Gabriel Domale: Diversification and Globalization as a Strategy: Example of Dangote Cement

The Dangote Group is the largest industrial conglomerate in West Africa and one of the leading diversified business conglomerates in Africa. It employs in excess of 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 etc. The founder Aliko Dangote is the richest man in Africa and the 105^th richest in the world (Forbes) with a real-time net worth of $14.6Bln (8/12/17).

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 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 cost and short supply. As at 2016, Dangote Cement caters for over 50 % of Nigeria’s demand for cement. The company is adopting an aggressive expansion plan to facilitate its ambitious strategic peneration into diffrent countries. The Group contracted SINOMA of China for EPC execution of the new cement plants.

The Dangote Group leverages support from government and global networks. For instance, the company founder is a member of the Nigerian Industrial Policy and Competitiveness Advisory Council. In 2014, he co-chaired the World Economic Forum on Africa with the President of Nigeria. .

Diversification In Africa: Dangote Cement has envisaged to emerge 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. By 2013, the company was investing in $350mln new cement plant in the Republic of Niger which will boost 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 the Niger’s President. The company was aggressively pursuing growth across the continent with an investment plan of $400mln to build a cement plant in Kenya and is 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 among the biggest cement manufacturing companies in the world.

Intent For Further Globalization: Dangote Group has been setting 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 in the near future 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.

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. Dangote Cement was listed on the Nigerian Stock Exchange in 2010 at a market capitalization of over $12 billion, the cement giant has now kept its sights on listing at the London Stock Exchange. Dangote says the money realized from the share sale would be channeled into its investments out of Africa

Globalization and Geographic Economics: 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 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 (Grosse, and Behrman, 1992). This provides us a unigue 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 (Cantwell et al., 2009). 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 political 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 eachother.

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 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 is able to 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 on government policies across Africa by diversifying into countries with low competitiveness in the cement industry.

Just to recap: 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 on political embeddedness as a competitive strategy.

The author, Leesi Gabriel Gborogbosi, CFO &CEO of Gabriel Domale Consulting, is experienced in finance and strategy with emphasis on finance transformation, project finance, strategy implementation, performance management, corporate governance, and collaboration. He is also a Doctoral Candidate in Strategy at IE Business School, Madrid.