Business Forum-Globalisation Of Mainland Enterprises

Presentation at the Business Forum : “Tripartite Partnership : Mainland, Hong Kong & Africa”

By: Patrick Chung, Business Development Director, 3Tech Corporate Ltd.

At:The 7th World SME Expo, 14th December, 2007

Organized By: Hong Kong Trade Development Council

First of all, I would like to thank the organizers – HKTDC, Chinese Chamber of Commerce and Asia-Africa Business Association for this opportunity to share our African experiences and our unique business model that connects China with the emerging African markets.

3Tech started off with selling power generators imported from UK and USA in China some 4 to 5 years ago and installing the systems in telecom transmission stations, banks & finance houses, large factories & offices, airports and in some remote locations as power back-up systems .

The founders have had more than 15 years of experience in selling and servicing power generators in Hong Kong and China. The opportunities to extend its total power services to Africa came when ZTE and Huawei began to bid for telecom projects in countries like Egypt, Uganda, Sudan, Tanzania and Kenya.

As competition in power business in China was really heating up, 3Tech was very quick in taking up the challenge of setting up services networks in many key African markets to provide total power services for China based telecom groups such as ZTE and Huawei.

Our entry into Africa was not really a deliberate move, but a practical step to be taken in order to win the contracts to provide custom-designed power systems for telecom projects that required power generation in open areas.

To provide full power services for companies like ZTE and Huawei, both having headquarters in Shenzhen, we started our offices in Shenzhen and our assembling facilities in Dongguan to support our “total service” to the telecom groups and to manufacture parts for power generators, i.e., control panels, automatic switching systems, sound-proof cabinets and the likes.

In Africa, we started our Nigerian operation in 2005 and our Congo Office in September 2006. We add another office in Kenya and Pakistan in Asia early this year.

Again, out of necessity, we had to set up an operation in Lagos, Nigeria to provide total service to Huawei which has taken on a number of telecom projects with local wireless operators, such as Vmobile, Nitel and MTN.

Partly, we also had to produce the sound-proof cabinets in Lagos. The cabinets have to be made in Nigeria to avoid heavy import duties for complete sets of power gensets. The savings from locally made cabinets can be quite substantial, considering that we have already installed more than 1,500 sets of power gensets for various telecom projects.

Other African markets with high growth potential for 3Tech are Congo Kinshasha, Egypt and Kenya.

As you can see, we have deployed a great deal of our resources to build up our network in Africa since it already accounts for 90% of our power business.

We managed to double our project-based sales growth since we entered the African markets in 2005 with only HK$30 Million. We are taking it to almost HK$200 Million in two years’ time.

There are as many challenges of doing business in Africa as opportunities. The biggest challenges, among others, would be foreign exchange controls and the import restrictions imposed by most African countries.

I think we owe a lot of our exceptional sales growth to our unique business model that emphasizes “total service” and our strong partnership with Chinese companies for projects taking place in African markets.

To overcome these challenges, what we do is that, we partner with the Huawei and ZTE to have almost all of our contracts signed in China or in Hong Kong and therefore we have all the payments settled in China for the sales projects taking place in Africa. By doing so, we would not have to worry about having to confirm L/Cs issued by our African buyers. Financially speaking, we are only dealing with Chinese parties. Therefore, foreign exchange control is not something we have to deal with in Africa.

To tackle the issue of import restrictions, in particular, in the countries with high import tariff regimes, we will either ship in the power systems in SKDs and then have them assembled in Africa (the import duty rate for SKDs is 5% against 20% for complete units). And we manufacture the parts and accessories that are subject to high import tariff locally to bring down the total costs of imported systems.

This is especially important when we have to compete with other suppliers who probably do not have local operations to supply locally produced parts to keep the total cost of the imported systems low.

To a large extent, we have managed to pick up extraordinary project sales growth with our unique business model.

It is all about “total service”.

In most cases, our “total service” means we will be doing work that is not even covered by the contracts for the Chinese telecom companies. We will do the work first, and negotiate about the additional costs later. We understand that it is almost impossible to know ahead of time, for sure, all your requirements for the projects that are taking place in some remote areas in Africa where you have no previous references to go by.

The other factor the Chinese telecom companies would rely heavily on, is our African experience. We have built up quite a reputation that we can supply and install customs-designed power systems for them in Africa at the lowest possible costs, and with much less troubles.

To do that, we have to keep training our Chinese technical staff on a continuous basis in our Dongguan factory for them to acquire the skills of adapting their technical know-how to local conditions in Africa. In turns, they will train the local technician in Africa to perform most of the engineering work.

We differentiate from our competitors in the sense that we are practically the only company that can provide a total power services package for telecom projects in Africa at the lowest possible prices - that is all-inclusive and problems-free.

We cannot claim to have the lowest total costs in the industry, but at the end of the day, it is far too risky for the Chinese telecom companies to choose another vendor with lower costs, but lesser African experience. The real cost will kick in when the power systems fail to work properly after installation.

So, when it comes to choosing the right partner for the power packages, the Chinese telecom groups put a lot of weight on working with suppliers with superior overall performances rather than risking their reputation for taking the lowest bids from companies with lesser African experience, especially, for projects in remote areas of Africa where power is not readily available.

We are also able to add value by working on a wide range of specifications based on different environments and specific requirements provided by customers from different industries like telecom equipment manufacturers.

Looking further into the future, we would like to add a few more service points in Africa to strengthen our services base. We will set up operations wherever our Chinese partners will go.

We are looking for more qualified Chinese OEM power systems to represent and to have their power products distributed through our network in Africa. The quality of Chinese OEM power systems is improving greatly over the past couple of years and the prospect of finding the buyers wanting power systems at the lower price ranges is very good.

We would like to participate in some of the upcoming infrastructure projects funded by the Chinese government. China has invested and given substantial amounts of aids to many African countries to help build roads, bridges, port facilities, power plants, hotels and oil production facilities. There are huge demand for power services for these projects

We will also be designing hybrid power systems that include the solar panels or wind generator with a diesel generator that takes a supportive role for remote power systems to be installed in Africa. We believe that the renewable and alternative power systems will become a significant part of our power business in Africa in the years to come.

The future for alternative and renewable energies look promising as we expect the prices of the solar and other renewables will only come down if countries like China start manufacturing them.

In terms of opportunities in Africa for 3Tech

The best opportunities for us in Nigeria, the most populated country in Africa, can best be summed up by an article on Fortune in Dec that “Nigeria has more oil than any other African country. But it can’t keep the lights on.”

AS you can see, most businesses in Nigeria, large or small, get around the problem by generating their own electricity and using the national grid only as a backup.

As the saying go – bring your own infrastructure (BYOI)!!! The South African mobile-phone company – MTN had to install 6,000 generators to supply its base stations for up to 19 hours a day. Small businesses have to install their own generators as well. Even the architecture of premises and houses is designed around generating sets.

If you are in the power service business like we are, you would not like to miss this opportunity and come to Nigeria to fill in the gap created by frequent power outage.

For 3Tech, we, ourselves, are looking for both strategic and equity partners to expand our scope of business to generate more power business in Africa to include renewable and alternative power systems. We have built a workable sales and services network in Africa over the years. It can be used as a platform by many Hong Kong companies looking for trading and investment opportunities in Africa

In fact, we are in the process of raising capital to fund some of the investment projects in Africa that, we think, will bring in very rewarding returns.

In closing, we would like to invite those SMEs which are interested in developing business with Africa to seriously consider leveraging on our African platform to launch their products or services in Africa. Thank You and I welcome you to Africa !!!