In these videos, I explain the Accumulation of Capability Construct and how makers of Indomie Noodles used the same strategy which Aliko Dangote uses in Africa to defeat Dangote Group in the noodle business. I did make a case that anyone can use the same technique to execute a winning strategy in business. The key is operating at the upstream level of business. Read this interview from APO newswrie: Dangote essentially validates what I had noted on his business philosophy.
At the Financial Times’ 4th annual Africa Summit at Claridges in London, editor in chief Lionel Barber conducted an extraordinarily candid public conversation with Nigerian Aliko Dangote, Africa’s most successful business leader, …
Mastering detailed production statistics and highly-compelling demographics on promising sectors of the African economy, Dangote outlined the key to his success: self-sufficiency and backward integration, a manufacturing strategy that extracts value from entire processes. “We are not going to import anything any longer,” he said. “In Nigeria we are learning how to produce the entire value chain.” Once a heavy importer of fertilizer, Nigeria is now gearing up to produce 3M tonnes of locally manufactured fertilizer, transforming the nation into one of the largest fertilizer exporters in Africa.
In 2007 Nigeria was the second largest importer of cement after the US, Dangote reminded the audience of business elites. “Today, we have not only satisfied domestic needs; we have become a leading exporter of 6-7M tonnes of cement,” he added.
Diversifying into agriculture, Dangote has eyes on the dairy industry motivated by the fact that “98% of all milk consumed in Nigeria is imported.” Same for rice. Dangote Group has invested heavily in rice production by investing in local farmers and then offering to buy back the 1M tonnes at open market prices that they are growing. “Soon we will be able to feed not only Nigeria but the entire 320M large West African market.”
Dangote’s business accumen was on rare exhibition as FT editor Lionel Barber himself seemed impressed with the business mogul’s quick familiarity with the nuts and bolts of his businesses. “Are we going to continue to import everything?” Dangote asked. “Freight rates are now cheap but they will go up soon. A population of over 200M cannot continue to import basic needs on a daily basis,” he answered himself.
By 2100 Dangote stated Africa will represent 49% of the world’s population, up from 30% today. “If you don’t think big we won’t grow at all,” he said. “In Africa you have to play long-term.”
Aside from Nigeria, which African nations do you think are good growth opportunities? Barber asked Dangote. “Aside from Nigeria?” the business leader repeated and smiled. “I’d have to pick Nigeria. I am a big fan of Nigeria. We are only using 8% of our land.”
Simply, Dangote is attacking all the elemental production phases, looking for values. By the time he has improved and perfected them, removing all possible wastes and inefficiencies, no new player can find further avenues to compete. By going to rice farming, he makes sure that he can control the value chain and improve the whole production systems of rice. He will improve the rice farming business and remove any inefficiency therein. Once done, a competitor cannot enter the market through that angle.
Dufil Prima Foods, the maker of Indomie, built schools, invested in farming, produced their electricity, etc making it nearly impossible for any further improvement to have material impact on noodle pricing. Through the efficiency they have in the system, there is nothing left for Dangote Group to improve upon. Unlike in the past, Dangote Group could have reduced cost through electricity generation, raw material production, distribution etc. But Dufil had done all those things. In other words, when Dangote Group joined the noodles business, it was essentially doing what makers of Indomie were already doing.
But Dufil had more scale with a known brand. It has all the advantages and there was nothing Dangote Group could do. Over time, Dangote Noodles sold to Dufil.