Wednesday, June 12, 2024
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How can we build world-class companies in Ethiopia?

Ethiopia has the potential for tremendous economic and social promise. An emerging economy, Ethiopia has a vast population, and a competitive advantage needed to achieve the goals of economic growth, socio-economic stability, and cultural diversity, along with sustainability and environmental protection. All these goals are equally important in today’s world. Questions remain as to how Ethiopia could leverage its competitive advantage and boost its economy. A new consensus is emerging that companies can play a fundamental role in fostering and supporting the developing world. Emerging economies like Ethiopia could benefit from creating a cohort of world-class company giants that would increase the country’s productivity, innovativeness, creativity, and demand.

To begin with, Ethiopia is an emerging economy. Vora (2015) defines emerging economies as “countries with relatively low levels of GDP yet high GDP growth” (p. 2). These are countries where aggregate GDP levels are lower than in the developed world, but annual GDP increases exceed the most ambitious expectations. Woetzel et al. (2018) list the most rapidly growing economies, and Ethiopia makes up the list of recent outperformers. Other recent outperformers include Myanmar, India, Laos, Vietnam, and Cambodia. The rates of annual GDP growth in these economies exceed the growth rates of long-term outperformers, including Hong Kong, China, and Malaysia. As such, these emerging economies become particularly attractive to foreign investors. However, they should work hard to sustain their recent achievements in the long run.

One of the best ways for Ethiopia and other emerging economies is to build and encourage the advancement of world-class companies – large businesses and entrepreneurial giants that will act as catalysts for economic growth in a long-term perspective. Many emerging economies like India and Chile have seen the rise of world-class companies, which reshape global markets and provide a definite competitive advantage in their home countries. Khanna and Palepu (2006) list Teva Pharmaceuticals in Israel, Huawei Technologies in China and Dr. Reddy’s Laboratories in India as the most prominent world-class companies flourishing in emerging economies. These businesses have emerged in a highly uncertain and volatile context, but they have managed to become globally competitive against all the odds. In fact, the presence and rapid expansion of world-class companies suggest that emerging economies are fertile ground for business growth and entrepreneurship. Ethiopia is not an exception: Ethiopia can create a favorable climate for world-class companies that will reinforce the country’s competitive advantage at a global scale.

Everything has its roots in fair and continuous competition. Woetzel et al. (2018) confirm that the pro-growth agenda of emerging economies grows consistently from their ability to establish and maintain a climate of fair competition. In essence, it means that the government retreats from competitive markets and encourages companies to compete with each other, investing their resources in product development, knowledge and learning, innovation, and growth. Ethiopian authorities can provide support when needed, investing in infrastructural projects, and offering incentives to boost productivity and economies of scale. For example, tax cuts could be helpful, allowing companies to invest their resources in growth and innovation. Rule of law, accessibility of credit and government-funded training and development programs for entrepreneurs could facilitate the creation and expansion of local enterprises into venture giants.

In Ethiopia, companies can well transform into world-class giants, as they have enough incentives and opportunities for growth. Local companies can become valid competitors of large multinational providers, since they are deeply embedded into local markets and understand the nature and complexity of the local institutions and the culture. World-class companies grow from a profound understanding of the local market and their competitive advantage. In Ethiopia, where legal, institutional, and cultural barriers may complicate the entry of multinational enterprises, local entrepreneurs can easily take their niche and grow rapidly to provide affordable standardized products, which align with the unique needs and expectations of local customers.

In fact, emerging economies have witnessed numerous examples of local brands turning into world-class companies simply because they were eager to offer products and services that satisfied their customers. Khanna and Palepu (2006) speak about Haier, a Chinese giant that successfully competed with Whirlpool simply because it was better than its multinational rival at creating products tailored to the needs of local consumers. Haier adjusted its products to suit the needs of rural customers who used washing machines to clean vegetables. Likewise, companies in Ethiopia could go a step forward to explore their market potentials, identify market and product gaps, and offer affordable alternatives to boost consumer demand. Any such activity would launch a chain reaction, creating new jobs, achieving the economies of scale, and increasing tax revenues to support the struggling economy.

All in all, Ethiopia has the potential to be an excellent space for creating and growing world-class companies. However, the success of this initiative will depend on effective collaboration among Ethiopian authorities, regulatory bodies, businesses and entrepreneurs, and other stakeholders. On the one hand, pro-growth policies should be in place to promote fair competition and encourage companies to expand. On the other hand, companies should review and identify the existing market gaps to leverage their potentials and boost consumer demand. Examples of world-class companies in other emerging economies could help. Their stories could create the groundwork for increasing the number of world-class companies in Ethiopia.

Ed.’s Note: Samuel Alemu, Esq is a partner at ILBSG, LLP. He is a graduate of Harvard Law School, University of Wisconsin-Madison Law School, and Addis Ababa University. Samuel has been admitted to the bar associations of New York State, United States Tax Court, and the United States Court of International Trade. He can be reached at [email protected].

Contributed by Samuel Alemu

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