The implication of distance in doing business in Cameroon/ Africa

Distance is key

International companies interested in doing business in Cameroon or Africa will be fast to judge the attarctiveness of the business environment based on the country portfolio analysis such as GDP, the rise of middle class, the market size, demographics, per capita income etc…

However the overall attractiveness of the Cameroonian or African market cannot be fully understood without considering the aspect of distance.

The table below shows how certain distance attributes can affect bilateral trade between two countries.

 

Distance Attribute Change in International Trade (%)
Income level: GDP per capita (1%increase) +0.7
Economic size: GDP (1% increase) +0.8
Physical distance (1% increase)

 

-1.1
Common border

 

+80
Common language

 

+200
Common regional trading bloc

 

+330
Colony-colonizer relationship

 

+900
Common colonizer

 

+190
Common polity

 

+300
Common currency

 

+340

Table presented by Frankel & Rosel

 

Distance can be geographic, cultural, administrative or economical

Cultural distance

Differences in race, social customs, religious beliefs and language increase the distance between countries. The cultural distance needs to be right for consumer goods and media companies to trade in new territories. As shown in the table above countries with a common language trade +200% more with each other.

French movies and TV programs will have almost no market in Nigeria, Ghana and Kenya (if not translated to English) but this can be an instant hit in Cameroon, Senegal and Cote D’Ivoire and other French speaking countries.

For this reason a French media company interested in the African market should target  French speaking African countries first even though other countries such as Nigeria might seem attractive at first sight.

Certain Cultural norms can also determine consumer preferences which can affect the type, color, and packaging of goods being sold.

Administrative and political distance

Absence of colonial ties, difference in currencies, administrative formalities and business principles increase the distance between two countries. According to the table above, the existence of a colony-colonizer relation between countries increases trade by 900%.This case is very visible in Cameroon and other French speaking West Africa countries where French companies dominate other foreign companies.

Government policies to protect local industries, weak institutional infrastructure and social conflicts also increases the administrative and political distance between countries.

Economic distance

Differences in market development, consumer incomes, cost and quality of resources and infrastructure reduces trade between two countries. There is an apparent positive correlation between per capita GDP and trade flows between countries. This partly explains the increase trade with African countries due to the rise in per capita income and middle class in Africa that is gradually reducing the distance for European and American companies in particular sectors to trade with selected African countries.

However, the same economic status might inversely affect trade between two countries. A rich country with high labour cost will rather trade with a poorer country with a lower labour cost in order to lower its cost and increases its competitive advantage. China attracted several international companies due to cheap labour no matter the geographic, cultural administrative and political distance between American and European companies.

Geographic distance

The amount of trade that takes place between countries 8000Km will be reduced by 80% if these countries where 16000Km apart. The lack of a common border, difference in the climate, weak transportation and communication links increases the geographic distance between countries.

Countries with the same economic size trade more with each other but the amount of trade between these countries reduces as the geographic distance increases. A company in the USA is more likely to trade with Canada than with France (The gravity of trade flow theory).

Business sectors such as cement, steel, perishable and fragile goods are greatly affected by increase cost of transportation over long distances.

 

Distance influences different business in different ways, an in-depth analysis of these different variables will show how attractive a particular product or service will be in certain markets, thus reducing the risk of failure.

 

Denis Wung

info@a54marketinggroup