THE MASS MARKET – Understand it; Respect it; Enable it.

I began to think of this conceptually for the Nigerian Market firstly in respect to a useful piece of feedback from an MNO (mobile network operator) CEO on the recent consultation I did for my piece on the Nigerian Telecommunications space.

The second thing I thought about was my own career history in London in the 90’s and part of the early millennium, particularly in how I impacted procurement practice in public service construction and maintenance.

The third thing I thought about was a businessperson in Nigeria looking to advance capacity through offering a more premium type of packaging. I advised against this line of expansion ever though it was against my immediate interests to do so.

For this, I have to go way back to the beginning, and some may think this is an effort at self aggrandisement and ‘bigging up’ but it’s just about creating the backdrop, and establishing scale, which is a big aspect of ‘MASS MARKET’

THE UK CONSTRUCTION MAINTENANCE CASE – Understand THE MASS MARKET

I originally entered London  ‘ on a wing and a prayer’ following the collapse of the Trinidadian economy, a country where I had originally spent formative years, and via a few months in my native Ireland which was equally bleak. I looked for housing from an organisation ‘Brent Community Housing’ which looked at ‘need’ combined with what a tenant prospect could bring to the table, and very soon I was both accommodated by them and on their NED board. I unwittingly impressed a member of the finance sub-committee who was also treasurer of a ‘Black’ Co-operative, and soon I was seconded as a sub-committee NED to their board also, which was Trojan. Shortly after, I was also co-opted to a third Co-operative with links to both BCH and Trojan – Cyron.

Following this I secured a fixed term stint managing ‘Special Projects’ for Shepherds Bush Housing Group,  though any ‘salaried’ technical knowledge I had up to then was ‘Groundworks’ and ‘Earthworks’ rather than ‘Built Environment’. About a month short of term-end, I secured a position as Director of LEOF, an organisation promoting construction MLE’s (Minority Led Enterprises) in the public procurement community (primarily Social Housing) and with some build out to Construction Best Practice advocacy and partnering services.

The climate was changing rapidly from that to which LEOF had been born. Start up funding from The Housing Corporation and Housing Association Charitable Trust (HACT) had just elapsed. New changes in Construction Management, starting first in 1995 with the first implementation of the  CDM 1994 –  Construction (Design and Management) Regulations, the Latham Report, and a few years later, the Egan Report. UK did not have affirmative action as in the US. Impassioned Soap Box firebrand rhetoric was falling on deaf ears. I perceived the need for a radical shift to continue to provide meaningful services for stakeholdng beneficiaries.

With the launch of the ‘commercial arm’ – Safebuild.com, the release of the first UK wide Construction CRM/ERP,  a Code of Practice launched in the House of Commons and a few high profile consultancies, I was seconded into a procurement review board of sorts driven by the Office of London Mayor, GLA, beginning in the Livingstone Mayorship and carrying over into the Johnson Mayorship.

This was a high impact dynamic review authority that would go on to have mass impact on capital projects such as the building of Heathrow Terminal 5, and all of the infrastructure build out for the 2012 Olympics, including the Olympic Village itself. It would go on to influence maintenance programs for infrastructure and building assets of unitary authorities, social housing agencies, public transport, metropolitan police infrastructure, and other public or community assets not only in London but right across the South East of England.

On the maintenance side in particular, one of the focal points for the group became the regularization of ‘Schedules of Rates’ (SoR) implementation. The principle on which SoR worked was that ‘interested’ contractors were sent a schedule for supply and works covering all of a public authority or community agency’s property maintenance needs. Schedule entries were all priced, a service procurement office (supposedly) ran the statistical maths, and a limited number were chosen on overall cost for a ‘select list’ which would then be locked for a period typically anything from  2-5 years. This was intended to eliminate random variances on works, regularize budgeting, and massively reduce client end procurement work overhead. The SoR regime had been around in one form or another since 1982, though quality and effectiveness varied drastically and schedules frequently resembled incomplete ‘bills of quantity’ with significant scope for ‘out-of-schedule’ contract awards on a case by case basis.

