OoTheNigerian

sometimes, I make a lot of sense.

Xenophobia vs. Protectionism: How should local Nigerian startups compete with ‘foreigners’?

20 January 2014 by Oo Nwoye

 I read a post that would not be too out of place if it came with the byline of BNP’s Nick Griffin.

The crux of the post is that we should be afraid of the foreigners coming to Nigeria to take it all from the Nigerian tech scene and “forcing them back into the Lagoon” is the way forward.

I suggest you read it

Ideally, it would not have been worrisome but the fact that it was written by a poster boy for the Nigerian internet space and wholly endorsed by Sim Shagaya, CEO of Konga who called it “words of wisdom” makes it so

If people do not state early, their opposition to such xenophobic (irrational fear of foreigners) thinking, it could easily be misconstrued as a true representation of the view of Nigerian tech ecosystem.

This is coming on the heels of a Nigerian commentator/activist advocating that foreigners should not be allowed to run malls in Nigeria

Interestingly, Nigerians are particularly known for traveling far places to do business and are usually on the receiving end of “these foreigners are our problem” thinking.

Why the fear of Rocket Internet?

Rocket Internet is an Incubator funded by 3 German brothers, the Samwers. Their business model initially was copying businesses that had gained traction in USA but yet to enter Europe then sell these companies to the original US companies when they are ready to tackle Europe.

Version 2 of their current business model is aggressively building ecommerce verticals in Africa, Middle East and South East Asia.  They centralize and reuse technology in Germany and then hire a person to lead the operations execution in the country they are tackling. They sell and leave as quickly as possible

When they come into a market (it is rumored that operation leads on the ground, aka co-founders, are given $1million to check out the market) they move aggressively, hire and quickly spend lots of money (in the local ecosystem) in a very short time.

This of course causes a mini inflation in the local tech scene as they poach staff, cause an increase in the ad buying cost etc, mainly making things much more expensive. No local startup certainly likes it since it makes business unnecessarily more expensive to run

My views on Rocket Internet have evolved over time. Before, I thought they were a net negative to our ecosystem since they play the pure extraction short term game. Meaning, they build solely to sell and when they sell, they take the money out and move to the next area to extract from; leaving a wake of over stretched local startups and questionably self-sufficient businesses.

But that was one dimensional thinking on my part. Rocket internet is majorly responsible for the urgency we have in our local tech system especially in the ecommerce space. Alongside stretched startups, they leave in their wake human capacity trained on their dime a more developed market and of course a new investor holding the bag. I’m certain the local advertizing companies are also not complaining.

A negative remains though. In other successful tech ecosystems, local money is a major part of the tech scene so when there is an exit, the money is poured back to the local economy and it gets bigger. With the Rocket model, nothing like that happens.

How do you solve a problem like Rocket Internet? Protectionism or Xenophobia?

What is worrisome in Jason’s post is the fact that a legitimate problem (the Rocket extraction model is not the best for a fledgling ecosystem) is muddled with the xenophobic “stop the foreigners” solution.

What is bad for the Nigerian ecosystem is the extraction game irrespective of who plays it.

[Side note: Interestingly, Nigerian politicians and to a large extent ‘business men’ are guiltier in playing the extraction game. They take money from Nigeria (usually foreign loans) and go and develop Dubai. At least Rocket is bringing in money before planning to take out their spoils.]

I’m in favour of protectionism to an extent.

Protectionism are laws created to protect local companies from foreign (company) competition especially if the locals are operating at a disadvantage. The value in protecting home companies is based on the assumption that they will employ residents, pay tax and limit capital flight. They more they succeed, the more tax they will pay and more people they will be employed locally. Local companies could be run by New Zealanders for all anyone cares. i.e citizenship of local company owners does not matter.

Hypocritical words

Jason states:

“We are at the cusp of losing the key internet 1.0 verticals to non-indigenous players. This is something which would be dire for the ecosystem at large.”

 

“My simple thought. Our fathers lost the Telecoms, PayTV and other technologically driven industries to foreigners. Let’s not make the same mistake and lose our internet industry.”

So what exactly is he arguing are we losing?

If he is talking of returns, shouldn’t those who take risk be rewarded? When Konga and IROKO eventually successfully create a massive liquidity event, who would win?

Well, their approximately 100% foreign investors.

Is he talking about losing by building foreign capacity as against building local capacity?

Jason’s Co-founder, first angel investor and IROKO COO Bastian (who runs the company) is ironically, German (same with Rocket’s founders). DealDey (Sim’s previous company) is run by a foreigner. Konga and IROKO have foreigners in leadership positions.

There is no noticeable difference between the citizen structure i.e the citizen composition of the employees of either Sim/Jason’s company and an average Rocket Internet company e.g. EasyTaxi and Jumia (until recently) are Nigerian run.

I have previously written about why we are losing the investment game to foreigners.  In summary, there is less risk and turnaround time in investing in traditional tangible opportunities like real estate. Only those who have made money via software can see the internet opportunity. Sadly, they are not much around.

