Category Archives: AFRICA BUSINESS REVIEW

Research agendas on African enterprise development

Research agendas on African enterprise development

Based on Figure 1, we can identify a number of resource gaps in the study of African enterprises. Firstly, considering the ‘contingency’ box, the majority of studies mentioned above examines the external components (institutions, markets, resources, competition), while fewer address the internal ones, such as entrepreneurship, size, skills and relational capabilities. We argue that future research needs to develop a better understanding of the internal resource configurations and the capability mixes that create African enterprise development.

The second box, the ‘strategic action’ aspects of the model, also seems to be conceptually under-developed and empirically under-researched in an African context. Future research needs to understand why firms operating within similar contingencies adopt widely different strategies and perform in different ways. Indeed, excluding strategic action as a mediator between contingencies and performance would overlook the key role of agency in African enterprise development and in particular the role played by decision makers/entrepreneurs/managers.

Finally, the review of the literature on performance of African enterprises suggested that more work is needed to understand the performance aspect. In particular, we argued that it is essential to make a distinction between survival, growth and profitability when assessing performance. Are ‘survival without growth’ or ‘growth without profitability’ sufficient indicators of performance? Research on performance would furthermore need to deal with the thorny issue of the sources of performance, for instance; is survival, growth and profitability based on political and kinship based strategies reflective of African enterprise development?

Emphasizing relationship between contingencies and strategy.

Thus, there are lacunas in relation to each of the dimensions of Figure 1. However, more importantly, we need to understand the relationships and interactions between the three dimensions. The contingencies, strategies and performances of African enterprises can interact in any number of ways. In what follows, we will emphasize two interconnections between contingencies and strategies that in particular need to be addressed in future research on African enterprise development. The first concerns the heterogeneity of African enterprises. The second concerns the heterogeneity of African countries.

Accounting for the heterogeneity of African enterprises

There is no such thing as “an African firm” and recent debates have started to acknowledge the huge heterogeneity of African business and how this impacts firm strategy, conduct and performance. For one, comparisons between countries highlight national variations, for instance in terms of importance of external relationships, government regulations and financial support (see e.g. Hung, Benzing and McGee, 2007). Within the SSA countries, there are also variations between indigenous and non-indigenous entrepreneurs and firms (see e.g. Ramachandran & Shah, 1999) or between firms with different ethnic orientation, for instance between Kenyan African, Kenyan Asian and Kenyan British firms (Jackson, Amaeshi and Yavuz, 2008). Beyond cultural heterogeneity, it is possible (and necessary) to segment according to firm types (incumbents, entrepreneurial firms, etc). Even further segmentation is possible (based on age, location, sector, export orientation, etc.). Thus, conceptualizing the heterogeneity of African firms is a complex task. However, untangling the heterogeneity in choices and outcomes across firms within SSA countries is a vital part of making sense of the factors that shape firm behaviour.

Empirical data on performance drivers of African firms are scarce and do not adequately address or explain the dynamic relation between the contingencies, the strategies and the performance of the firms. Despite the recent media enthusiasm over African firm success, researchers are only beginning to understand the determinants of firm success in low-income countries. New lenses are needed to understand and explain the rising African “lions”, which despite often challenging environments succeed in growing their businesses. While studies suggest that Africa possesses a substantial reservoir of capacity endowments and best practices and that the solutions to African growth issues often are home-grown (Dia, 1996), exactly how this plays out is not thoroughly researched. Therefore, the focus needs to shift from solely analysing the multiple macro and micro- level barriers to examining firm strategy and capabilities in much more detail. More concretely, we proposed an analytical framework which directs attention toward three key dimensions: 1. The interplay between internal and external contingency factors; 2. The interaction of external and internal contingencies and firm strategy (balancing, network and internationalization strategies); and 3. The determinants of firm performance (e.g. measured through survival, growth and profitability). The interplay between these dimensions is a central element of the framework. A contingency approach to understanding African enterprise growth will, inter alia, take into account the heterogeneity of African firms as well as the heterogeneity of the business environments in which they are operating.

