According to Pang Xinxing, Chairman of Star Times Media, his company’s ambition is for every African household to be able to afford to watch a good quality digital TV service.” Though, originally a part of the Audio Visual Department of the State Administration of Radio, Film and Television in the development zone of Qinhuangdao, Star Times has grown from a basic technology company into a provider of digital TV and Internet service in almost ten years. Today, it has a large presence in ten African countries such as Nigeria and Tanzania.
Before Star Times arrived in the African market, South African company DSTV had always been the leading provider in the market. “DSTV has a huge competitive advantage in that it monopolizes many of the best TV shows,” Li Weizhong explained. He said the only strategy they could adopt in order to break this monopoly was to offer cheaper services. “Star Times’ aim is for every African household to be able to afford to watch a good quality digital TV service.”
Having a noble desire such as this is all very well, but a company will undoubtedly have to confront and overcome all kinds of obstacles, especially when dealing with many different countries and their own specific regulations. In the majority of African countries, freedom of speech is encouraged. This contrast with China’s own ideology is one of the main reasons that Star Times’ presence in Africa came under attack.
Zhang Weiying, former vice-president of the Guanghua Business School at Beijing’s prestigious Peking University, has previously said that China’s image may be an obstacle for these private entrepreneurs when they attempt overseas mergers, acquisitions and investments. This is obviously true. This means they are still seen as companies from Red China, standing behind the Communist Party and the government, unlike in the West where companies are created by individuals, relying entirely upon market rules and entrepreneurial spirit to gain the advantage.
But when they try to expand their ambitions into the outside world as businessmen, they are met with hesitance and a lack of awareness. Therefore, when they face a world that knows nothing of them in their identities as entrepreneurs, they begin to discover that from now on, they must pay attention to the wider world, and let the world understand them.
Chinese entrepreneurs, including Liu, understand that when they appear in the Western world, if there is no prior communication and preparation, others find it difficult to distinguish between them and Chinese state-owned enterprises. They know that when Westerners think of Chinese companies, their first thought is still of large state-owned companies that become invincible with the support of government policy support and resources.
Even in 2011, when Star Times finally made a breakthrough in Kenya, they still had many problems to overcome. Kenya is one of the most influential countries in Africa and as such, gaining a licence to provide digital TV there was identified by the company as being a key to their future development. Kenya has an extremely complicated political structure with competition and conflict between over 40 political parties and 47 local tribes. As such, gaining a broadcasting licence in such a volatile political environment is extremely difficult.
Even in 2009, Star Times had already waited for a painfully long time but could still not see the light at the end of the tunnel. Li Weizhong said, “Strategic decisions in many African countries can be long and complicated. At times they bow to public pressure, often giving complete preferential treatment to local enterprises.”
At that time, Kenya’s government declared that all of the country’s digital TV should be provided by the state television channel. As they had no experience of providing Internet service, this was clearly an unreasonable decision. Within two years, the process of building the country’s digital television infrastructure had not even begun. Given that the government had promised to complete their digital turnover by 2012, something clearly had to change.
“As a foreign enterprise, even when it seems like there is no hope and no opportunities, all we can do is keep searching and waiting for our chance,” said Li Weizhong. “At the beginning, television transmission was limited to the state broadcasters, so we adopted a strategy of cooperation with them. After signing many agreements, the state broadcasters had still not done anything, so all we could do was continue and push on. Even then, we didn’t know whether or not there would be an opportunity for us.”
In their most desperate times in Africa, the chairman of the board, Pang Xinxing, once even had to mortgage his own house.
However, for a privately run company like Star Times, finding sufficient funding is a never-ending worry. In their most desperate times in Africa, the chairman of the board, Pang Xinxing, once even had to mortgage his own house. His only concern at the time was to ensure the survival of the company.
Even after many years, the prospect of a shortage of funds weighs heavily on Pang Xinxing. Due to this, Star Times has never dared to expand their business too quickly. In some countries where they have a licence to broadcast, they have not been able to start putting together the infrastructure due to a lack of funds.
