Infrastructure boom offers opportunities

Localization strategies can help Chinese auto firms reap long-term rewards

African countries, with their large population and younger demographics, are now catching the fancy of several Chinese automakers, due to growing demand for affordable vehicles.

The market potential for Chinese automobile firms in Africa is huge, considering that the low rates offered by them are more or less in line with the needs of most African countries.

The infrastructure construction boom in Africa has spawned the need for a multitude of vehicles and also made it the largest project contract market for Chinese companies.

According to China Chamber of International Commerce, engineering vehicles and special vehicles occupied the top two slots for car exports from China last year. Such a surge also augurs well for China's overseas construction projects in Africa.

Many of the Chinese automobile companies have chosen to team up with construction firms in Africa as this ensures a steady stream of orders. An additional advantage of such an alliance is that the influence of the construction firms comes in handy for product promotion to a wider market. Sinotruck is one of the Chinese companies that has enjoyed considerable success in Africa through such an association.

Government procurement is another important growth channel for Chinese automobile companies. In Africa, the biggest consumer is often the local government. If Chinese automobile companies can be included in government procurements, they stand a lot to gain.

However, this is easier said than done. To win a share of the government procurement market, Chinese companies must increase their own strengths and credibility, as this will create an overall favorable impression.

Government procurement is usually voluminous and incremental, or in other words a stable growth market. Chinese companies can take advantage of the exemplification effect of government procurement to increase brand awareness and expand sales.

When Chinese companies encounter disputes and friction in local markets, their relations with local governments will help them solve problems in a more efficient way.

At the same time, it is also important for Chinese automakers to increase their localization investment in many African countries. For example, Egypt has a population of more than 83 million, and a huge demand for economy cars. In recent years, the Egyptian economy has experienced a resurgence and prospects look bright. With increasing personal income, combined with governmental subsidies on gasoline consumption and toll-gate fee reduction, the cost of a car is less than it used to be in Egypt. Chinese auto enterprises can build factories in places like Egypt and also expand to neighboring African countries.

Despite these advantages, there are some problems that Chinese companies must pay attention to in Africa.

Innovation should be the prime growth motivator for Chinese automobile firms in Africa. The innovation drive should be primarily focused on research and development efforts to shift from low technology to high technology and also for quality upgrades.

Practicality is another important aspect that companies must be aware of. Various problems could happen to the vehicles due to poor road conditions. So local road conditions should be taken into account while making vehicles that not only use the latest technologies, but also fosters independent innovation.

Some Chinese cars often have incomplete user manuals. These car manuals have just one or two foreign languages, while many foreign cars come with manuals in more than 10 different languages.

After-sales services are also important for automobile firms. Automakers should familiarize their local employees with the various types of accessories and models, so that they can provide localized services quickly and efficiently. They should also equip their local agents with technical staff to guide repair and maintenance work.

International trade barriers have also hampered the development of Chinese auto companies in Africa. Chinese automobile technology is based on assembly process-based startups. They need to pay closer attention to standard production and management control processes.

Developed countries use non-tariff barriers such as anti-dumping, strict process standards and green wall barriers to prevent Chinese automakers from further expansion in Africa.

With increasing awareness of intellectual property rights, Chinese auto companies are more likely to be accused of plagiarism or infringement by well-known international car companies, if they don't pay attention.

Therefore, Chinese enterprises' primary task in Africa is not competition from international giants, or how to transfer the industry chain to Africa, but to implement a series of strategic adjustment and integration of resources to overcome their own shortcomings. Failure to do so may find them being replaced by Japanese, European and American companies.

The author is director of the trade department at the China Chamber of Commerce for Import and Export of Machinery and Electronic Products. The views do not necessarily reflect those of China Daily.

(China Daily 04/19/2013 page7)