CHINA TOWN: A SIGN OF THINGS TO COME

Last week China Town opened its doors for business and were swamped by hundreds of Ugandans.

It reminded me of a time when Shoprite opened for business at Ben Kiwanuka street and people bought everything off their shelves days before Christmas 2000. Interestingly most of the shoppers were traders who were buying goods in bulk and going on to sell them in their shops.

Local businessmen, then like now, complained about the new competition that they were practicing unfair competition and not sourcing goods locally. 

But prior to Shoprite’s entry, when Metro Cash & Carry opened shop at the UMA show ground, local traders were up in arms because among other things, they got their own customs bonded warehouse. Local traders saw this as favouritism and screamed blue murder.

Uganda Revenue Authority (URA) at the time explained that Metro Cash & Carry was importing huge volumes, the example I remember was about toilet paper, and therefore deserved and could afford to maintain their own customs bonded warehouse.

"Our traders now like then, adopt a do-it-yourself approach and still import small quantities as opposed to if they came together, bulked their imports and benefitted from economies of scale...

In fact when China Town starts buying from local producers, they – local producers, may prefer to deal with them rather than the small traders, because they will take huge volumes at once. As for the customers they voted with their feet last week and will most probably continue to do so.

Many years ago this column listed Charlie Lubega as one of the savviest businessmen in Kampala. Lubega’s Ange Noire discotheque was on the cutting edge of entertainment technology, upgrading his equipment and the club’s ambiance regularly long before the competition in the form of Silk came to town.   

In so doing Lubega increased the barriers to entry, shutting out pretenders, while keeping his patrons wowed.

Our local traders can learn a thing or two from Lubega.

"You cannot stop the forces of competition, especially since your customers don,t care whether you are made in Uganda or not. What you can do is to understand the competition, present and potential and confront them or turn tail and run.

It is only in the last decade or so that we have got locally owned supermarket chains to which a lot of middle class Kampala have gravitated towards. While they maybe pricier than downtown offerings, middle class Kampala has decided the higher prices are a small price to pay, rather than fend off pick pockets and car part thieves, looking for parking, pushing and shoving with the unwashed masses.

Our local business have been learning over the last three decades, in a most practical way the meaning of competitive advantage.

They have learnt that businessmen with better financing and more efficient supply chains can squeeze them to the periphery of the economy, where the pickings are thin and unsustainable.

What they have not quite mustered is how to respond to this existential threat.

It is easy to appeal to government and nationalistic sentiment, but once these have lost their buzz, you will still be faced by the same overwhelming competitors.

By the way, the government will make the appropriate sounds, but only for a while, because its interest is that Ugandan consumer can get goods cheaply and the ease with which they can collect revenue from these multinationals, as opposed to going door to door in kikuubo and being threatened by strikes when local traders don’t like EFRIS.

So what is the local businessman to do? Like Ange Noire’s Lubega they need to adopt a long view. They need to ask themselves  what they can do, which no foreigner can do better than them and control that space or at worst find a way of collaborating rather than fighting these forces of competition, which are here to stay.

I don’t think we import matooke, and I can count on one finger how many foreigners are growing matooke locally. The question would be how we can improve our production and distribution so that no one can take that away from us. Because believe it or not someone can produce matooke cheaper and package it better somewhere in the world and we would be a ready-made market for them. They will come and wipe out our matooke industry and we will wonder what happened. You laugh.

Secondly, they need to be at the forefront of promoting efforts to increase demand in Uganda. One of the reasons South Africa has the most advanced financial system on the continent is because during apartheid when everyone was not buying South Africa, they made local resource mobilization a priority and credit easily available to everybody so the internal market could sustain their businesses.

While credit is a double edged sword it allows consumers to live beyond their means and in so doing support local industry. As it is now we do not have enough local demand to build really robust industries.

So for instance while my kids need 2 liters of milk a day, I only buy half a liter because that is all the cash I have. If however I could buy the rest on credit, my children would be healthier, develop a taste for milk and become stronger consumers in the future.

"The competition is coming whether we like it or not. It is futile to fight it by trying to close it out. We can however focus on what we have a competitive advantage in, sharpen that competitive advantage and make it unattractive for others to even think about competing. Leave the contested ground to others. That way we will be winners....

Government on its part should map out these areas of competitive advantage and look to support entrepreneurs in those areas.