Fearful contractors should learn from rivals

Instead of complaining, local company owners may want to investigate the reasons for chinese success

I recently attended a lobby group conference where African contractors complained that Chinese companies had taken over not only major projects such as roads, but also real estate projects.

The contractors said the future of their businesses was under threat, as they cannot compete with Chinese counterparts who underbid and are pre-qualified for major projects.

My research on infrastructure development in African countries confirmed the truth. Chinese companies do dominate the African construction sector, enjoying a market share larger than that of the United States, France and Italy combined.

In Angola, one of China's main oil suppliers, for instance, the railway is rapidly expanding as part of an infrastructure-for-oil trade agreement between the two countries.

And in Kenya, three Chinese companies - China Wu Yi Co, SinoHydro Corp and Sheng Li Engineering Construction - were awarded a $360 million contract in 2009 to build a modern super highway, the first of its kind in the country, which has greatly enhanced transport between various cities. The country also recently signed a $5 billion deal with China to construct an 852-kilometer rail link from Mombasa to Nairobi, which may be extended to Rwanda, Uganda and Tanzania by 2018.

In September 2012, China Railway Construction Corp signed a $1.5 billion contract to rehabilitate a railway system in Nigeria. The CRC also has ongoing projects in Ethiopia, Djibouti and Nigeria worth about $1.5 billion.

China was building 31 percent of all infrastructure projects in East Africa last year, up from 19 percent in 2013, according to the Deloitte African Construction Trends Report 2014. By contrast, Europe and the US accounted for 18 percent, down from 37 percent.

All are clear indications that the presence of Chinese construction companies in Africa is big and growing, and it is the reason why local contractors feel threatened. But while the issues raised by the contractors may be genuine, there are several things they can learn from their Chinese counterparts.

To start with, even though political support from the Chinese government has played a role in facilitating the entry of Chinese companies into Africa, they face the same challenges as local enterprises, including corruption, lack of infrastructure, poor-quality local labor and communication, and political instability. Yet, the standard of work by the Chinese companies is reportedly very high.

Second, unlike local contractors, Chinese are dedicated to their work and meeting deadlines. They work around the clock in an effort to complete projects on time. By comparison, some African contractors take long periods to complete a project, and the quality of work is often compromised. Roads constructed by local contractors usually wear out after two to three years.

Third, while the common perception is that the strategy of Chinese firms is to secure as many jobs as possible, they are selective in maintaining a manageable portfolio of projects. African contractors may undertake more projects with the aim of earning more.

Chinese contractors also use qualified workers, good machinery, genuine materials and the latest technology, the reason the quality of their work is good. When entering a new market, they also study the situation in the country to align their business practices, so that they understand investment policies and local customs. Their aim is to stick to that country's policy and regulatory architecture instead of seeking to change them. They strategize, latching onto existing circumstances and try to figure out how they can best fit in. They let local practices dictate and, if possible, sometimes recommend Chinese standards and codes that may meet, or at times exceed, those of Africa.

In addition, Chinese contractors start the screening process as soon as they get information about a project. They look at the source of funding. After analysis, they send a team to visit the project area and learn from potential bidders.

Chinese firms target bulk customers and they also buy some building and construction materials from China purely for business reasons. While most local contractors may wish to import construction materials, Chinese contractors prefer promoting their own. Chinese companies also offer discounts to clients and credit facilities to repeat customers, which enables them to grow and retain their client base.

African governments have a role to play in enabling local contractors to grow and be able to compete with foreign companies, especially in terms of funding. But it is time the local contractors sat down, analyzed how the Chinese do business and try to learn one or two lessons from them.

They may find reasons to appreciate the Chinese instead of viewing them as a threat.

The author is a journalist in Kenya.

(China Daily Africa Weekly 05/15/2015 page9)