Study On The Localization Strategy Of Chinese Construction Enterprises In Africa--A SWOT Analysis

China has been one of the most prominent players in Africa’s infrastructural development efforts since the independence of most African countries from European colonial rule.The Chinese infrastructural development assistance largely come in the form of concessional loans and other aids by the ministry of commence(MOFCOM)under the state council,and often financed through Exim bank.The contracts of these Chinese aided large scale infrastructures are usually bid among large state owned construction enterprise,which in turn sub-contract smaller and often private Chinese Construction Enterprises(referred to as CCEs below)upon winning the tender.This practice and the good China-Africa relations has lead to a rather large inflow of CCEs in to Africa,desiring to expand their international operations,and vying to have a share of African’s richness in natural resources and fast growing economy.Nowadays,projects constructed by CCEs in Africa can be seen everywhere in Africa.There are now CCEs operating in different sectors in almost all 54 African countries.According to a white paper on China-Africa economic and trade cooperation published by China’s State Council in 2013,Chinese enterprises had completed construction contracts worth US$40.83bn in the continent between 2009 and 2012 alone.The types of infrastructure projects that the Chinese government usually help to finance in Africa range from transportation infrastructures like highways,bridges,airports,ports,railways etc.,to those ones in the energy and mining sector like hydraulic power stations,oil plants,mine facilities etc.(Other sectors include agriculture,manufacturing,real estate and so on).But policy changes,rising costs,environmental differences and other forms of threats forces many CCEs to come up with a more sustainable and effective localization strategy.In the case of China and Africa,the two environments couldn’t be more different,the culture,the language,economy,government etc.,are all very different.Therefore it is imperative that Chinese contractors operating in Africa,constantly seek for more ways to effectively mold their modus operandi to better fit the African environment,in order to continue reducing operation costs,increase profitability,avoid or minimize risks and threats and seize on any pro-business opportunities.Past researches on the topic of localization of Chinese enterprises operating inAfrica have mostly been general and not specific to construction enterprises,and the researchers failed to adopt a more comprehensive and systematic framework that captures the nature and effectiveness of localization strategy implementation,thus failing to correctly measure the extend at which CCEs’ operations in Africa are"localized" in Africa.The main objectives of this research include,finding out the nature and extent of CCEs strategic efforts to localize their operations in Africa using Martel’s localization framework,analyze the internal strengths and weakness of these strategic localization efforts,and point out the external threats and opportunities they are facing using a SWOT analysis method,and finally recommend some policy,measures and countermeasure for both Chinese construction enterprises,African government and the Chinese government.According to Martek,an extensive review of the literature identifies five parameters across which localization occurs.These include client base,human resources,factor inputs and value chain integration.Localization across these parameters,however,is expected to be moderated by three external factors:Host country context,firm characteristics and firm strategy.In an attempt to localize their operation,CCEs are often faced with both growth opportunities and threatening challenges.After an extensive literature review,a SWOT analysis is conducted by the researcher that identifies the following SWOT factors of CCEs localization strategy implementation in Africa;Strengths:Strong project management skills(S1),Wide ranging expertise and necessary technology(S2),Lower price of Construction material and Equipment(S3),and Financial strength and Security(S4);Weaknesses:Lack of local expertise(W1),Lack of Client diversity(W2),Material shortage(W3),Lack of up-to-date knowledge of host country environment(W4),Low quality products(W5);Threats:Political instability,unrest and diseases(Ti),Social pressure and negative public sentiment(T2),Corruption(T3),Lack of necessary public infrastructure(T4),Competition(T5),Economic decline,inflation and currency fluctuation(T6),Policy,law and regulations of host country(T7),Language and Culture difference(T8);Opportunities:Good China-Africa relations(O1),China’s Africa policy and other commitments and initiatives(O2),Government Support(O3),Africa’s great demand for more infrastructure development(O4),Abundance of Natural resources in Africa(O5),Africa’s rapid inward FDI increase and Economic growth(O6),Positive public sentiment towards CCEs(07).Furthermore,the study uses a SWOT matrix to offers some strategic measure recommendations(SO,ST,WO,WT measures)for CCEs wishing to further localize their operations in Africa.Which includes utilizing their expertise and technology to bid for high-tech infrastructure projects,capitalizing on Africa’s abundant resources and do more in-house production,expand operations in countries with high favor-ability towards Chinese enterprises,partnering more with local firms,curry favor with government officials and undertake more social responsibility,Reduce operations in highly unstable countries and move them to stable ones with better infrastructures,Conduct an extensive and thorough on ground research about the destination country,produce more varieties of cheaper materials to increase competitiveness,seek more financial backing from Chinese financial institutes before going into economically high risk countries,seek more political backing from the Chinese government when operating in high political risk countries etc.Finally,the study provides some policy and measure recommendation for both African host countries(Which includes enforcing existing rules,leveling the playing field,incentivizing CCEs to train and hire more locals,setting up appropriate import quotas,Establish better information sharing mechanisms and reducing institutional corruption and ineffectiveness)and Chinese government(Which includes offering more support with the training of local workers in China,avoiding funding ’white elephant’ projects,and offering more on the ground interventions and ensure safety).