China hi-tech brands lead the way in Africa
18 June 2009
With the frantic scramble to find ‘new’ business, Western consumer electronics and technology companies are turning their attention to emerging markets, to complement the traditional primary markets of Asia-Pacific, North America and Europe.
With South America, India, Eastern Europe and others forming the basis for more recent such activity, the market of Africa is one that doesn’t seem to attract much in the way of column inches, and yet it is neither emerging nor new. Rather, Africa is arguably an established, profitable and rapidly growing market.
By neglecting Africa, Western companies seem to have inadvertently presented Chinese companies with a business opportunity which, predictably, they have seized with both hands. Chinese firms such as TCL, Hisense, Huawei, ZTE and Xiamen Overseas Chinese Electronic Co have all been operating in Africa since the 1990s, steadily gaining valuable experience in building their brands, managing overseas operations, establishing distribution and service networks, adjusting to local conditions and reacting to market-led demands. As a result, these companies are now arguably better positioned to achieve their goals of becoming truly global export-oriented companies whose brands are internationally recognised and respected.
Establishing global Chinese brands built on a reputation for quality, reliability and innovation has become a goal that many Chinese companies, and Chinese people in general, consider to be a matter of national pride. Across all industry sectors, Chinese companies have realised that selling their own branded products that can compete in world markets is the only way that they will succeed in the long term.
With rising inflation and increased pressure on wage costs at home, more Chinese electronics companies are transferring manufacturing to lower-cost countries in Africa. The irony of this logistical and strategic move may not be lost on many global economic observers, who regarded China itself in just this way not so very long ago. The strategy not only keeps their production costs down, but also delivers efficiencies by moving production closer to their target markets. Having factories offshore also enables these companies to avoid anti-dumping and tariff barriers, and reduces exchange rate risk. It also provides a much needed boost to the African economies by providing jobs for local people.
To facilitate business success in Africa, the China government has been extremely proactive, making loans and investments in Africa amounting to tens of billions of dollars. In return, the world’s fastest-growing and resource-hungry economy will secure better access to Africa’s vast reserves of raw materials.
A third of China’s oil now comes from Nigeria. China gets copper from Zambia, timber from Tanzania, and gold and platinum from South Africa. Part of China’s strategy to enhance trading ties is to win favour with African governments by exerting what has been described as “soft power”. Chinese investment has been channelled into improving Africa’s infrastructure. Money from China has been used to pay for road building in Ethiopia and Mozambique, schools and hospitals in Liberia, and railways in Angola.
China has signed the ‘Bilateral Improvement and Investment Protection Agreement’ with 29 African countries. Total trade between China and African countries increased to more than US$106 billion last year from just under US$40 billion in 2005.
Individually, a number of China’s big players have demonstrated particular and specific business successes in Africa. Consumer electronics company TCL deployed a strategy of entering Africa and other emerging markets first before it tackled more mature markets. This gave the company an opportunity to develop its brand image and develop its product lines in an environment where technology and quality are generally considered to be less competitive.
Hisense, the Chinese home electronics manufacturer, exports to ten other Southern African countries from its production facility in South Africa. The company began operations in Africa in 1997 and has enjoyed 20-30% growth in sales over the last decade. It has just invested US$15 million in Egypt, building a new CRT and LCD TV production base that is expected to produce 100,000 televisions annually.
A South African subsidiary of Xiamen Overseas Chinese Electronic Company, Sinoprima Investment and Manufacturing, has been manufacturing and distributing CRT, plasma and LCD TVs in Africa since 1998.
Governments throughout Africa have recognised the need for a good telecommunications infrastructure as a key component in helping to generate economic development. With today’s mobile communications networks being much more cost effective and far easier to install than traditional fixed line networks, they have been keen to have networks established in their countries. With their knowledge of the market and established track record in Africa, two Chinese companies that have enjoyed particular success are Huawei Technologies and ZTE. Recently, a government official who oversees telecom projects in Nigeria was quoted as saying that nearly half of the country’s contracts have been awarded to Huawei and ZTE due to their competitive pricing and persistent marketing.
Huawei is China’s largest telecomms equipment manufacturer. It saw potential in Africa back in 1998, despite being totally unknown in the African market at the time. Its price advantage over the main incumbent players, Nokia and Ericsson, and commitment and support all enabled them to break into the market with a great deal of success. Today, Huawei is a leading supplier of CDMA/GSM equipment and NGN solutions in Sub-Saharan countries. Sales growth in the region has been impressive, with sales surging from more than US$1billion in 2006 to US$11.5 billion in 2007.
Huawei currently employs more than 2,500 people across Africa, with 60% of its employees being hired locally. It has a presence across the entire continent through 32 representative offices plus a number of service centres and training centres. Part of the company’s success has been built on its ability to stay a step ahead of technology trends. It has been a leading promoter of IP as a replacement for TDM as the core for all future telecomms networks, including 3G.
Although smaller than Huawei, ZTE is recognised in China as a telecomms network equipment giant. It is also one of the world’s largest handset manufacturers, shipping 30 million handsets in 2007. Impressively, Africa makes up more than 12% of its annual revenue.
ZTE can lay claim to a number of market firsts in Africa. In 2006, it sold the first 3G technology in the continent when it provided a WCDMA network to Nigeria. In 2008, it sold the first commercial WiMAX network in Africa when it supplied Libya Telecom & Technology. In the same year, it was contracted to build the first major WiMAX commercial network across the entire continent with a 2.5 GHz mobile WiMAX network for Chinguitel, a Mauritanian telecom operator. ZTE is now recognised as an industry leader in Africa and is currently seen as one of the key drivers of NGN softswitch technology for long-haul VOiP transmissions.
Chinese companies operating in Africa have learned that deals are not always won on low price alone, but that service and support, on time delivery and installation are also key factors that influence customers’ buying decisions.
How China is perceived by the rest of the world is extremely important to the nation and to the government in particular. As China rises, it is evidently keen to shake off its image as the low tech, low cost ‘factory of the world’ and is keen to move up the value chain, diversify its exports, open up new markets and become a respected international player.
In the not too distant future, it would be reasonable to expect that Chinese brands will be competing in world markets with the big electronics names from Europe, North America, Japan and South Korea. China’s competitive advantage will no longer be based solely on price. Brand image, quality, reliability, service, support and innovation will all enter the mix, partly thanks to the knowledge and experience that China has gained from its experiences in the African market. The traditionally established big names will have to work hard if they are to remain competitive.
Contact Details and Archive...
Most Viewed Articles...