The secret of success: communication

Transparency critical for the business success of chinese enterprises in Africa

Trade between China and Africa has risen greatly over the past 15 years, so it is probably not that surprising that over the past decade Chinese investment in Africa has also flourished. Other forms of Sino-African collaboration have also blossomed. For example, by 2011, there were more than 1,000 Chinese projects, mostly in the health, education, transport and storage fields in 50 African countries.

These all point to the strength of the strategic commitment between China and Africa. One other indicator is the China-Africa Development Fund, which has enabled Chinese companies to invest heavily in Africa.

Although resource development is an integral part of Chinese investment in Africa, the scope of investment is broad, encompassing a multitude of areas, including infrastructure and tourism. Accordingly, China's portfolio of investment partners in Africa has broadened from resource-rich countries such as Algeria, Angola and Sudan to ones such as Ethiopia and Tanzania, where sectors such as manufacturing, tourism and transport have been targeted.

For example, Hainan Airlines has recently bought a stake in the newly created Africa World Airlines of Ghana. There is similar investment by Chinese firms in other industries across Africa.

While investment in manufacturing is mostly small, Chinese enterprises have been contracted to build more than 6,000 km of roads, 3,000 km of highways and eight large and medium-sized power plants in Africa since 2000. But it is investment in manufacturing that has grown the most. For example, in Ghana about a third of Chinese investment projects are in manufacturing.

China's own remarkable growth that has helped it become the world's second-largest economy makes it an ideal investment partner for African countries. African business owners and employees gain much needed equipment and expertise from their Chinese counterparts; not to mention the improvements in processes and perspectives from the sharing of knowledge and values such as the work ethic Chinese employees are renowned for.

Likewise, investment in Africa presents unique opportunities and benefits to Chinese private companies including: diversification of trade from competitive local markets, enhancement of export earnings, accrual of financial benefits from business-friendly African policies and trade agreements.

As is the nature of any relationship, the Sino-African business relationship has not been without its bumps and hurdles. Chinese consumer goods often crowd out the market to the detriment of products made by indigenous African organizations. This phenomenon is largely a result of the low prices made possible when Chinese investing organizations leverage their economies of scale. That obviously puts local African companies at a disadvantage, because their smaller scales of production and unsophisticated technology drive up production costs and, subsequently, the price of their products.

Additionally, Chinese private investors can contribute to unemployment by staffing their companies with Chinese. There is a double-edged sword here: while Africans bemoan the narrowing of the job market through the influx of Chinese labor, Chinese investors often cite difficulties in adjusting to indigenous African culture and business practices.

If Chinese investment in Africa is to realize its full potential, better communication is needed at all levels. This extends from the governmental level to manual workers so that the terms of engagement, including responsibilities and benefits of all concerned, are clear. It is also critical that there is transparency between Chinese investors and their African counterparts.

Observations of the nature of Chinese investment often reveal that China is the better-organized side of the partnership. This may be because China's involvement with Africa has escalated so rapidly that Africa has had precious little chance to formulate a coherent strategy for engaging with China. It thus behooves China's African partners to deliberate on the direction of Chinese investment in the continent and establish a mutually beneficial strategy to guide the relationship.

The China Europe International Business School in Shanghai now runs a Pan Africa program from its Africa campus in Accra, Ghana, with the aim of providing world-class business education to African business leaders, and providing a platform that will link African entrepreneurs to their Chinese counterparts. CEIBS is also well positioned to support the growth of Chinese businesses in Africa by educating and sensitizing them to African business practices.

The authors are, respectively, professor and research associate at CEIBS, Accra, Ghana.