Electrical cable maker finds doing business in Afrira challenging

Electrical cable being loaded for shipment at a Qingdao Hanhe Cable Co Ltd unit in Africa.[Photo provided to China Daily]

Electrical cable maker reaps sustained gains from overseas expansion

To many Chinese businesses, Africa is like a training ground to get them ready to function in Western markets. But some find that does not work. Qingdao Hanhe Cable Co Ltd is one of them.

As a supplier and partner of many big multinationals, including Germany's Siemens engineering, UK-Australian mining firm Rio Tinto Group and energy giant Royal Dutch Shell, Hanhe Cable has worked smoothly with companies from developed countries.

"Some companies see experience in Africa as helpful for them to enter the more regulated Western markets, but for us, Africa is not just a training ground," says Zhang Huakai, chairman of Hanhe Cable.

The company has found that Africa is actually more complicated and challenging, Zhang says.

"Every region has its own characteristics. We have worked well with many Western companies, but Africa is still unfamiliar and unknown to us. Doing well in developed countries does not mean we will definitely do well in Africa."

Hanhe Cable, based in Qingdao, Shandong province, is engaged in research and development, production and operation of cables, wires and related equipment. It makes hightech cables for optical, telecommunications, nuclear power and other uses.

Zhang says China's power industry and businesses that make equipment for it have made great strides during the country's rapid economic development in the past three decades.

Hanhe Cable was established in 1982 in Qingdao's Laoshan district, formerly an isolated area that is now a developed part of the city. Hanhe Cable rose from a small company with only a few people to what is now a big, listed company. It had sales last year of about 6 billion yuan ($979 million), and it has more than 3,000 employees. It also has eight subsidiaries in China.

"We can make 500 kW high-voltage cable, 320 kW direct current cables, and also marine cables, all world-leading technologies, so we are very capable of going overseas in terms of technology," he says.

Zhang says that since China is restructuring its economy, future domestic demand will be smaller and growth slower, so companies need to develop new markets and sales outlets. Overseas markets, especially Africa, will be an important part of the company's future growth.

"Africa is the world's hotspot now, and its infrastructure deficit urgently needs to be turned around. Since construction requires lots of electricity, cables would also be in great demand," he says.

"Our products are suitable for countries where large-scale infrastructure creation and improvement is needed, so we see great potential in this market." In the past few years, Zhang says, Hanhe Cable has done market research in many African countries and has gained many African clients. Its products are sold in many African countries, such as Nigeria, Ghana, South Africa, Botswana, Tanzania and Angola. The company exports products worth 300 million to 400 million yuan directly to African countries, while others are exported through Chinese builders, Zhang says.

The company has also set up offices in Ghana, Nigeria and Tanzania and works with local partners. It sends people to its offices three or four times a year, where they stay for one or two months. But that is still not enough for the company to run the business without some help.

"Working with local partners like this helps us better understand local culture and laws, and helps us understand the markets, strengthen our connections with local customers and creates a foundation for our future business. So we are also talking to potential partners in some other countries like South Africa," Zhang says.

But more importantly, the company plans a long-term presence by setting up its own local companies and factories in some markets with a large demand, such as Nigeria and South Africa.

"Our business in Africa is increasing, but is not steady. So we want to invest directly in the market, and hopefully can do this with South Africa this year," he says. "As long as sales reach a certain size, we will accelerate building factories as soon as possible. Business there now is scattered, and we want to achieve some significant size," he says. In some years, they get big projects, including some worth 300 million to 400 million yuan, but in others there are few projects.

In developed countries and regions such as Europe, the United States and Australia, regulations and industry technology standards are clear and complete, and the markets are more mature. As long as the company makes products following the commercial specifications of these markets, it is easy for them to do business there, Zhang says.

"Every African country has its own regulations and has adopted different industry standards, so there are a lot of different things we need to learn and to make adjustments to. We understand a lot about developed countries, but Africa is more unfamiliar, including the business environment, regulations and product standards.

"We need to set up a sales network and then set up a factory to make products that cater to the local market's characteristics and requirements."

Moreover, the national security and social security of some countries are also concerns, making the company more cautious about investing in them. Sometimes it is also difficult to get the right person to travel to Africa, because some think it is unstable and risky.

Zhang says the company is looking to make long-term investment, not just sales. So while developing the market, they intend to provide more employment to local people.

The company has also set up a charitable fund of 200 million yuan, part of which will be used for local society as a whole, and part for employee welfare at home.

Zhang says the company is now is searching for and cultivating more overseas employees who understand not only the company and the power industry but also Africa. Hiring locals also saves the company money, he says.

One way is recruiting African college students in Qingdao University and Ocean University of China in Qingdao to work as interns for the company, allowing them to improve their understanding of the industry and the company, in hopes that when they graduate and go back home, they would work for the company or help it find good employees. They have been taking on short-term interns for about a year, and currently have three.

Pratt Brookman, from Ghana, a student at Ocean University of China majoring in international business, is one of them. He has been involved with the company for three months.

"It will help my career. I intend to work for the company after I graduate," he says. "I want to do something related with business. I didn't have much knowledge about electricity, but I'm learning more about it gradually. I think the company will help me grow."

In Africa, the biggest competition comes from Chinese companies, which now want to go global because of surplus production in the domestic market, Zhang says. Their production capacity, product quality and prices are all very competitive, he says.

As China expands its reach, Zhang says he wishes it also would promote its industry standards for electrical power equipment.

"Chinese companies are going global, and we should make Chinese standards better recognized overseas. China's standards mainly match international standards or even exceed them. In the past, African countries would use one country's standards for purchases. If they accepted China's standards, it would be smoother for our business there."