Nairobi — Seven years ago, the ambitions of South African firms to penetrate corporate Kenya seemed to have been crudely dashed after the exit of SABMiller from the local alcoholic beverage market.

After an expensive and lopsided marketing war that bore a nasty tinge of corporate nationalism, suffered by both the South African brewing giant and EABL in the East African markets, SABMiller and its Kenyan counterpart hopped into bed in a multibillion shilling deal that allowed both parties to exchange a 20 per cent stake in their respective businesses in Kenya and Tanzania.

The face-saving deal - which was codenamed Thunderbird by McKinsey, the international strategy consulting firm - and SABMillers's botched market entry into the Kenyan market has served as a template of how not to expand across the continent for corporate South Africa.

In the late 1990s, the market entry approaches by South African firms as typified by SABMiller was big, brash, trample and outspend incumbents in whichever nation they chose to invade.

Today, according to business leaders and observers, the tiger stripes may have never changed, but in its approach to an impending kill, it has adapted to the dexterity of its prey.

Out went the brash approach and in came a lot of listening, watching and understanding the contours of power in the local and global business scenes.

"We have now made it a point that in whichever market we enter, we seek a strong local partnership in all the big deals we have done on the continent," Mr Michael Du Toit, managing director CFC Stanbic told the Business Daily in an interview.

Standard Bank, one of Africa's biggest banks with a continent-wide presence, recently concluded Kenya's biggest merger deal with CFC Group with Sh80 billion balance sheet, which saw the company transform its local subsidiary into the top five league in the banking, insurance, stockbrokerage and fund management industries in one fell swoop and attained a listing on the Nairobi Stock Exchange.

Even after such a deal, the company has maintained an unnerving sense of modesty such that the swarms of expatriate managers lording it over locals are no longer in vogue.

Instead, the company is now using local talent to manage its combined businesses in Kenya, Uganda and Tanzania, which now ranks as one of the largest diversified financial services firm in the region.

Such is the new stealth approach adopted by South African firm to conquer markets across Africa that is starting to bear good results; helping the Rainbow Nation stamp its presences in all corners of the continental business scene.

It has now dawned on South African firms that "Africa", as the citizens of this country refer to the rest of the continent, is not one homogenous market that can be conquered using a cookie-cutter approach, but a collection of highly fragmented and peculiar national fiefdoms where business and politics is intricately and awkwardly connected.

Tiger stealth

To be sure, Kenya's diplomatic and trade relations is coolly distant, but respectable.

In Kenya, the conventional wisdom has been that corporate Kenya successfully repulsed corporate South Africa after the exit of SABMiller as a direct competitor to EABL, but the string of deals that have been closed since then reveals that this is far from the truth.

Business relations between South Africa and Kenya have become more entrenched and in terms of trade balance, it is hugely in favour of the former.

Perhaps, the embodiment of how this stealth approach is working to boost investment in Kenya was more visible in May this year, when Tiger Brands, South Africa's largest fast-moving consumer goods company bought a controlling stake into Chris Kirubi's controlled Haco Industries Kenya.

This deal was considered a coup of sorts both in terms of gaining an entry into the consumer goods industry at a time when Kenya is experiencing an emerging middle-class and when corporate nationalism is evident in the local manufacturing lobby courting Kenyans to shun South African and other foreign products.

Indeed, at the height of the trade wars between Kenya and South Africa, Mr Kirubi as the chairman of the Kenya Association of Manufacturers was a strong advocate of buying Kenyan products for pure national pride.

The subtext behind the Tiger Brand/Haco Industries deal points to a symbolic acceptance by local businesspeople that they will have to embrace globalisation and pan-African trade to remain successful and relevant. This deal could pave way to many other transactions of its nature.

A crucial aspect of Tiger Brand's entry in the Kenyan consumer goods market was the use of local partners to share risk, while planning to leverage its own brands off existing businesses that had local knowledge.

This is a hard lesson out of the new rulebook on how to capture Africa under the radar.

"The South African market is showing signs of saturation especially in the consumer and goods industry. So South African firms are beginning to seek opportunities to grow revenues from the region and in the rest of the African continent," says Ken Kaniu, investment manager at Stanbic Investment Management Services.

Contrary to the perception that the South Africans were down and out, firms from the Rainbow Nation presently control massive stakes in virtually every industry of corporate Kenya, an indicator of the overwhelming success of the stealth strategies that now dictate trade between the two countries.

So much so, that while the level of exports to South Africa have only edged up by Sh1.3 billion in the last five years to stand at Sh2.3 billion last year, imports from South Africa within the same period have ballooned by Sh12 billion to stand at Sh35 billion in 2007.

Rather than head on confrontation with local players, South African firms have resorted to mergers and acquisitions with domestic strategic partners as their local markets as avenues for growth become saturated.

The invasion

South African firms have emerged as either the market leaders in growth industries such as financial services, retail, entertainment or manufacturing or are in the top five league.

These firms range from Absa, which through a complicated reverse takeover in 2006 now owns Barclays Africa, which in turn owns Barclays Bank Kenya (BBK). BBK, which is by far the country's largest bank with assets worth over Sh160 billion touches on all aspects of Kenya's financial lives and, it is one of the most successful local businesses.

Sanlam, one of South Africa's largest financial services firms is now the majority owner of Pan African Life, an insurer ranked in the top five leagues, locally. Standard Bank now owns CFC Stanbic, Kenya's fourth largest bank, which has its tentacles deep into the insurance, funds management, banking and stockbroking businesses here. Alexander Forbes, the financial services firm is also respected in the actuarial and fund management businesses.