One of the aspects of this I strongly argued for was that, at least initially, until the management practice is established and understood, some overview of SoR practice should be centralized. The suggestion was not made to advocate any big brother type control but more to provide an extra layer of validation on best value, have communal learning of ‘lessons’ and make continuous improvement contagious. My view was strongly supported by board members from CIPS, CIOB and CITB. Unfortunately, GLA and to a certain extent LDA (London Development Agency) saw themselves as needing to own the burden of operational mechanics and gradually distanced themselves from it. That’s a little bit like trying to get a UN initiative launched with US, China and Russia having no intention of playing ball, even if the other 193 approx. members are happy with it.

Instead, a ‘fudge’  was adopted – an ‘arms length’ advisory unit providing information and support to the different stake-holding entities with no direct visibility on their procurement and contract management, nor on adoption of SoR.

One common early mistake made by service procurement decision makers happened under pressure from CEOs to demonstrate ‘SoR seen to be working’ to get the political ‘brownie points’, and in the absence of intelligence led software since then made available. They made contractor selection decisions based on summarily and manually viewing the tender submissions rather than detailed statistical evaluation considering both historic maintenance spending data and future expectations for buildings and infrastructure assets.

As a caricature illustration for case in point, let’s say there is this rarely used climate control system needed in a special project where temperature needs to be kept within a very narrow variance, and it has both heating and cooling technologies. On the other hand, let’s say there is a small universal screw, worth only a few kobo, but, of course, across the maintenance programs in the various organisations, its prevalence runs into the billions…

Contractors with a strong understanding of the dynamic would put in a quote costing the climate control system at 20% below cost, but however, costing the little screw at 1 Naira. There would be multiple similar examples of this in the schedule. The ‘short-cut’ to instant decision making by the procurement officer would conduct a group comparison on a ‘schedule sample’ set, but they would be typically attracted to include headline items such as the climate control system rather than the humble screw.  The mass need for the very low value items with inflated costings as compared to the infrequent replacement of discounted headline items (if at all), meant contractors who actually were not delivering best value were chosen for the select list on a TMC (Term Maintenance Contract) and made huge profit.

While the live TMC at some point exposed the weakness, relevant public servants/NGO officers avoided acknowledging it for fear of career damage, so typically it waited to be addressed until TMC review, or if the officer changed jobs or retired before the term end.

This happened because for one window in time, some contractors understood the gateway to the mass market of public/NGO TMC’s better than the officers supposed to be the gateway custodians.

The NIGERIA FMCG MANUFACTURING CASE – Respect THE MASS MARKET

Some years back, I was approached by a client that wanted to enter a new segment in the market. This was a manufacturer who started out with a small water purification and packaging operation for what is known in Nigeria as ‘Pure Water’.

It was a two person partnership who were the main shareholders, and there were a few NEDs with smaller investments who additionally formed the board. They graduated to sachet format frozen flavoured drinks. I had initially approached them on behalf of a ‘principal’ who was a well known global player in flavours and fragrances/aromas. I then assisted them on the R&D side with some new products they wanted to bring to market exploring options with more of a dairy/ice-cream/sorbet texture and mouth-feel. The resulting products became a huge success.

At this stage the company had good business across its full portfolio,  in Mile 12 Lagos, and various other traditional markets, small shops, and street hawker distribution networks in Lagos, Ogun and Oyo.

The two partners were very different people. Both were male, though from differing origins within the three most populous of Nigerian tribes. ‘Partner #1’  was highly articulate, charismatic, and very persuasive. Prior, he had held lead Sales and BD positions in various companies of note. He secured salaried employment easily and performed above average, but subjective opinion that I ‘happened upon’ suggested he was ‘managed out’ of different companies for having too many ‘side hustles’ which had been ‘distracting’ from achieving his full potential in post.  He led on any external discussions on behalf of the company. ‘Partner #2’  was meticulous on product development and conceptualization. He came into the business with production team leadership in companies like Nestle, Dansa Foods and Nutricima in his repertoire. He rarely spoke, but when he did, every word carried weight.

