China’s Tech Firms and Africa

The Silicon Hutong Desk, Starbucks @ China World Tower 2, Beijing

A great article in the Economist on 25 November (“A New Scramble: Booming Chinese interest in Africa is not just about oil”) concisely documents the strategic raw materials relationship that China is building with Africa. Shades of 1964 indeed, but instead of Simbas and Stalinists, this time China is dealing with any odious dictator or pariah with oil or mineral reserves that the country needs. Zambia and Gabon are about to join a rogue’s list that includes Zimbabwe, Angola, and Sudan as countries that China is courting mostly because nobody else wants to do business there.

It’s a fantastic opportunity for China, created in no small part by NGOs and activist shareholders who won’t let global companies break bread, much less do business, with these nations.

Huawei, never concerned by such niceties as consumer perceptions, shareholder activism, or ethical corporate behavior, has staked claims in markets like Sudan and Zimbabwe where Lucent and Nortel hesitate to tread. They are the largest and most visible, but they won’t be the last.

In fact, Africa is an opportunity for many of China’s tech firms, at least on the surface. ZTE and Bird can sell low-cost mobile handsets. Lenovo can sell low-cost computers. AVIC can sell low-cost airliners. Etcetera ad nauseam.

There will be two key issues for tech firms venturing into Africa. First is getting paid: these countries are rated poor credit risks for a very good reason. PRC tech firms that venture into Africa should think about doing so on COD terms. Period. Normally I would suggest getting guarantees from the PRC government, but I’m not sure the PRC government would pay that much quicker.

The second issue is appropriateness. Even though China is a developing country and has vast regions of very poor people, the circumstances in Africa make China look like Northwest Europe. Products that are developed and priced specifically for the market are essential. One indicator of how radical products need to be modified for Africa comes from the Economist’s quarterly technology review (“Human Powered Health Care”, Economist, December 2, 2004). Anyone for PCs powered by hand-cranked generators? China will find the kind of challenges in Africa that rival those American adn European firms encounter in the PRC. Good luck, boys.