The framework has several advantages: first, it emphasizes the mediating role of strategy between contingencies and performance. Second, it emphasizes a dynamic perspective on firm behaviour and the resulting performance. Finally, the framework acknowledges that there is no one best way to strategize, but that strategy must be formulated through a fit between external and internal contingencies. As an example, we have shown how understanding firm and country heterogeneities have important implications for firm strategies. The tide is starting to turn and a new and diverse generation of African firms is emerging, gaining grounds in local and global markets. It is high time that research gears up to enhance our understanding of this phenomenon, for instance by developing better conceptualizations of firm level factors behind African enterprise growth and/or by massively upgrading the effort to provide empirical data on African enterprises.

 

Towards an analytical framework for African enterprise growth

Towards an analytical framework for African enterprise growth

All in all, while a literature on African enterprise development appears to be emerging, it is still in its infancy and huge lacunas in our understanding of performance, strategy and contextual factors remain. In particular, we argue that a better understanding of the relationship between the contextual factors and strategy and performance is needed. In organizational theory these contextual factors are called ‘contingency factors’. Classic contingency theory stipulates that the optimal organization/ leadership/ accounting/ etc. is contingent upon various internal and external constraints. Based on Fiedler’s work from 1964, it is suggested that there is no one best way to manage, that effective organizations must ‘fit’ with the environment and between its subsystems, and that organizational and management decisions are best when contextualized. While many authors have approached contingency theory from different angles (Kast & Rosenzweig, 1973; Lawrence & Lorsch, 1967; Otley, 1980), we will in this paper understand contingency theory broadly as concerned with the fit between structure and strategy (Hoskisson et al., 1999).

Our argument in the following is that we lack information and empirical evidence on how the contingencies and strategy relate to and influence each other in the specific African context. As Zu and Meyer (2012) suggest based on studies done primarily in Asia, dynamic contingencies provide pivotal challenges for strategy research in emerging economies. We will argue that the focus on context-specific nature of strategic management evident in recent research on Asian firms should be followed up by similar approach to strategy in an African context. How are strategic decisions informed by the internal and external contingencies in Africa, and how does this influence performance? Many firms master the contingencies of operating in the African business environment, for instance by creating strategies to deal with institutional voids and uncertainties or compensate for resource constraints, but we know far too little about how, when and why this is happening. There is thus a clear need for research to direct attention to firm strategy and the factors driving and constraining firm strategy. The following framework (Figure 1) outlines the relationships to be explored if we are to better understand the performance of African firms.

Network strategies for Entrepreneurs in Africa

Network strategies

In continuation of the above, several studies emphasize the key role of network strategies in assisting African enterprises circumventing the various external and internal constraints present. Network-based behaviour influences how firms interact with each other and are common due to social traditions and as a consequence of the less efficient markets (Zu & Meyer, 2012). McDade & Spring (2005) speak of a whole new generation of African entrepreneurs networking to change the climate for business and private sectorled development.

In particular, cluster strategies and strategies aimed at exploiting state-business relations have been propagated as powerful tools in the African context. For one, clusters can contribute to increased competitive advantage through local external economies and concrete joint action projects, together increasing collective efficiency (Schmitz, 1995; McCormick, 1999).

The clustering of firms is particularly useful to small-scale industries in developing countries as the firms are able to pool resources and develop competencies together (while still competing) in a step-by-step manner (Oyelaran-Oyeyinka & McCormick, 2007). Secondly, state-business relations (SBR) have high political and economic significance for firm abilities to act and their subsequent performance (Leftwich, Sen and Te Velde, 2008).

SBRs can impact firm performance by providing a solution to state, market and co-ordination failures in three ways: a) Efficient policies and institutions; b) Improved quality and relevance of government expenditure; c) Reduced policy uncertainty (Qureshi & te Velde, 2007).

Qureshi & te Velde used enterprise survey data of the World Bank Group for Zambia for around 200 firms to discover how being a member of a business association improved firm performance in Zambia in the form of productivity improvements of 37 to 41 per cent. However, the difficulty in sustaining business associations and the prerequisites for synergies to develop from growth coalitions in SSA has been highlighted by Bräutigam, Rakner and Taylor (2002). More empirical attention is needed to understand networking strategies in Africa.