Up to now they had stuck to expanding within the confines of the ‘Pure Water’ model – Sachet format; Minimized production cost; Simple affordable machinery, with relatively simple engineering and working on basic principles (such as vertical filling); cheap packaging material with very basic cosmetic presentation; low profit margin; high mass market consumer demand with low brand sensitivity.

Then ‘Partner #1’  developed a vision to which his stubborn commitment was, I would say, ‘unfortunate’. He came to me to enquire about machinery lines to begin ‘tetra pak’ style packaging on a line of products he wanted to develop aimed at the ‘Modern Trade’ market in Nigeria.

The first thing I would say about this market is that it is only window dressing for many of the big FMCG manufacturers. Most, particularly on the Food/Dairy/Beverages side will tell you in Nigeria it only accounts for a few percent of turnover.

Secondly Modern Trade companies in Nigeria are highly brand sensitive both on sourcing decision making, and customer demographics. Many have South African investment, so products comprise SA category kings that have presence in multiple African Markets, they include the usual suspects with global presence, and then you have a few local leaders like Dangote, and a few medium sized local companies that have developed in tandem with the emergence of Modern Trade in Nigeria, such as Rite Foods (oh and don’t forget former President Obasanjo’s chickens!).

This is a very difficult market for a ‘no brand’ Traditional Market player to penetrate.

There are other measures that look to share risk and cost with suppliers that vary from one Modern Trade company to another. Some have payment terms that are a huge burden to suppliers which can be anything up to 90 days, with the trade outlet having sold product to consumers anything up to 90 days before they pay for it, essentially getting free use of OPM (Other People’s Money).

Others require suppliers to stock in-store shelves themselves and share the stock control management burden. Some have both of these measures.

Now when moving from sachet format to ‘tetra pak’ style packaging, this is a high CAPEX move to do correctly. There are only a few places in the world right now where high quality machinery in this packaging product are produced. There is of course  the original ‘tetra pak’ (owned by Tetra Laval) which comes from Sweden, but there are other high quality manufacturers in mid-west Europe as well, such as  SIG Combibloc Group. This machinery market is formally known as the ‘Shaped Liquid Cartons’ market.

NAMPAK is a South African company active in Nigeria that supplies these kinds of cartons to companies who are going to limit themselves post-production to filling lines, boxing and palleting, but in the long run, especially in Nigeria, a company that doesn’t have its own primary packaging in-house is just bleeding revenue.

An analysis of the client companys’ financial profile would suggest this investment could break them unless it is accompanied by a revenue improvement on a very aggressive upwards curve. The nature of Nigerias’ modern trade, both on the penetration and the sales volume side would suggest this as a flawed venture for this particular client.

Part of my Moral Compass which involves integrity is that I will not willingly sell a solution to a client that is detrimental to them in any way. While I can point to the application mismatch clear to me, I will still however pursue the clients will to purchase, with my reservations noted. Fatefully, the  company failed to raise the LOC (Letter of Credit) from a provider on my Principals’ ‘approved list’ of Nigeria bank LOC providers, so the issue became moot. Following on from this, the client applied to an FGN loan grant institution (which I won’t name) and supposedly secured a grant to purchase machinery to enable the same ‘vision’. However, it appeared the so called ‘loan grant’ then became maligned to a loan from Diamond Bank at commercial rate, and moreover became conditional to machinery from a Chinese company through their local Nigerian agent.

Now things got even worse. Chinese manufacturing is very very far from being anywhere close to category king of the ‘Shaped Liquid Cartons’ machinery space. This statement is extraordinarily kind.

Indeed, State Administration for Industry and Commerce (SAIC) China, slapped Tetra Laval with a 668 million yuan ($98.5 million) fine for having a “dominant market position”, and that was actually in China where Chinese manufacturers have home advantage.

‘Partner #1’  phoned me for opinion and I made it clear I thought this option created even more problems than what might have been the case should the LOC for our Principal been successful.

Later it transpired that the loan capital exceeded the purchase cost of the Chinese machinery. and ‘Partner #1’  made some decisions with the extra borrowing that were probably not the best investment.

