Chinese telecoms
hardware and network makers are biting off bigger chunks of African
business and are likely to overthrow hitherto dominant European vendors
in a region with mouthwateringly low penetration rates.
While in the past
they might have brought unreliable technology and a handbook only in
Chinese, the firms are leveraging on a pool of skilled labour and
government loans to dislodge traditional vendors.
“It is not good
news for the traditional vendors,” says Dobek Pater, telecoms analyst
and partner at research firm, Africa Analysis.
China’s main
telecoms gear makers, Huawei Technologies and ZTE, are rapidly taking
business from European vendors such as Ericsson, Nokia, Siemens
Network, and Alcatel-Lucent.
Chinese vendors’
initial market entry strategy was hinged on low priced offerings, often
to state-run operators, but the companies have reinvented themselves by
throwing billions of dollars into research and development and are now
often ahead of the curve with new technologies.
Stringent testing
by global operators such as Vodafone has seen the Chinese vendors
become the approved suppliers of almost all core access and
transmission infrastructure in Africa.
Analysts say Chinese vendors are also willing to bend the rules to provide more cost-effective solutions for emerging markets.
“Chinese vendors
have mastered doing business in Africa the African way, if we can put
it that way,” said Tinyiko Mavoni, chief executive at South Africa’s
Mavoni Technologies.
Sweet deals
China’s
export-oriented growth strategy has supported its companies. In March
2009, China Development Bank agreed to provide ZTE with a $15 billion
credit line, according to Simon Schaefer, an analyst at
Johannesburg-based Frontier Advisory.
To avoid rankling
western competitors, China is now lending directly to African
governments or operators, but the money comes with the proviso that it
is spent on Chinese products.
The European Union
this month dropped an inquiry into the subsidy of Chinese firms after
Belgium’s Option withdrew its complaint after reaching a cooperation
agreement with Huawei.
The Chinese
companies deploy skilled personnel to build new networks in numbers
that few western vendors can match, and often offer a financing deal.
Mr. Pater said Huawei ranked itself in the top three on money generated from operators.
“They estimate that by 2014 they would be in the number one position in equipment and building networks,” he said.
Fringe players
The era of
acquisitions and mergers of established European and U.S.-based vendors
in the mid 2000s resulted in a loss of strategic focus as the new
companies tried to settle, says Simon Lee, head of Farwell Consultants.
Up until that point the Chinese were fringe players, and the general perception was that they were cheap and unreliable.
“The Chinese
companies were not going to pack up their bags and go home. They saw
… the general confusion of the established vendors and went full
blast on a new strategy to gain respect and confidence globally,” Mr.
Lee said.
“From 2008 until
last year they were picking up coveted contracts and even swapping out
equipment from operators who had had long-standing relationships with
their incumbent vendor,” he added.
Chinese firms are
also pushing the boundaries with handsets and personal devices but have
some way to go to match the aesthetics and ease of use of established
makers.
Nokia and Samsung
remain the dominant players in Africa, and the Blackberry is
increasingly popular among the upwardly mobile. However, mobile phones
recycled in China or of Chinese origin are making an entry, according
to Fola Odufuwa, an Africa-focused telecoms consultant.
It is in the
broadband USB modem market where Huawei and ZTE head the pack in many
African countries and where analysts see some of the choicest
opportunities.
Africa has a mobile
penetration rate of only 41 per cent, compared with 76 per cent
globally, while the broadband penetration rate on the continent was
negligible, statistics from the U.N. agency International
Telecommunication Union.
As long as the
Chinese vendors continue to provide quality, competitively priced
equipment that is set up in a relatively short period of time, they
will be the suppliers of choice.
