Chinese companies explore opportunities in emerging African internet industry

By Song Wei Source:Global Times Published: 2019/11/25 20:38:40

Illustration: Xia Qing/GT

Chinese company Meituan Dianping has recently invested in Nigeria, once again directing the international internet industry's attention toward Chinese companies in Africa. Africa's internet industry is developing rapidly, releasing the vast potential of the local market, which also means unprecedented opportunities for Chinese internet enterprises.

International venture capital institutions are focusing on Africa. Although most tech companies in the continent are still in their initial phases, venture capitalists have set special investment funds to bet on their futures. Technicians and professionals are attracted by the growing number of projects.

Internet startups in Africa can more easily obtain funds as they are deemed to play a bigger role in achieving the UN's Sustainable Development Goals and the African Union's Agenda 2063. New business models are emerging in Africa as the internet extends to all sectors of the local economy. On one hand, the internet is promoting the development of digital currencies, mobile payments and cross-border payments. On the other hand, it can integrate e-commerce and logistics, optimizing industrial chains. The industry plays an important role in Africa's modernization, making it a crucial area for China-Africa cooperation. As an infant market, Africa also poses potential risks and challenges for Chinese internet companies. Although Chinese tech giants like Alibaba, Baidu and Tencent has made moves to expand globally, African internet users are more used to products and services from Western companies. Another challenge for Chinese companies is that the main internet infrastructure in Africa is relatively weak. Internet coverage in rural areas is still not good. Internet security risk is also a threat to market players. Africa's cyber-security governance level is relatively low and its legal systems are not yet of an international standard.

Considering the risk and opportunities in the African market, Chinese internet companies should conduct accurate analysis before making an entrance. They also need to adopt supporting measures. 

Project selection has to be precise and accurate. Chinese internet companies should adopt a rational market position, develop deep localization, find their target customers and explore diversification. Certain Chinese brands are lesser-known in China, but have still sold well in the African market. They avoid the fierce competition in the Chinese market and markets in Europe and the US, targeting the emerging African market. Through heavy advertisement and cooperation with local suppliers and dealers, such brands have built multi-layered distribution channels, seizing market share from established forerunners.

With the rise of the internet industry in this emerging market, many international mobile phone companies have been strategically planning their entries. Faced with fierce market competition, Chinese brands have also made adjustments to outperform others. For Chinese internet companies to gain an edge in the market, they must possess insight into the local economy, politics, culture, customs and habits. They should develop localization and follow customer demand closely to find points of similarity between different cultural backgrounds. The key is to harvest market share and user recognition.

They must also explore diverse financing channels. Competition in the emerging market has been focused on financing strategies. How to efficiently combine and develop loans granted by governments, commercial loans and funds provided by policy banks will eventually decide if an incubation project can become successful in a developing country. 

Against this background, many major developed countries have been on the lookout for mixed financing channels. These are directed by government funds and motivate other funds worldwide to vitalize development projects and help developing countries achieve sustainable development. Chinese internet companies are searching for the right mix for their portfolios and generating new stratification methods to assess risk and profit. By doing this, they can convince the Chinese government to inject further development funds and can spur local investment in Africa, thereby powering up the sustainable development of Africa's digitalization.

Enhancing internet-skills training is also important. Aside from their business activities, Chinese companies are also motivated to help Africa increase overall self-sufficiency. Their moves have both shaped the local development environment and stocked talent for the growth of companies. Chinese firms need to continue cooperating with local governments to engage in internet-skills training, helping young students to learn about and embrace the digital economy. By transplanting China's digital development experience to Africa, the continent can become suitable for internet development.

The African internet industry is an emerging industry in an emerging market, wherein lie increased opportunities and challenges. This requires Chinese internet companies to gear up innovation, and shoulder more social responsibilities and development obligations. While assisting with the digitalization of African countries, these companies will achieve their own development and upgrades.

The author is an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.


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