He purchased a two year old ‘tukunbo’ top of the range Toyota Prada, claiming that he needed to look the part when pushing for business in the Modern Trade space. Many would see this as unnecessary. He had a very ‘clean’ ‘tukunbo’ seven year old Camry, very acceptable in Nigeria at that time as a corporate ‘pool’ car. And this was a guy with charisma talents capable of commanding an audience even if he had stepped straight out of a Keke Marwa!  He also threw a lavish party for his daughter’s birthday, a supposed ruse to socially engage key players from the Modern Trade environment.

Returning to the machinery… One of the problems with these kinds of purchases from China, is that the sales and distribution model into the Nigerian market is problematic for the Nigerian Industrialist. These sales relationships typically look for a locally established entrepreneur to act as an agent on a commission basis under terms that break the chain of custody between the foreign manufacturer and the end user. The manufacturers legal responsibilities are kept confined to their local agent only.

Any reader of this article with an active LinkedIn account and a substantial track record in the Nigerian business space will no doubt have been approached by all sorts of machinery companies in China whose representatives have an aggressive sales pitch that follows the agreement to link (usually in poor English) and should the response be negative, the next issue to be explored will be the willingness to become an agent on commission!

‘Shaped Liquid Cartons’ machinery can be quite complex, and while the Chinese businesses owner may have English of an international standard, any support team despatched to Nigeria most probably will not. Add to that the likelihood of many factory floor technicians in Nigeria speaking a mix of pidgin and local tribal language, and even finding ‘classic’ (ajebota) English as ‘too much gramma’. There is now a massive communication gap with huge potential for misunderstanding, which becomes a complete impasse in the essential transference of technical knowhow.

This situation is further exasperated by a legal agreement between the Chinese manufacturer and the local agent, with a very limited and finite implementation and warranty support package, which once exhausted, leaves the agent alone to service the purchaser from their own capacity. Typically, these local agents are stand-alone sales consultants with very limited technical expertise. Post sale they are invariably off chasing the next ‘meal ticket’. They are harder to pin down for after-sales support than a Nigerian landlord is when a tenants water pump stops working!

So, the company had line commissioning challenges, and called up the agent. The agent contacted the manufacturer, who (eventually) sent a support team. The manufacturers commitment (to the agent and not the end-user) was a fixed number of technician-hours which became exhausted. The support team left Nigeria. The lines worked, with lower levels of efficiency and high levels of raw material waste and other problems for a while. Shortly after, my former client was stuck with silent machinery collecting dust.

The ‘agent’ liquidated his practice and disappeared for a while. He however reappeared about nine months later, supposedly as an ‘advisor’ to another company selling similar Chinese machinery. Brochures featured an almost identical machinery portfolio. Many illustrations showed machinery of identical technical appearances, with colouring on side panels changed, and a bilingual name saying for example, ‘Golden Singing Swallow Machinery Company’ changed to ‘Red Flying Dragon Machinery Company’ some differing Chinese characters printed underneath them, and a symbol of a swallow changed to a symbol of a dragon.

In Nigeria, while owing money isn’t a crime per se in law, those that owe money are often criminalized in its execution through both the actions of police and the judgements of judiciary. This is particularly true if the money is owed to a bank or other powerful corporate actors.

When payments to Diamond Bank became intermittent, and the relationship became adversarial, Partner #2 read the writing on the wall and disappeared. He is ‘rumoured’ to be somewhere in Ekiti State. The disappearance of its Product Actualization Lead who was effectively both its CTO and COO, was the final nail in a coffin that had been marked for burial some considerable time earlier.

So what are the lessons to be learnt here?

There are obfuscation issues here but they need to be noted. Partner #1 had the gamesmanship and global engagement skills; partner #2 had the operational and product development skills… yes.

Nevertheless, expanding the scope and functions of a business to significantly depart from its ‘ordinary’ activities requires more than a vision. It requires numerous strategic intelligence led, decision driven steps along the way  that become mini battles in the overall war to actualize that vision… to make that vision a reality.

