will place your business opportunity as a priority.

Dr. Pat’s point leads into the larger discussion of export readiness.  There is a distinct difference between being export “willing” and export “ready.”  You may want to export, but have you developed the strategies and capacity to do so?

Dr. Nwankwo said there are three key challenges faced by exporters.  First, exporters need to access appropriate information to help shape their decision about exporting. We agreed that this is a key gap in how many businesses approach exporting.  Two, exporters need to have appropriate resources, e.g., human capital, equipment, and financial capacity.  Three, exporters need access to the marketplace, meaning the physical process of getting the products or services to the customer.  This includes elements like customs clearance, transport, warehousing, distribution and marketing.

We finally zoomed in on the challenge of access to information.  This is a challenge consistently mentioned by experts and clients alike.  Dr. Nwankwo says information, or the lack thereof, impacts a decision to pursue or not pursue exporting.  The first consideration is the exporting business concept.  This “straw-man” serves as input to the information gathering process.  It could be an existing business plan along with basic information about the idea for exporting, e.g., rationale and objectives, potential export country, target audience, timing, issues.

According to Dr. Nwankwo, the Export-Path process walks potential exporters through four key steps.  These steps include considering the concept, gathering intelligence on the opportunity, developing the product prototype and completing a risk analysis. After gathering the intelligence, potential exporters will be able to decide to pursue exporting or not. After completing the risk analysis, an export plan is generated.  The export plan is key to acquiring finance, if needed, for developing production capacity.

Since appropriate information is critical, we recommend that you first seek out and review existing information that is readily available and free.  Our Afribiz Info Portal will help you do just that.  In addition, we provide an on-demand seminar outlines a path for plunging into business in Africa.  It can also be applied to other ventures into international business.  The seminar, “Setting a Path for Success in Africa: in Business, Investment and Life,” is also available at the Afribiz website.

Listen or download the recorded radio show here.

Check out other AfribizTalk shows here.

Originally posted at www.afribiz.info.

Regional economic communities (RECs) are intergovernmental bodies established to foster mutual economic development and cooperation amongst a group of countries.  For Africa, RECs will gradually lead to one continental economic community called the African Economic Community (AEC).  The AEC will be a pillar of the African Union.

Like economic hubs, RECs can provide a strategic focus for businesses and investors.   RECs focus on creating at least a free trade area, customs union and common market between member countries.  While this helps the member countries with cross-border trade and opening markets to the world, it also opens larger and more varied opportunities for businesses and investors.

As an example, if you planned to concentrate your business and investment ventures in the East Africa economic hub of Kenya, you would greatly benefit from the infrastructure and institutions developed for the East Africa Community (EAC).  The EAC consists of Burundi, Kenya, Rwanda, Tanzania and Uganda.  It has a combined population of about 130,000,000 compared to about 40,000,000 in Kenya alone.  For those who do business and invest in consumer markets, the difference in market potential based on size is excellent.

In fact, the EAC is a good regional economic community on which to focus.   It has many key developments, which may cause an explosion in economic opportunities in the next decade.  One is the backhaul fiber optic cable laid, connecting all the EAC countries with broadband capacity. In addition, there are a few undersea cable projects (e.g., EASSY, SEACOM) that will connect this backhaul to international broadband as early as June of this year.  Currently, this market is served primarily by expensive satellite infrastructure.

Another development is an improved rail system between the port city of Dar es Salaam in Tanzania to the interior countries of Burundi and Rwanda.  Not only will it improve the efficiency and speed of transport, but it is estimated to reduce the cost of transport by 40%.

Developments like these not only improve the business environment, but serve as investment opportunities through public/private partnerships.  These type of investments require large investment pools, but EAC is establishing a regional stock exchange with electronic trading system this year.  It will enable even small investors to invest in East African firms.

There are eight RECs in Africa recognized by the African Union, which you can preview and link to their individual websites from here.  To learn more about the EAC, visit www.eac.int.  There you will find the development strategy for the EAC through 2010.  You can also view the EAC Guide for Investors.

As always, we provide a monthly list of resources on doing business in Africa, which you can access here.  And this month, we have started daily short blurbs related to the monthly article to give you more insights into regional economic communities in easily, digestable chunks.  Follow or join the feed here.