There’s a lovely article on ChinaView, a project of China’s state news agency Xinhua, about a visit from politicians from nine African nations to appliance firm Haier’s Qingdao offices. While some of the quotes don’t quite parse into English as I know it, it’s pretty clear that a good time was had by all:
“It is really incredible that Haier can manufacture almost anything we can imagine,” said Habibou from Niger, the head of the delegation, while playing table-tennis with a body-building inter-communication TV. “This TV is of great interest, and it will attract senior citizens like me to do exercising at home,” he said.
(Man, I’ve always wanted a body-building inter-communication TV. I wish Best Buy stocked those.)
I’ve been following news about Haier for a couple of years now, after discovering that the company was advertising on luggage carts on airports in half a dozen of the developing countries I regularly visit. Haier’s vegetable cleaning and cheese-making washing machines have become a favorite example of mine in talks about innovation in the developing world. And I’m very interested to see whether Haier’s $1.28 billion bid for Maytag succeeds… and what sort of emotions it raises for protectionist US politicians (which seems to include both sides of the aisle these days.)
Two things that interest me about this article. There’s a lot of rhetoric in the US these days about unfair Chinese government support for businesses. I tend to ignore most of it as China-bashing. But it’s certainly interesting that Haier – a “collective” company, technically owned by the workers, though no one seems to know who owns how much, or whether the government owns some of the shares – gets such sympathetic (sycophantic?) coverage from the national news agency.
The African politicians on the trip (the only one I’ve been able to identify in the story is Marie Ramampy, the vice-President of the Antenimierampirenena Malagasy, the National Assembly of Madagascar) are not junketeering to Qingdao purely to look at air conditioners. They’re in China on a diplomatic study tour, and their trip to Qingdao is paid for by “the International Department of the Communist Party of China Central Committee”, not directly by Haier. And if the visiting politicans do become “volunteer spokespersons” for Haier, the company can thank the Chinese government. (It’s worth noting that the US deparment of commerce also works hard to promote the interests of US companies abroad.)
What really interests me, though, is the way Chinese companies are approaching Africa – as a potentially huge emerging market. According to the Xinhua article, Haier’s sales to Africa in 2004 totalled $27 million – a tiny percentage of their total sales of $9 billion. But Haier and other Chinese companies are aggresively pursuing these new markets, realizing
that a middle class is emerging in Africa, more slowly but just as surely as one is emerging in China, India and other developing nations.
Haier’s not alone – read Russell Southwood’s Balancing Act newsletter (widely considered the best source for telecommunications news from Africa) and you’ll see Chinese telecom firms Huawei and ZTE winning contract after contract on the continent. Mapara Syed, writing in Balancing Act, reports that Huawei now has 30 branch offices on the continent and sold $250m worth of mobile telephony equipment in 2004. In many cases, Huawei is able to match low cost contracts with financing through entities like the China Development Bank.
Chinese companies aren’t just selling into African markets. They’re building factories. Haier now has plants in Nigeria and South Africa as well as Tunisia, Egypt and Algeria. ZTE is manufacturing cellphones and recharge scratch cards in Nigeria, and fixed wireless equipment in Algeria. A recent $200m contract between Huawei and the Nigerian government included Huawei investing $20m in a new plant in Nigeria.
Abraham McLaughlin, Africa correspondent for the Christian Science Monitor, sees Huawei, ZTE and Haier as part of a larger Chinese focus on Africa. China’s trade with the continent increased 50% between 2002 and 2003, and Chinese officials project that trade with Africa will total $30 billion by 2006, rivaling US-Africa trade figures of $44.5 billion last year. While US trade with Africa is substantial, a great deal of that trade is in the energy sector – in 2002, the US obtained 16% of its total oil supply from sub-Saharan Africa.
It’s rare, though, to hear American and European companies talking about Africa as a market (or as a location for manufacturing facilities.) About 18 months ago, I attended a dinner held by Orange CEO Sol Trujillo at Davos. (Trujillo has subsequently left Orange for Australia’s Telstra.) Trujillo gave an hour-long talk focused on markets and products where telephone companies can yield high “ARPU” (average revenue per user). Feeling like being a pain in the ass, I asked Trujillo whether Orange saw value in low-ARPU markets, or whether they were prepared to let companies like South Africa’s MTN claim market after market. (Again with the skillful attempts to ensure that I don’t get invited to cocktail parties.)
Trujillo didn’t miss a beat, and told me that Orange Madagascar was one of the company’s most profitable units. ARPU was lousy, he explained, but labor costs were very low, and there was almost no need to spend money on marketing, as pent-up demand was so high… so profits were quite high. But, he added, the reason he hadn’t brought up Madagascar was “every time I mention Africa, our stock price goes down”.
I worry that American and European attitudes about Africa as a continent in crisis ensure that companies won’t invest in Africa, or will be very quiet about doing so. Chinese companies, on the other hand, seem to be treating Africa as an exciting potential market… which may have major economic benefits for Africa if the practice of opening African manufacturing facilities continues. As Africa matures and grows, we may find that we’re way behind the Chinese in learning how to design products for and market products to new middle class African consumers.
But that’s the least of our problems. In the immediate future, there’s a body-building inter-communication TV gap that needs closing! Our national pride depends on it!