While partner #2 was probably the better of the two there was clearly a management skill gap here. Moreover, the soft skills of partner #1, while an asset in external interaction, was sometimes a liability internally insofar as it dominated discourse with partner #2. Partner #2 was only comfortable being assertive while managing factory floors, but not in a board environment with decision making peers.

But the over-riding issue is that no efforts were made to shield the existing mass market product portfolio from innovation risk. JVs… holding companies… there is significant variety of corporate vehicles that can be used to legally separate that mass market product portfolio from risk associated with progressing any new vision.

While selecting and securing the right ‘vehicle’ may take time, core business was solid, a pseudo FGN agreed grant that maligned to a commercial loan tied to poor machinery options was the wrong choice, and perceived urgency to develop ‘Shaped Liquid Cartons’ based product aimed at Modern Trade was an illusion.

Partner #1 lost his business, his right arm, Partner #2,  and had his Prada possessed by court bailiffs.

While there were prevaricating factors,  core point of failure was because Partner #1 did not Respect THE MASS MARKET

The NIGERIA DATA TRANSPORT FUTURE MARKET  CASE – Enable THE MASS MARKET

The final chapter of this article is a throwback to a previous article on Tekedia. In the closing passage ‘OTT and the Tariff Future’, I raise the issue: ‘MNOs seem addicted to the practice of selling metered data as a painkiller for their revenue challenges. Yet this is the one obstacle that stands in the way of a mass explosion to over 200 million users in Nigeria.’

A light has been shone on how small a fraction of the Nigerian public are enabled to sustain smartphone data access on demand during the era of the metered data sales regime, whether this is through MNO (Mobile Network Operators) products alone, or whether they are additionally able to use OTT (Over the Top) services via access to business, social or other third party wifi services.

I recall from a previous business I owned in the 90’s A grade upgrades, one of the first contracts I got was to upgrade a small network of Viglen PC’s. The hard drives in them were 20MB. That was pre-internet. Now there are 1TB fingerprint sized MicroSD cards for smartphones. That’s five hundred thousand times more storage in a weight a finger will find hard to detect, compared to what was uncomfortable to hold with a big hand, and impossible for smaller ones. That’s just user side storage. Data centre storage solution improvements over the period are in a completely different league.

When we look at processing power we see phenomenal clock speeds and a graduation from 8 bit being exceptional to 64 bit being ordinary. We see transport technologies improving from PSTN and dial up internet, to IP, and later, MPLS, multiplexing, and SDWAN.  5G role out is imminent, while Wifi6 is in the wings. This is a progress story that is old, and every once in a while, new contrast elements are added. Nevertheless it is progression curve that will know no end.

What that means is a continual collapse on cost and continual increases on capacity across all aspects of computing and telecommunications whether it concerns data processing, storage, or transport. At any specific time,  some nations may be further on the curve than others,  but, it is a global phenomenon.

It is clear that whichever Nigerian MNO jumps first with an unmetered initiative will get the market kudos for the Blue Ocean product. Continually improving technology will contribute to falls in cost.

Nigerian market can be very resilient to brand disruption once a King is established. The opportunity is there to become the ‘Indomie’ of unmetered services.

Different solutions can be considered, partnering OTT, bringing MNO proprietary OTT to market, and moving the revenue stream from the data sales side to the OTT use side in a wide range of hybrids and variations that align well with current operating costs, but become more aggressive as they permit over time.

Once the ‘barn door’ is open on this development, it is possible that companies such as MultiChoice will have to reposition and reinvent or find partnering solutions in order to remain relevant, or go the way of the audio and video cassettes of old.

The current state of MNO Smartphone internet/data services are almost at a point in reverse of the the NIGERIA FMCG MANUFACTURING CASE further back. The MNOs have their ‘Shaped Liquid Cartons’ equivalent product in place, but they are only reaching that small proportion of Nigerian Society that patronizes ‘Modern Trade’.

Internet Access and affordable OTT are the water of the Virtual World. MNOs need to introduce their sachet product and their ‘Pure Water’.

This is my message on Enable THE MASS MARKET

THE MASS MARKET – Understand it; Respect it; Enable it.