Western firms should learn from China’s localisation success if they are to match the country’s influence in developing markets, said researchers and analysts, amid growing competition between the world’s economic superpowers.
Although success has been a “mixed-bag” in some markets, Chinese companies, particularly in the tech sector, have proven successful at adapting their operations to align with the development goals of emerging economies, according to two research papers published this year by the Carnegie Endowment for International Peace, SCMP reported.
By comparison, Western nations have been more focused on dissuading developing countries from cooperating with China on security grounds, rather than providing meaningful, competitive alternatives, the authors said during a forum about their research earlier this month.
The findings come in a year that has seen a renewed push from Western countries to counter China’s influence in emerging markets.
In June, the Group of 7 unveiled the Partnership for Global Infrastructure and Investment – a US$600 billion infrastructure plan widely regarded as an attempt to counter China’s Belt and Road Initiative.
This was followed up in September with US-led negotiations among 14 nations to kick-start the Indo-Pacific Economic Framework, the economic arm of US President Joe Biden’s Indo-Pacific strategy.
Despite the recent initiatives, Western governments still have a lot of catching up to do, analysts say.
Tin Hinane El Kadi, a political economy researcher and associate fellow in the Middle East and North Africa department at Chatham House in London, said Western nations are “trying to impose hegemony on a shoestring”.
US and European companies have not been able to match the price or quality of Chinese offerings, said Kadi, whose study on Chinese localisation efforts in North Africa was published by the Carnegie think tank in April.
Not only are Chinese companies like Huawei providing critical infrastructure at competitive price points, they are also adjusting business practices to suit local norms, while helping countries with digitisation and development goals.
Past criticism that Chinese companies do not employ enough local talent no longer holds true, she said, as hiring practices have improved significantly over the past decade.
More importantly, Chinese firms are addressing skills shortages by providing high-quality training and partnering with universities to offer student workshops, something emerging markets desperately want as they seek to climb up the value chain.
“The Europeans and Americans are coming really with no offer, with no funding of infrastructure with no training with no meaningful kind of scholarship programmes, the way the Chinese are doing,” she said at the forum.
“[They] need to upgrade their game because otherwise, they’re falling behind.”
Chinese success is not isolated to northern Africa, but is evident across the rest of the continent as well. Recent studies looking at Chinese telecommunications operations in Nigeria, Senegal, and South Africa have all shown how essential their involvement has been in accelerating skills training in the region.
“African governments are more welcoming to Chinese companies because of the ‘customer-oriented’ strategy these companies seem to pursue, including their tendency to understand local needs and respond quickly,” said Seifudein Adem, a professor of Global Studies at Doshisha University in Kyoto, whose research includes Sino-African relations and African development.
Shameen Prashantham, a professor at the China Europe International Business School in Shanghai, said China’s own recent history helps its firms better address the needs of emerging markets.
“Unlike their Western counterparts, Chinese companies have dealt with, in living memory, challenges around inadequate infrastructure, both physical and digital, as well as consumers’ limited purchasing power,” he said.
However, China’s localisation success in emerging markets does not come without caveats.
Despite noted improvements in hiring practices, studies suggest companies like Huawei and ZTE limit the scope of knowledge and technology they are willing to share with local actors.
In 2021, the Algerian government shut down a Huawei-partnered factory due to suspected “disguised imports” – instances where products were largely manufactured in China only to have the final pieces assembled in Algeria.
There have also been repeated instances of public protest against Chinese infrastructure projects across various markets in recent years. A number of studies have shown that although governments may want increased cooperation with China, the citizens of respective countries are not always as keen.
A public opinion survey published by Arab Monitor in July found citizens across the Middle East and North Africa region were “significantly less likely” to want stronger economic ties with China compared to previous years, with some countries seeing a decline of up to 20 per cent.
In Southeast Asia, a June study by Singapore’s ISEAS-Yusof Ishak Institute found local concerns surrounding illegal labour practices, environmental destruction and forced relocations continue to plague belt and road projects.
Countries within the Asia-Pacific are also most at risk of finding themselves in China’s political cross hairs, as security concerns persist surrounding maritime borders and military build-ups in the South China Sea.
However, whereas Western countries tend to take a blanket-ban approach to security affairs involving China, Asia-Pacific countries are more likely to “compartmentalise” different issues, according to Benjamin Herscovitch, a research fellow at the National Security College at the Australian National University.
In his July Carnegie paper looking at Chinese localisation practices in Indonesia, he found Chinese tech firms had established themselves as “reliable partners”, particularly in cybersecurity, where Indonesia faces a severe shortage in talent.
Although Indonesian policymakers recognise the security risks involved, “that does not preclude really productive and maybe even essential cooperation with China,” he said.
“[The risks] are seen as less significant than the skills and training benefits that can be gained from engaging with those Chinese tech companies,” Herscovitch said.
It is “common” for Southeast Asian nations to delineate security concerns from deepening economic cooperation with other countries, according to Emirza Adi Syailendra, an associate research fellow at the S. Rajaratnam School of International Studies.
“China is a bit more careful not to weaponise economic investment against Southeast Asian countries,” he said. Particularly in Indonesia, “there is a general perception among political elites that doing business with China is easier [than Western competitors]”, he added.
As competition for economic influence rises between China and the US, Syailandra believes countries are willing to “limitedly align with China” as “leverage” to attract more investment from the West.
However, he added although countries like Malaysia and Indonesia are large enough to hedge between superpowers, smaller countries are not so fortunate.
“Countries like Laos have to prioritise Chinese investment because there’s no other option,” he said.