Competition:

The absence of international competition is the reason why Nigerian payments infrastructure has been way behind. Without competition in PayTV, we would have been at the mercy of HiTV that broadcasted premier league matches without sound or halftime commentary.  Without competition the customers will lose.

The world is flat and companies can no longer hope to be protected by artificial political borders. From day one, you should build like the biggest player in the world is going to launch in your market tomorrow.

The sole reason Silicon Valley is the outright leader in technology startups globally, is the combination of the concentration of talent brought by the high priority placed on competence irrespective of origin and a lot of money.

What is the way forward?

Asides the xenophobic card, how do local ‘underfunded’ companies compete against the foreigners especially those playing the extraction game?

Ironically, Jason answered  this in the beginning of his post referencing the Alibaba movie

“a great company culture, locally focused product development and a fierce belief in your local market can withstand and defeat a massive global competitor”

In addition to the above the government has a role in ensuring local capacity is built. Local businesses are encouraged to  operate/employ locally,  Yadda.. yadda  yadda..

 

First they came for Rocket Internet, but I did not speak up because I was not German..

Then they came for the Kenyans, but I did not speak up because I was not Kenyan..

 

PS:

  1. I do not for one second think either Jason or Sim are xenophobic one bit. Jason is even arguably British. But playing the xen? card for short term individual business advantage is VERY detrimental to the general ecosystem at large in the long term.
  2. Make no mistake, I am a very biased man all things equal, if a local company is executing at 70% of their foreign counterpert, I will go with a local. Same with friend vs. non –friend, family vs. non-family. Etc. However, I will not go attacking the other.
  3. Being pro x is cool, being anti y, had better be justified and being foreign is the worst of justifications.
  4. Triple irony is that Alibaba’s major investor was Yahoo! – a foreign company founded by a Chinese immigrant who would not have founded an American company if Silicon Valley was anti-foreigner (this is getting too meta for me).
  5. Oh. The Alibaba story was told by a foreigner.

Have You Read These?

I am a founder of Fonebase Labs, a Nigerian technology company. Our products are Fonenode - a telephony API, Callbase , a virtual contact center and WriteRack the best way to tweetstorm. Feel free to holla at me (ositanwoye@gmail) if need be.

33 comments | Categories: Commentary, Nigeria, Uncategorized | Tags: , , , , , , , , , ,

  • Brilliant.

    • Alhassan Abdulkadir

      I concur

      • Sam Wakoba

        I love this thread!

  • Havilah

    I choose to see Jason’s submission from this perspective – he wants more Nigerian ‘money bags’ to get involved now.

    • That is a Pro X (local) position and not an Anti Y (foreign) which is a great angle.

      That would have been an excellent positon to make without attacking Rocket Internet for being capitalists.

      —————
      Oo Nwoye

      • TheRealHuhuSupporter

        That WWII Clip was not necessary at all.

  • Saheed Adepoju

    Oo, i must say this is perhaps one of your best, well written articles till date. Great points to be taken. Many thanks for sharing.

  • Sometimes, you make a lot of sense 🙂

    • Prince Oluwasegun Abisagbo

      as in so much sense…Oo na boss

  • Prince Oluwasegun Abisagbo

    Konga should focus on making their service great. Personally I won’t use them again… 2 over delayed orders is enough abeg! lemme try Jumia

    • Hi Prince, I work with Konga, can you kindly send me an email of your pending/failed orders(ifeanyi.abraham@konga.com) and I can ensure you get this orders/find out what the delay is. Apologies for the service you have got so far.

      • Prince Oluwasegun Abisagbo

        You have to be the most valuable Konga staff…You not only blog but respond to blog/comments… Haba! That’s so cool/admirable! Obviously, you have a passion for this.

        However, I have friends in Konga that I can ask to help with my order. As a people person, I have decided that this time i will let the process play out so as to feel what others are feeling.

        Last time, I had to complain to Sheriff/Sim. Got a call from Konga today. Im guessing its Sheriff’s intervention. They said they will be in touch even though I was not given details on delivery date

  • TheRealHuhuSupporter

    Thank you O_o.
    A very clear and wise position.

  • I try hard to remove emotion from these things but it is very hard and to some extent I would understand why people get emotional. However, winning in business is about execution and not emotion. You can use emotion to galvanize people into action internally but emotion will not get customers to buy from you, it is value.

    As someone who has suffered from the same xenophobia and protectionism as an African even within Africa, all I can say is that both options are bad because they encourage and perpetuate mediocrity.

    The best part of this post for me was the part about payments in Nigeria and PayTv. Without competition and global standards, local champions will win and customers will indeed lose.

  • Simple message from everything Jason and Sim are saying;

    “Not to attack foreign participation, but to protect a nascent ecommerce ecosystem from suffocation by YOU KNOW WHO greedy investors.”

    • Ok, let us go with that line of thinking

      How do you determine a greedy investor? What is the criteria? Who creates the criteria? Who adjudicates?

