Mr. Komesaroff recently offered nuanced insight into how Chinese companies approach doing business in Africa generally and African mining in particular during a course of an interview with Melissa T. Cook, CFA, Managing Director, Africa Investment Strategy, in "Africa Sunrise One on One," Spring 2013, available through Urandaline Investments (registration required). This post considers some of the more interesting points made.
Mr. Komesaroff started by offering his sense of the reasons Chinese enterprises do not seem to perform as well abroad as they do within China.
I see three reasons that Chinese companies don’t produce as good outcomes outside of China as they do domestically:
-The institutional environments are different: When Chinese companies in Africa have trouble with a project, they can’t just throw more labor at the problem as they can in China. There are restrictions on the inputs of foreign labor, and workers are not as docile as in China.
-In China, a company working on a project has been nominated by a higher authority. Company leaders need only to deal with the elites in government. Outside of China, even in undemocratic countries, there are other strong institutions to be dealt with, e.g., powerful labor unions.
-In other countries, the press holds companies accountable in a way that doesn’t really happen in China, even with more press outlets these days. (Ibid).
It is perhaps useful to understand this comment not as the usual call for unlimited press freedom in China, but rather to the importance of an unfettered press as a monitor of economic activity that can focus on activity in ways that the state cannot manage. This insight is especially powerful within globalization where the ability of enterprises to evade direct government control is more likely., and the need for media supervision more central to the discipline of enterprises operating abroad. (e.g., Backer, Larry Catá, Economic Globalization and the Rise of Efficient Systems of Global Private Lawmaking: Wal-Mart as Global Legislator. University of Connecticut Law Review, Vol. 39, No. 4, 2007). The use of Communist Party cadres as monitors may help, to some extent, but theirs is political work and they may be less well equipped to deal with issues of economic accountability at the heart of Chinese success in operations abroad. (e.g. On the Role of the Chinese Communist Party in Overseas Chinese Companies--A Preliminary Examination, Law at the End of the Day, July 7, 2013).
-The most widespread and offensive misperception is that China is sending prison labor to work on projects in Africa. That falsehood reflects differences in working cultures more than any hard evidence. . . .-Another misperception is that China is looking to do business solely in resources. That’s not true—China also sells into African consumer markets. African consumers are less sensitive to brand names than consumers in more developed economies. So an African consumer will buy a Chinese TV set or DVD player purely on the basis of price, nothing else. Western companies don’t offer much competition here, either not having penetrated an African country’s electronics market yet or having
products that are too expensive. . . .
-There are 53-54 countries in sub-Saharan Africa, which represent an important political bloc in organizations like the UN. China wants to be on their side, which holds a number of advantages for China. (Komesaroff interview, supra).
Another point is that there’s an awful large influx of Chinese nationals into Africa, an estimated 1 million Chinese across the continent. Most are small-scale businessmen, often sent in as part of a larger SOE group doing contract work. When contracts end and companies go home, many people have remained behind, often illegally, to start up small import businesses. They grow into importers of bigger products, focusing on individual components or products. I think that’s how a lot of small-scale consumer products get into African markets from Chinese suppliers. (Komesaroff interview, supra).
It’s a repetition of the learning curve of SOEs. They weren’t very good when they started going to China, It's only when they were held to a higher standard by both the host country and the government in China that they things changed. They realized that China's brand was being damaged, started to improve, and in some cases performed better than in their own country. (Ibid).