African companies can learn from Dangote’s diversification and globalisation strategy using the Dangote cement company as an example.

Gabriel Domale Consulting explains the historical learnings in this article

The Dangote Group is the largest industrial conglomerate in West Africa and one of the leading diversified business conglomerates in Africa. It employs more than 21,000 people. The product range and interests include cement, sugar, flour, salt, pasta, beverages and real estate, with new projects in development in the oil and natural gas, telecommunications, fertilizer, and steel. 

Dangote Cement, being the largest cement production company in Africa has subsidiaries in Benin, Cameroon, Ghana, South Africa, Kenya, and Zambia among others. The founder Aliko Dangote is one of the richest men in Africa and globally.

Established in May 1981 as a trading business with an initial focus on cement, the Dangote Group diversified over time into a conglomerate trading cement, sugar, flour, salt, and fish. By the early 1990s, the Group had grown into one of the largest trading conglomerates operating in the country.

In 1999, following the transition to civilian rule and after an inspirational visit to Brazil to study the emerging manufacturing sector, the Group made a strategic decision to transit from a trading based business into a fully-fledged manufacturing operation.

Growth strategy 

It seems that Dangote’s strategy for growth is to take a long-term view, use high technology, integrate along the value chain and go for large-scale diversified investments. 

Since its inception, the Group has experienced phenomenal growth on account of the quality of its goods and services, its focus on cost leadership and efficiency of its human capital. Today, Dangote Group is a multi-billion dollar multinational group.

The Group’s core business focus is to provide local value-added products and services that meet the basic needs of the populace. Through the construction and operation of large-scale manufacturing facilities in Nigeria and across Africa, the Group is focused on building local manufacturing capacity to generate employment and provide goods for the people.

Nigeria expansion

Locally, Dangote Group operates cement plants for local manufacturing of cement across various countries. Striving for self-reliance, Dangote Group has made a strategic decision to continue to establish cement-manufacturing facilities in Nigeria owning cement plants, import and export terminals.

Arguably, Nigeria’s cement consumption pattern is observed to be the least in the world due to high cement costs and short supply. As far back as 2016, Dangote Cement caters for over 50 % of Nigeria’s demand for cement. It adopts an aggressive expansion plan to facilitate its ambitious strategic penetration.

The Dangote Group leverages support from global and public sector networks. For instance, the company founder actively participated in the Nigerian Industrial Policy and Competitiveness Advisory Council and World Economic Forum on Africa.

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Diversification in Africa

Dangote Cement has emerged as an entity to reckon with in Africa with bold plans for Pan-Africa operations. In addition to having four cement manufacturing plants in Nigeria, the Dangote group has plants all over Africa including South Africa, Senegal, Zambia, Tanzania, Ethiopia, Congo, and Gabon.

As early as 2013, the company was investing in a $350mln new cement plant in the Republic of Niger aimed at boosting Dangote Cement’s annual output by 1.5 million tonnes. According to a Reuter’s news report, Dangote released the announcement after a meeting with Niger’s President.

The company had pursued aggressive growth across the continent with an investment plan of $400mln to build a cement plant in Kenya and also investing $5 billion to build cement plants across the continent.

By 2015, Dangote Cement concerns collectively had a production capacity in the range of 46 million MT / Annum, making it one of the biggest cement manufacturing companies in the world.

The intent for further globalization

The Dangote Group had set its sights on Iraq, Myanmar, and Brazil as the company plans expansion beyond Africa. Aliko Dangote disclosed during an interview with the Financial Times of London that construction work on Dangote Cement plants in Myanmar and Iraq was to begin in 2014.

He also told the British newspaper that plans to construct cement plants in Brazil, Chile, and Indonesia soon are underway.

Aliko Dangote declared his intention to transform the Dangote Group into a truly global company. It seems the company wants to globalize because the markets in sub-Saharan Africa are limited in terms of cement production, though not in terms of other sectors like refineries. 

On why he is choosing to invest outside Africa, particularly when several other opportunities are still largely unexploited, Dangote told the Financial Times that some opportunities – such as entering Myanmar as it opens up – may later disappear. 

Theoretical lens of diversification and globalization

What theoretical lens did the Dangote group seem to have adopted in formulating its diversification and globalisation strategy? I will discuss below some of these theories that appear to have underpinned the group decisions.

In discussing the underpins of the diversification strategy of the Dangote Group, I lean on some of the theories applied to globalization and geographic economics namely the concept of international business, and the competitive advantage of nations.

Concept of international business

The theory of international business focuses on the study of business activities that cross national borders and, therefore, is fundamentally concerned with the firms that undertake such business activities and the national Governments that regulate them. This provides us with a unique understanding of the responses of businesses to government policies and the policy-making of governments themselves towards international firms. 

Interestingly,  the main drivers for institutional entrepreneurship are found in the increasing autonomy of subsidiaries of Multinational Companies (MNC). Also, more decentralized forms of experimentation in international corporate networks with competence creating nodes of new initiatives can co-evolve with local institutions. 

