Key challenges, opportunities for tech startups in emerging markets

Africa and other emerging markets such as South America have received a fair share of the spotlight over the last decade. Most of the focus has especially come after the 2007/2008 global recession where economic analysts were looking for unique trends in these markets to try and stabilise their own national economies.

These emerging markets have become a new front for startups as both local and international investors try to leverage the increasing levels of technology absorption here. Why would an investor put his money in these markets some of which are extremely volatile? It all boils down to new opportunities away from the traditional markets. A paper titled “The Fortune at the Bottom of the Pyramid” by C.K Prahalad and Stuart L. Hart posits that low-income markets are the next frontier for both startups and wealthy brands to make money.

Think of India and Brazil two of the countries that have emerged as tech hubs in their respective regions. The outsourcing market in technology cannot be complete without the mention of India and other emerging markets.

Unique Challenges in a Unique Platform

While some startups have fared well others have found it hard to sustain their growth amidst unique challenges that are characteristics of the markets. One key issue encountered in these markets especially by tech startups is the fact that they have not taken time to learn the needs of the market. As the euphoric demand for tech solutions in most industries rises investors have sought to make a mark by all means and this has backfired in most instances.

Challenges Startups Face

Well, developers in the emerging markets have not been left behind in cashing in on the need for tech solutions. However, like their foreign counterparts, they have had to grapple with myriad challenges. If you are investing in a startup in Africa or other markets it is important to be aware of these challenges in order to have a solid strategy in place.

Every market unique as the success of the mobile money platform in Kenya has shown. Except for Zimbabwe, this success has not been replicated even in bigger economies such as South Africa and Nigeria. What are some of the challenges you have to face when investing in these new markets? Here are some ideas:

1. Financing Challenges

Like all startups, you will need to find financing and this can be a challenge. Whether you are a local SEO company trying to make it big or a partly owned foreign startup you will have to contend with financing challenges. The ongoing global economic shifts have made things even worse as financial institutions are favouring to governments as opposed to individual investors who have no collateral. A recent report paints a gloomy picture with 85% of new companies reportedly underfunded.

However, by investing in management training small businesses can build solid business plans and shore up their incomes to attract new capital. Crowdfunding and venture capital are other unique ways for startups to improve their capital base.

2. Market Volatility

Before the political unrest in Venezuela and Egypt many telecommunication companies had set base in these hitherto stable countries. Things have changed rapidly over the last 7 years and most startups, especially in technology, are being forced to flee. The emerging markets experience more dynamism due to factors such as corruption, political upheavals and regional issues. In Egypt, tech startups have found the going hard as they are targeted by authorities as being part of the ongoing political upheavals.

3. Pioneering new Markets

Being a pioneer comes with its fair share of challenges and opportunities. Companies such as Facebook, Google, and MySpace among others had to invest millions to convince customers to pick up their services. The situation is even more daunting in emerging markets as you are virtually building everything from scratch. Think of the ecommerce platforms such as Ahonya in Ghana and OLX in Kenya and Nigeria. Other startups have had to work even harder to convince users about security issues on their platforms and the cost-benefit. Uber the online taxi service is still experiencing problems in Kenya, China and India among other countries.

4. Weak Infrastructure

While the global infrastructure has been improving over the last two decades some emerging markets have been at a standstill. This could be due to the limited economic investment among other reasons. If you are investing in an online app for Africa, for instance, you need to launch in a country where access to the internet is seamless. If you want to launch an online store then you must have a logistics structure in place to ensure your products get to the recipients intact. All these call for more resources which are unavailable.

5. Unclear Government Policies

A major issue often cited by global brands expanding to Africa and even local companies seeking to invest in emerging industries is the lack of clear government policies. While most governments are working towards improving their foreign investment their investment policies there is a lot that has to be done to remove the red tape and corruption. Minimal government assistance has also been an issue with both local and foreign investors having to slug it out on their own through the bureaucracy to get things done.

Looking Beyond the Challenges

While it is true emerging markets have their own share of challenges these can be overcome to make your startup a success. How can this be done? Here are some ideas:

• Closing the information gap by investing in intense customer sensitization.
• Leveraging mobile technology to reach more customers.
• Investing offline marketing even as you seek to capitalise the online numbers.
• Learning cultural relevance before launching any product or service.
• Leveraging local expertise to help you understand demographics and other cultural nuances.
• Looking beyond traditional financing models to bring in new capital and skills at the same time.
• Investing in human resource training to get the best manpower in your niche.
• Customising your SEO strategies to fit the local markets.

Startups always face multiple challenges in any business environment; from fast-paced markets, globalised business platforms, competition and lack of financing. When investing in emerging markets these challenges increase tenfold but luckily you can also turn them into opportunities.

 

Featured image: Woodleywonderworks via Flickr