Assessing the Presence of Chinese Firms in Africa

As comparatively new players on the African continent, Chinese companies often face uphill battles against much more entrenched European and American competitors.  With their strong advantages of extensiveness in local resource ownership, social networks with influential local leaders, and brand recognition among the common populace, Western firms use their long-established traditional presence and trust to secure large segments of the African market.  The lack of such long history has forced Chinese firms, many of which largely unknown to Africans, to undertake a brazenly risky approach in doing business on the continent to compete with the West.

Specifically, since the American and European advantages are often assets that can only be obtained through long-term cultivation, Chinese firms have instead focused on offsetting their weaknesses through concentrated investments, so that significant outputs can be achieved in the short-term.  In particular, to maximize returns from investments, Chinese firms have focused on locales and industries where Western presence remain highly limited, often due to political instability or inherent economic deficiencies that make investments seem less worthwhile. 

One of the best examples in Chinese firms’ willingness to invest in high-risk areas is in the telecom industry.  In this field, Chinese firms Huawei and ZTE have been boldly investing in physical telecom infrastructures in some of the continent’s most conflict-ridden and impoverished states.  The diligence and meticulousness with which the two firms have invested in building infrastructure has, in a relatively short span of time, decreased telecom charges and increased signal coverage, notably contributing to Africa’s ongoing mobile revolution and largely breaking Western firms’ monopoly over the African telecoms market.

However, it is too one-sided to portray Chinese firms’ greater affinity to high-risk investments as simple desire to quickly take larger shares of African market from the West.  Instead, the enthusiasm of Chinese firms to operate in dangerous areas of the continent is often one segment of the overall Chinese national strategy to carry greater favor in Africa at the expense of the West.  The Chinese government’s commercial agreements with individual African nations have granted Chinese firms nearly exclusive contracts of many lucrative development projects, a luxury that most Western firms of today do not have.

Indeed, it may not be too far-fetched to say that the speed of Chinese firms’ advances in some parts of the African economy is attributable not to desire for greater profit for the firms themselves, but rather attempts to advance the Chinese state’s political and economic interests.  On the political side, this amount to previously mentioned construction of many large-scale infrastructure projects to carry favor with African leaders.  On the economic side, the massive purchases of commodities including minerals and agricultural produce are stipulated by growing domestic need within China itself.  While there is no doubt that Chinese firms participating in these economic transactions see corporate benefits from doing so, the mere gaining of profits may not be the highest priorities in such cases.

Such strong government-business collaborations to make inroads into Africa, apparent in Chinese firms, have little parallels in America or Europe.  There is no strong evidence that Western diplomatic efforts in Africa have significantly altered how Western firms conduct their investments and businesses on the continent.  And private Western firms, aside from lobbying to gain favorable policies back home, have little direct communications with government authorities to coordinate their respective efforts and goals in Africa.  This can explain Western firms’ tendencies to gravitate toward geographies and industries where high profits can be made with relatively little risk.

In summary, the affinity for high-risk, high-valued investments among Chinese firms is a major differentiator with Western counterparts, which prefer a more gradual, long-term approach.  The rationale behind this can be considered as two-fold.  On one hand, Chinese firms need to quickly catch up to Western business positions in Africa established through decades and centuries of active presence.  On the other hand, Chinese firms appear as willing collaborator of the Chinese government strategy to rapidly gain diplomatic and economic foothold on the African continent.  Both such factors contribute to the fast-paced and aggressive behaviors of Chinese firms in Africa unseen among Western companies.