Why are Chinese Tech Firms Taking Over Africa?
In the streets of Nairobi, Johannesburg, Lagos and other African cities, signs advertising Chinese tech products are not an uncommon sight. In fact, all Chinese tech firms are rushing to get into Africa.
Walking around Nelson Mandela Square in Johannesburg alone, you can place your finger on more than ten of them, mostly advertising phones, and other electronic products. In Nairobi, the name Tecno, Oppo, and Huawei are splashed across billboards around all town. Chinese Tech firms will welcome you to a rapidly changing face of Africa.
Why are Chinese tech products so huge in Africa?
In Africa, the most obvious comparative advantage of Chinese tech products is price. While the African tech market, up to recent times has been largely untapped, Chinese firms have found a way to build double-digit profit margins by tapping into the economic potentials, or the lack of it of African buyers.
On most occasions, the African market represents the lowest cadre of buyers. While the population and demand for tech products is high, the purchasing abilities of the people are often rather low. It is also marked by illusions at some point and a need for quality things at a cheaper cost.
Transsion Holdings, a Chinese firm based in Shenzhen and Startimes, a pay TV subscription firm seem to have found the cost trick right with Africa. While the name Transsion is hardly recognizable in the streets of China, in Africa the brand names Infinix, Tecno and Itel are virtually on every street. In fact, Nairobi`s National Newspaper reports that out of every ten Kenyan people you know, predominantly those of the middle class and below, three of them will have a Transsion phone in their hands.
In 2017, Transsion overtook Huawei and Samsung in the number of smartphones sold in Africa. While the first two are big and global, Ramazan Yavuz, African and Middle East Research manager with IDC contends that Transsion is gaining dominance because their price perspective suit the pockets of Africans.
In 2018, Transsion reported a 25% market share of all smartphones sold in Africa. Startimes, on the other hand, has brought the subtle power of Chinese broadcasting to the corridors of Africa, at a really cheap cost. This gamble has paid off rather handsomely for the firm. Unlike phone companies that mostly import fully made gadgets into African countries, Startimes has attempted to localize its operations. In Tanzania alone, the company currently holds a 40% market share in Tanzania`s broadcasting field.
On average, the products with the highest number of sales in Africa are those between the $10-$300 price ranges. Tech companies that have narrowed down their products to those ranges have seen a spark in Africa. For instance, it took Xiaomi only two months to break even in an already “ saturated” African market with their recent Xiami MI A1 phone.
Is this dominance harmful to African markets?
Absolutely no. There is nothing harmful about having cheaper electronics.
For as little as $100, you can buy yourself a phone running on the Android Nougat Platform. Does it sound like a dream? Ooh, yes, it does. But you go on ask about the New Infinix Note or Tecno Spark K2. They cost around that price.
While 5 years ago smartphones were a preserve of the high and mighty in African society, they are a necessity in each African`s life today. This is perhaps why each Chinese firm is racing to get a piece of the pie. Xiaomi is in the market, with ridiculous prices for its Redmi line,
This rush is not a characteristic of the tech firms that manufacture phones alone. On either side of the divide, Chinese firms are racing to capture a larger African market by bringing prices down.
In the e-commerce sector, Alibaba has made entry into large untapped markets, in Kenya, Nigeria, and South Africa. The ripples of the entry have been felt across the continent. Suddenly, locally grown e-commerce platforms have become wary, because it means competition has arrived.
The presence of Chinese tech firms on African soil is a relief for Africans. While the rest of the world struggles with the increasing prices of high-end smartphones, virtually every tech- product coming into Africa is aimed at hundreds of millions of low-budget people. In smart-phone shops in Lagos, Nigeria, expensive high-end phones like the Huawei Mate 10 sit side by side with Huawei Y5s, phones which cost five times less. One thing, however, remains clear, that more Y5s will sell, and they might probably rake in more profits than the Mate 10s. Even Huawei seems to understand the dynamics of the African market.
Will the aggressive marketing undertaken by Chinese tech firms bring trade wars?
Definitely yes. While Chinese Tech companies have been having their pie and eating it, firms from other parts of the world have found it hard to gain traction in Africa. Out of the ever-present faces of iPhones and Samsungs, the rest of the brands have been forced to eat humble pie.
At the China Africa forum held in Addis Ababa Ethiopia last year, one thing became increasingly clear. This was Chinese companies commitment to adapt to the rigors of the African market and their ability to transform the face of Africa without too much geopolitics. This was best summed up by Alibaba`s Jack Ma at the same conference when he said that,
“While Africa is the next frontier of the battle for tech firms, China was the first man in the ring.”
Unlike the other global markets that are straight forward, Africa`s needs are meshed up in a lot of dynamics. This is why it takes specific products to make headwinds in Africa. Tech firms struggle because they do not undertake the necessary study into African markets. They also struggle to beat competition from tens of firms and hundreds of products.
What does the future hold for Chinese Tech Firms in Africa?
Africa`s market potential is still hugely untapped. There is a lot of space to grow. While competition as it is now, will mostly play out in the near future, the avaricious nature of Tech competition might just open the doors for a glut in Chinese Tech products in the African market.
It should be said, in conclusion, that in as much as the potential is untapped, the current dynamic favor those firms that set up shop in the African countries.
Featured photo credit to tecno.com