Other greenfield and partnership projects have set out to quietly revolutionalise entire industries. Deacons, which owns the Woolworth's, TruWorths, 4U2 and Identity franchise, is changing the upper-end retailing for clothes, together with Mr Price.

Johnnic Communication's (now known as Avusa) has changed the entertainment scene with its Nu Metro cineplexes, reviving an industry that was tittering on the edge. Naspers owned Multichoice DSTV is the market leader in paid-for satellite television. Naspers Ltd is estimated to derive 75 per cent of its revenues from the continent out of which 30-40 per cent is said to be derived from the Nigerian market.

Media 24 is emerging as a leader and innovator in magazine publishing with titles such as True Love, Drum and homegrown start-ups such as Twende and Adam.

South Africans now control AAR, the health maintenance organisation.

In the last one year, there has been a major splash of money by South African based private equity and venture capital funds targeting mid-sized businesses. In the marketing communications business, South Africans continued to enjoy growing success with their investment in Ogilvy East Africa, which has in the last two years notched several high value clients such as Barclays Bank and recently Econet Wireless Kenya.

The CFC- Stanbic Bank merger, which is Kenya's largest banking merger to date, is a major testimony to the tactical approach taken by South African enterprise.

Keen to stake a claim in East Africa's largest economy, Standard Bank through its subsidiary Stanbic acquired a stake in local financial services company CFC Financial Services to form CFC Stanbic, which has an estimated asset base of Sh80 billion.

While the Kenyan acquisition by Standard Bank sealed the second leg of its pan African expansion, after a successful foray into West Africa through Nigeria, most South African firms are pitching camp in Kenya for its strategic location for conquering the Great Lakes region.

For instance, Sanlam is also looking to ride the frontier market growth that has propelled Africa's markets to the global investment arena.

Sanlam, which is listed on the JSE, first made an entry in the Kenyan financial services scene following a 50 per cent acquisition of Pan Africa Insurance back in 2006. But attracted by the growing stature of the local equities market, Sanlam is now expanding its Kenyan presence and is looking to capture a piece of Kenya's multibillion fund management sector.

"In the African context, Nairobi is strategically positioned as a regional hub. The recovery experienced in Kenya over the last five years has created a momentum that we believe will continue to create more opportunities for us to add value for our clients and the group," says Eric Kibe, Sanlam Investment's chief executive officer.

Most South African firms took to franchising as an entry strategy to Kenya. This model has been particularly successful in the fast moving goods and consumer industry with clothing shop Woolworths and fast food chains Steers enjoying considerable success with Kenyan middle and upper class.

But not all incursions by South African firms have ended in fairy tale endings. The short lived existence of high end clothing retailer, Stuttafords, the winding up of the Nandos franchise and supermarket chain Cash and Carry are indicators that more revision needs to be done of Kenya's consumer trends.

In the food and beverage industry, franchising has proved to be a winning strategy for South African firms with fast food outlets such as Steers Fast foods owned by Famous Brands playing a trendsetter role in the Kenyan market. The Steers fast food chain has helped to modernise the restaurant business.

Tactical approach

This need to derive returns from new markets continues to be the driver behind South African firms' continental forays. With costs of production in South Africa lower than many other African countries, South African firms are able to offer cheaper products than locally produced ones.

"Low costs of production backed by a highly technologically advanced economy give South Africa a competitive edge over other regional economies," says Dickson Poloji, policy analyst at Kenya Association of Manufacturers.

Market analysts say that foreign entrants have had to apply their resources and management style to Kenya specific context.

As institutional obstacles and the structural weaknesses of local businesses often inhibit the direct acquisition of such firms, foreign investors may pursue un-conventional strategies, such as staged, multiple or indirect buyouts to acquire local resources.

In emerging economies, market analysts say that investors have to think beyond the conventional entry modes of acquisition and joint venture (JV).

Market penetration starts with the entry strategy, which has to provide access to local resources, such as distribution networks and access to local businesses and authorities.

Kenyan expansion abroad

But while South African firms continue to stamp their dominance across the African continent, in East Africa, there is a bigger but silent geopolitical struggle between Kenya and South Africa.

For South Africa, the only East African country where that had not been possible was Kenya, and in the rest of East Africa, the only real impediment to non-western domination by South Africa is Kenyan business.

South African firms have virtually taken over critical aspects of the market in Uganda, Tanzania and Rwanda.

Mobile telephony giants, MTN and Vodacom, both South African, command huge market shares in Uganda and Tanzania respectively. In the Ugandan banking scene, Standard Bank dominates through its acquisition of that country's largest bank, Uganda Commercial Bank that was owned by the government.

But unrivalled in its position as the East African region's economic powerhouse Kenya, in particular the financial services sector, has stepped up its activities across the country's borders.

KCB Bank, DTB Bank, I&M Bank, Equity Bank, Nakumatt Supermarkets, Dyer and Blair Investment Bank, Olympia Capital, Transcentury Ltd, Athi River Mining (ARM) Ltd, East Africa Cables are among Kenyan companies that have employed South Africa's stealth approach to regional markets.

Transcentury, ARM and Olympia Capital form the few who have spread their wings to the Southern African market with varied degrees of success while I&M Bank's acquisition of a Mauritian bank points to the potential of local firms to spread their reach continentally.

"The South African market is not very easy to penetrate and developing products that would attract consumers here would be very difficult," says Mr. Poloji.