“Go out” versus “come home”
View(s):What is the most popular mobile phone brand in Africa? I asked this question from a few African students, while we were having a discussion. They were university lecturers from Nigeria studying at Colombo University for their doctorate degrees. They answered “Tecno” and, they all were unanimous in their answer.
I asked them again: “What about Apple iPhone or Samsung or other Chinese phones which are quite popular here in Sri Lanka?” They commented that their market share is now small in African countries, compared to this new brand Tecno – a Chinese-made mobile phone.
“Go out” strategy
Coincidently, I came across a CNN documentary of Chinese-made Tecno, which has never sold a single unit in China. Interestingly, since the beginning Tecno has been designed and developed in China exclusively for Africa. Tecno dominates the mobile phone market in Africa challenging many other established international brands such as Apple and Samsung.
Africa is home to about 1.3 billion people living in 54 countries. By the size of population it is similar to China which is home to 1.4 billion people. But population growth is faster in Africa than in China. Recent population statistics show, population in Africa has been growing by more than 2 per cent a year, while in China it is little more than 0.5 per cent. This comparison tells us that sooner than later Africa is going to be bigger than China in terms of population.
Therefore, penetration into a less-competitive, bigger and growing market is a far-sighted strategy which is perfectly consistent with the Chinese “go out” business strategy.
Fresh market
Africa is growing not only in its population, but also by people’s income. Over the past decade or so many countries in Africa have begun to record high average growth rates in the range of 7 – 10 per cent a year. Some of the fastest-growing African countries are Ethiopia, Ghana, Cote d’Ivorie, Senegal, Tanzania, Sierra Leon, Rwanda, and Niger.
Africa’s fastest growing economy is Ethiopia, which is home to more than 100 million people. Ethiopia has maintained its annual growth rate in the range of 8 – 11 per cent a year over the past 10 years. Much of its growth is owed to foreign investment, while China is playing a major role in investing in Africa too. Foreign direct investment flows to Africa in the past few years is bigger than what South Asia has received during the same period.
File picture of a Sri Lankan apparel factory. Apparel is the main Sri Lankan product that has opened factories overseas.
Telecom revolution
Given the fast income growth, Africa has a rapidly expanding market with a promising future demand for consumption. In any economy that begins to grow fast, the first consumer demand is for food, beverages, clothing, jewellery, cosmetics, and some electronic products which includes mobile phones as well.
According to Africa Business Pages website, “when it comes to mobile phones, Africa is truly undergoing a revolution.” It is the world’s fastest-growing mobile phone market. One important reason is that, fixed-line phones have been a super luxury item in Africa; then it was an open flood gate of the consumer demand for the mobile phone market.
Exclusively African
Chinese-made phones are competing all over the world in terms of its lower price, compared with many established brands. But it was not the only reason for Tecno, which focused on the lucrative African market: it is the exclusive design of the Tecno mobile phone in such a way that it suits African tastes and environment. In that sense, a “global” design is a wrong approach to some businesses.
For instance, pictures are said to be more beautiful from Tecno phones because its camera specifications suit the African complexion. Electricity power is limited in most parts of Africa, while it is not unusual that there are long hours of power cuts. Therefore, a long-lasting battery of a phone set is much appreciated; Tecno has got that too.
Call charges between different networks are expensive so that still being poor, people want to use more than one Sim card; Tecno came with a “dual sim” phone. All these examples point to the business strategy of Tecno which has been successful in “going out” to Africa.
“Come home” strategy
When many Chinese businesses as well as state-owned enterprises, adopting the “going out” strategy, the US government choose to do the opposite: “Come home.”
Being the most advanced mature economy in the world, the US businesses had started relocating their investment in developing countries. These investment were not the entire production process, but only the low-skilled and labour-intensive parts of the process such as “assembling the final product.”
The assembling part of the Apple iPhone also went into China so that the iPhone became an export commodity of China, not of the US. As many US companies have done this in the past, the US lost the jobs of its lower-skilled people. This is the way that China has “stolen American jobs” as claimed by the President Donald Trump.
Under the Trump economic policies, the strategy is “come home!” It was reported recently that the President Trump has tweeted: “Make your products in the United States instead of China. Start building new plants now.”
The “come home” strategy encourages or rather compels American investment in China and in other developing countries to come back to the US so that the jobs that the American people lost would be recovered.
Does it work?
Compared to the “go out” strategy which has a cost advantage, the “come home” strategy has a cost disadvantage. Even if some of the American investment outside the US decide to come back, these businesses have to face the higher labour cost in the US which would squeeze their profit margin.
Even if such investments decide not to come back, they will have to face new tariffs particularly if they are based in China. Therefore, in anyway the US products whether they are in the US or in China will have a higher cost.
The higher costs need to be compensated by tax concessions as the President has promised, or be passed on to the consumers through higher prices. Whichever way, someone has to bear the higher cost – the government or the consumer.
But is one thing clear: The businesses that are going to be relocated back in the US will have to face tough competition in the international market as their competitiveness get eroded due to cheaper products from China and other developing countries.
Stay inside!
By the way, there is another strategy which leads us not even to grow, but to remain dwarfish: The strategy of “stay inside” which guides the businesses to focus on the domestic market. For that matter, “stay inside” strategy justifies protection from outside.
However, we should not quote new American protectionism or “come home” strategy to justify the “stay inside” policy. The US is, in fact, in the post-industrial stage of development so that it might be able to manage its protectionism even by asking the American people to pay for that. But we in a developing country are still at an initial stage of development so that we cannot afford to justify our position with American strategies.
Even for big countries such as China and India with over one billion people each, it is the “go out” strategy to the international market that works for them. Then, how is it possible for a country like Sri Lanka with a smaller population for the “stay inside” strategy to work?
World – class cricket
At a recent panel discussion, Suresh Shah – CEO of the Lion Brewery Ceylon PLC commented that Sri Lankan cricket has become internationally competitive and, we are proud of having world-class batsmen and bowlers in the team. This was because they “went out” and played internationally. Had they “stayed inside” playing local cricket, they would never have become “world-class” as such.
I think it is an inspiring word to every activity – business or profession, which seek protection to their little worlds through the “stay inside” strategy to avoid competition.
Chinese-made phones are competing all over the world in terms of its lower price, compared with many established brands. But it was not the only reason for Tecno, which focused on the lucrative African market: it is the exclusive design of the Tecno mobile phone in such a way that it suits African tastes and environment. In that sense, a “global” design is a wrong approach to some businesses.
(The writer is a Professor of Economics at the University of Colombo. He can be reached at sirimal@econ.cmb.ac.lk)