Connecting the dots in South Africa

Huawei banks on enterprise business to create the ideal platform for company's growth

In its first six years, Huawei says it did not make a penny from its business in South Africa. However, it now holds the largest or at least the second-largest market share in the South African information and communications technology market, with established Western brands as its main competitors.

The company plans to use South Africa as a bridgehead to other markets in the Africa.

Established in 1998, Huawei Technologies SA (Pty) Ltd now has 1,000 employees, more than 65 percent of them being local hires. The company's business groups are made up of the carrier network, which seeks to build alliances with local telecom providers; the enterprise business, which provides solutions and equipment for government, banks, educational institutions, large companies; and the consumer business, which includes selling mobile phones, tablets and data cards, says Alice Qi, Huawei South Africa's head of public affairs and communications.

Speaking in her office at the Grayston Office Park near Sandton, Johannesburg, Qi says the office also serves as the Shenzhen-based telecoms company's hub for its Southeast African operations covering countries such as Lesotho, Mozambique and Swaziland.

"Among Chinese enterprises in South Africa, we probably have the most employees. In the country's information and communications technologies industry, we are the only one that has teamed up with the top five carriers, Telkom, Vodacom, MTN, Cell-C and Neotel.

"We are ranked No 1 or No 2 based on our market share in South Africa. Most of this market share has been won from established Western brands through stiff competition, and we hope to consolidate our gains further through continuous investment."

After entering South Africa in 1998, Huawei kept on investing, but did not make money from sales of products or solutions until 2004, she says.

"Gradually we were accepted by the market and started to produce data cards for Vodacome, a local carrier. It's our technology but their label. Then we started to work with local carriers."

The parent company set up the enterprise business group in 2011 to tap the "blue ocean" beyond the carriers. Robust demand was especially found in the South African market, which is highly developed compared with other African markets and has developed industries, such as finance and banking, to rely on solutions for cost control.

The subsidiary's consumer business in South Africa also switched from selling low-end mobile phones to smart phones three years ago and now has market share just behind Apple and Samsung.

"Revenue from our South African operations has grown at a steady clip of 5 to 10 percent every year, the same as that of the parent company," Qi says, adding that South Africa and Nigeria, the continent's top two economies, "are among the top 10 in terms of contributions to the parent company's sales".

Huawei Technologies was one of the first Chinese companies to benefit from overseas expansion. But it also encountered headwinds in developed markets like the United States and the European Union. Africa has continued to provide Huawei with bright business prospects due to its huge population and growing demand.

"South Africa launched a national development plan last year including huge investment in telecommunications, aiming to cover schools and clinics first and then government authorities and businesses. Once national broadband is established, South Africa will truly embark on the path of innovation," Qi says.

Though revenue from business with carriers accounted for the largest chunk of its revenue, demand from South African enterprises is "infinite". Meanwhile, IT improvement in some cities and government demand for database, cloud and disaster recovery services are also increasing, Qi says.

"We are confident about South Africa's long-term economic prospects. The political situation is stable and we are not too worried about aspects like strikes."

Low prices were the method the subsidiary used to establish itself in South Africa, but it is no longer the key for success.

"The most important ingredient for our success is technology. Only advanced technology can win the trust of customers. We have the world's leading technology, and the products are stable and the prices competitive. Sometimes, the price of our solutions is not low. Service, or customer satisfaction, is also very important," Qi says.

"Western brands provide products for the globe rather than customizing for a country or a customers. They significantly trail us in responding to customer demand and innovation."

Localization is also an important factor in the subsidiary's growth in South Africa as well as a key strategy of the parent company's overseas expansion.

"No matter whether it is Europe or Africa, we hire the locals because they understand the environment and customers' demand and help in effective communication. Most of the local hires are in project positions but some have managed to make it to top management positions like chief operating officer, human resources head, legal and financial department head."

Sophia Liu, an integrated marketing communications manager with the subsidiary, says Huawei is one of the best when it comes to looking after local employees.

"As a local, I think Huawei is a very fair company. The conditions are very good. Cultural clashes are not a concern. What is valued is the employees' loyalty and devotion."

Liu worked for South Korea's LG Group and adverting agencies before joining Huawei five years ago.

To cope with the growing talent shortage in South Africa, Huawei set up a training center in 2008. The center has trained more than 3,000 people, including engineers of carriers and its own employees.

The subsidiary is also taking care of developing the younger generation by creating education opportunities. The company has provided fellowships to China, donated laboratories for local colleges and funded small and medium-enterprises through incubator projects.

"The digital divide here is huge. But if the younger generation can access advanced education through the Internet, they will be exposed to the whole world, which will bring infinite scope for their growth and future," Qi says.

Despite the bright business prospects, the subsidiary continues to face several challenges in South Africa.

"We are already an international company, but the locals still consider us as an Eastern company, which is a big challenge. African people still have a lingering distrust of Eastern companies, mainly caused by the poor quality of products in the past. They transfer the image to technology, though most of our products are more advanced than our rivals," Liu says.

Qi says it is hard to further expand market share in the carrier network area, and competition in consumer business is fierce.

As for the enterprise business, which the subsidiary started two years ago, established Western companies have an advantage in brands, corporate institutions and sales.

"Huawei has been focusing more on the enterprise business market, which will help increase revenue and transform the company," she says.

Liu says government, financial, mining and transport sectors will be the mainstay for the enterprise business in South Africa.

Huawei signed a 485-million-rand (about $52 million) contract in April last year to supply a digital radio communications system for passenger trains and associated infrastructure of the Passenger Rail Agency of South Africa. It will be the first time for sub-Saharan Africa to deploy the Global System for Mobile communication on railway networks, spanning a total of 1,200 kilometers across South Africa.

The Chinese company is also introducing virtual teller machines that will help banks expand their operations in remote areas where the bank branches do not exist.

"The virtual teller machines can do 80 percent of bank employees' work and even help with card applications. Machine services can save a lot of costs as rental charges are high and the rand is depreciating," Liu says. "The solutions can be used in South Africa as well as across the continent."

Contact the writers at xingzhigang@chinadaily.com.cn and lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 05/02/2014 page19)