      • An Investor that boldly registers domain names of another (potential) competitor, that plays out a business model that is all about flipping and selling, that creates businesses across different verticals, raising the cost of doing business, cost of human capital, etc and takes all the profit home= Greedy Investor

        • Ifeanyi, ethics and greed are two separate but sometimes intertwined issues. I remember the Mocality fiasco in Kenya but the interesting thing is that Google never sanctioned it and while Google may be competitive, they are one of the most ethical companies I know. I would not call them “greedy”.

          Good ethics are encouraged by environments and enforced by laws

        • Please,

          Rocket Internet’s questionable competitive strategy against Konga should be separated from what I am criticizing in Jason’s post “the rallying call against foreigners”

  • Great post. The lessons from china will be very instructive for how the game will be played in Africa. It’s clear that the Africa tech ecosystem cannot be built entirely locally or entirely foreign. When Governments are flying to Silicon Valley to understand how it works and many Africans continue to get educated abroad and build networks to come back to start or continue their career should highlight how critical a global approach is. This happened in China and were often known as “sea turtles”, swimming their way home and were critical jump starts to their tech ecosystem.
     
    The fact of the matter is if you open up borders and let global talent come to your region you gain a competitive advantage, something Kenya has done quiet well and promoted. Capital movement is global, trade is global and tech is certainly a global game. If there is a large market in the country is adopting free market policies in its economies, let us not be surprised if global players want action, from retail, resources to tech – case in point, Nigeria. 
    China is not necessarily a totally free market, protectionist measures did Infact come in a local funds and locally sourced startup a have thrived. Will Nigeria go the way of China?

    The number of foreign led Startups that Savannah Fund has turned down in the first year of operations is staggering. Most of the time we passed because they didn’t have a credible local execution plan which does not make them competitive. My colleague and Principal Malaika wrote about some of these lessons for foreign Startups http://www.savannah.vc/blog/2013/12/16/top-10-failures-expat-entrepreneurs-make-in-east-africa/

    Finally, it’s important to distinguish what exactly is a startup vs corporate venturing. When Microsoft, Google, Meltwater (MEST) and Samsung start deploying capital and setting up venture arms inc. hiring both local and foreign talent to execute , the line becomes blurred. Should you let a local startup sink or swim on it’s own merits with local support (incl funding), should you use foreign mentors to teach Startup lessons that may not apply to the local context? We try balance these at Savannah Fund.
    I also agree that rocket internet is good for Africa, I wrote about this over a year ago http://www.savannah.vc/blog/2012/09/26/rocket-internet-may-be-just-what-is-needed-to-turbo-charge-african-e-commerce/ We should also remember that this is a long run game, things might look very different in 5 years time, rocket internet alumni will start companies, local venture funds will show up, Tech parks will get built and exits will happen… All these will add to critical experience and foundation for Africa’s tech ecosystem, whether locals want to be part if this is up to them.

  • niyoma

    I will try not to use the connotation ‘foreigner’ as I dislike it.

    If ‘locals’ with the available funding don’t believe enough in an ecosystem to invest in it, crying foul about those willing to take the risk from a land faraway isn’t that plausible. Jason’s plea is a rather patronising and nationalistic petition particularly from a self confessed capitalist.

    I would argue that we need more rockets. Yes! We need more rockets.

    I see this as a win-win scenario.

    1. Rockets guzzle cash (into the ecosystem) and create jobs which in turn have a drip-drop effect on the economy (see below)

    2. Rockets investment breeds a level of confidence potentially luring future non-local players to invest in Nigeria. There is a multiplier effect at play here

    3. Non-local players bring with them best practice, experience and standards we can benchmark against and also adopt. This removes the ‘anyhowness’ in our execution

    4. Employees working with these rockets benefit, they create a talent pool and/or branch out if and when

    5. Non-local players spur our local players to test other international markets and remove that ‘local’ limitation

    6. It is still early days and there would be varied levels of winners. However, rockets act as catalysts towards deeper penetration

    7. Competition for human resources (jobs) would ultimately mean people get paid better than the living wage, increased living standards etc. How can this not be good?

    8. Rockets quicken the ecosystem towards maturity. Local players will eventually join in the game with this quickening and validation

    9. Ultimately the consumer wins

    Yes there are concerns on purchasing power of rockets vs the lone guy looking to kick-start (wage costs etc). I would argue these are shorter-term yet good for the ecosystem and economy at large. Rockets skewed competitive advantage will rebalance over time.

    A bigger picture…

    Look at where India is now, think outsourcing (IT, Finance etc) and you think India. I would rather have a thriving ecosystem with non-locals as accelerators than a few Jasons looking to build an empire.

    Finally, this has to be driven and backed by government policy (tax incentives etc.). Govt need to create incentives to avoid capital flight etc. and drive in these investments in.

    Now I am not saying forget local go international, I am saying don’t shut the gates – we need more rockets.

  • Dele Bakare

    Brilliant…

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