The Dangote Group adopts the MNC subsidiaries structure that allows for flexibility to align with the policies of the host countries while leveraging on the geographic economics of the operation of the company in the African region. The company appears to select environments where there is low cement manufacturing capacity and then establish cement plants in these countries. 

The company tends to have increasingly adopted learning and innovation to maintain stability especially in the countries with some levels of uncertainty in the operating environment. The local managers’ knowledge of how to maintain networks with public institutions appear to be helpful to the Dangote Group in environmental and managerial adaptation. 

Usually, there is not a clear-cut choice between managerial adaptation and environmental selection because both processes occur simultaneously and influence each other.

The competitive advantage of nations

A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade (Porter, 1990). Government plays a legitimate role in shaping the context and institutional structure surrounding companies and in creating an environment that stimulates companies to gain a competitive advantage.

Companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense, including both new technologies and new ways of doing things. 

With strategic support from the government, the Dangote Group was able to innovate and transform from the importing of cement to manufacturing and exporting of cement because the Nigerian government undertook a critical change of policy, by granting the license only to the companies investing in production.

Now the company can seek influence over policy and markets due to its dominance and also its criticality to the pricing and distribution of basic necessities and its contribution towards the competitiveness of Nigeria in the global cement industry. The company leverages government policies across Africa by diversifying into countries with low competitiveness in the cement industry.

Takeaway

The Dangote Group’s growth strategy tends to have consistently been driven by expansion and diversification into areas of high demand and short supply, especially in the developing economies.

It seems that from its formative years, Dangote has always taken the long-term strategic perspective than the pursuit of short-term objectives in its growth drive.

The company has also strategically placed itself as a national company in many countries and thus attracting enormous supports from host governments. In a subsequent piece, I will discuss how Dangote leverages political embeddedness as a competitive strategy.

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Author

Dr Leesi Gborogbosi

CEO, Gabriel Domale Consulting – Dr Leesi Gborogbosi

Dr Leesi Gborogbosi is the CEO of Gabriel Domale Consulting, a management consulting firm based in Nigeria, that helps companies in Africa to grow, provides insights to leaders and transforms institutions.

He has about three decades of leadership experience in the oil and gas industry (Shell Nigeria). He is an expert in finance, strategy, corporate governance, transformation, cost management, leadership development and due diligence.

Dr Leesi Gborogbosi was Project Finance Manager of Upstream Oil & Gas Projects (7 projects - Headline size: $8 bln) - Southern Swamp Associated Gas System, Forcados Yokri Integrated Project, Otumara, Adibawa, Agbada and Assa North/Ohaji South Projects.

He provided advisory services: strategic planning, budget management, funding strategy, risk management, governance, due diligence, and investment plan, covering the full life cycle of the seven major upstream oil/gas projects, power facilities, and export pipelines.

He collaboratively works with business leaders and their organizations to identify growth opportunities and create value through operational excellence in strategy implementation and capital efficiency by delivering projects within costs, building strategy and planning frameworks and crafting innovative funding solutions.

Dr Leesi Gborogbosi supports finance leaders in making crucial decisions and optimising performance through financial excellence in finance systems and accounting operations, budgeting, finance transformation, cost reduction, governance, risk, and compliance.

He has doctoral degrees in strategy and business studies and MSc (Research Methodology in Management) from IE Business School, Madrid and an MBA (Finance and Banking) from the University of Port Harcourt, Nigeria; and BSc (Accountancy) from the University of Nigeria, Nsukka. He had his secondary education at Federal Government College, Jos, Nigeria.

His doctoral dissertation focuses on strategy implementation, collaboration, the role of middle managers, and the dynamics of social movements (host communities).

Dr Leesi Gborogbosi leverages his professional experience as a Certified Management Consultant (CMC); Fellow, Institute of Chartered Accountants of Nigeria; and The Institute of Management Consultants. He is a member of the Chartered Institute of Procurement & Supply, London; Nigerian Institute of Management (Chartered); and Strategic Management Society, Chicago, United States.

He was nominated by the Strategic Management Society, Chicago for "Best International Conference Paper Prize Awards" in 2017 and 2015. He was appointed the Chair for the Session on “Leading change implementation processes” at the Strategic Management Society conference in Denver, United States in 2015.

Dr Leesi was a member of the Strategic Management Society “Special Committee on Diversity and Inclusion”, Chicago, USA, with the responsibility of providing the Strategic Management Society Board of Directors with a good audit of where the Strategic Management Society stands with respect to inclusiveness in its activities.

REFERENCE

Grosse, R., and Behrman, J. N. 1992. Theory in international business. Transnational Corporations, 1(1): 93-126.

Cantwell J., Dunning J. H., and Lundan, S. M. 2009. An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment. Journal of International Business Studies: 1-20.

Porter, M. E. 1990. The Competitive Advantage of Nations. Harvard Business Review 68(2): 73-93.