Potential problems do not end there though. Li Weizhong tells us, “There are some countries where the customs duties are extremely debilitating. Once you add in VAT, the tax can come to 41%, meaning that the taxes on a $140 million project can come to $50-60 million. One of the main investment characteristics of digital TV is that the initial investment is very large and the returns are generated over a long period. If you don’t factor these special circumstances into your planning then you are destined to hit big problems further down the line.” Since the beginning of 2009, several international companies involved in African digital TV transmission such as GTV and NGB have been declared bankrupt. Li continues, “These companies had all developed over many years, with business in many different countries. In the case of Sweden’s NGB, they even had social insurance funds to support them. Still, in this industry, all can be lost with one careless move.”
Having seen Pang Xinxing’s efforts and the progress he has made in Africa, many potential investors have paid him a visit. Yet, Pang has looked each of them in the eye and politely turned them down. His reasoning is that companies should aim for long-term development and that Star Times is still hoping for a more strategic investment partner.
Pang’s plan for Star Times in the next three to five years is for them to provide coverage for 70% of Africa’s population, as well as expanding their digital TV customers by 10 million and their mobile media subscribers by 16 million, in the process becoming Africa’s strongest and most influential media group.
Such a grand aim is not so easily achievable. As such, Star Times has had to develop many forms of income from their one business. First they receive the installation fee, and then they sell the set-top boxes, TV aerials and smart cards to their customers. These products are all produced in China and then exported to Africa. They can earn money from the sale of these products and from the installation fees, but it is the monthly subscriptions that will bring them more long-term income.
Since 2011, the China Development Bank and the China-Africa Development Fund have been in partnership with Star Times, both offering the company loans and through direct investment. Yet, Pang still believes, “The funding gap is still too large.”
Under fire from the president
If the frail production line at home crumbles, then all of their investment will have been in vain. For a company with finances as stretched as Star Times’, this is undoubtedly a huge gamble.
As a Chinese company doing business abroad, Star Times still has yet another problem to worry them: the spread of Chinese standards abroad. In 2010, Star Times began building Africa’s first multimedia system based on the China Mobile Multimedia Broadcasting (CMMB) intellectual property standard. In fact, since the standard was published in 2009, the development of a clear and defined supply chain has suffered from the infighting between various departments as to who gains the benefits. Due to the constant problems that have arisen in getting CMMB accepted as the general standard even in China, the expected increase in customers has yet to appear.
Under these circumstances, Star Times are taking many risks by pushing CMMB abroad. If the frail production line at home crumbles, then all of their investment will have been in vain. For a company with finances as stretched as Star Times’, this is undoubtedly a huge gamble.
This situation with the legal standards has been a real struggle. “Because of the small purchasing power of African consumers and the difference in standard practice in the different countries, it is difficult for companies to produce products on a large scale. Therefore if you can get your country’s standards accepted first, it will undoubtedly drive exports of your company’s products as well as those of other domestic companies. For example, Star Times has developed a set-top box which meets the standards of 8 countries. The research and development costs of this product can now be shared across the users from eight different countries. Now that a larger, more uniform market is beginning to emerge, costs will begin to reduce dramatically,” says Li Weizhong. “In the same vein, when foreign companies want to enter this market, they will have to follow Chinese standards, giving Chinese enterprises a natural advantage.”
The thinking behind Pang’s gamble is based upon his previous experience in digital TV intellectual property rights. American, European, Japanese and Chinese transmission standards have all been accepted by the International Telecommunication Union (ITU). However, only China’s standards have not been internationalised, meaning they can only be implemented in China and Hong Kong, harming their exports.
With this complicated and difficult to navigate background, Star Times has been expanding their digital television business in Africa. In 2010, Brazil decided to adopt Japanese standards in their manufacturing. When the Brazilian president visited African countries such as Kenya, Mozambique and Tanzania, she made it clear that her wish was for these countries to adopt the same legislation. When she saw the development of Star Times in Kenya, Li Weizhong says that she even went so far as to “immediately seek discussion with the government authorities, telling them that they could reimburse Star Times the money they had invested in the country and allow Brazilian companies to provide the infrastructure for free.” He added, “All countries do not hesitate to expend their resources in getting their own standards accepted by developing countries. Everyone even up to the president will be involved in actively making their case, whereas China doesn’t have this kind of awareness when it comes to public relations so we do not have as many opportunities to promote ourselves. It is becoming harder than ever for private companies to do business abroad.”
Source: Chinese Entrepreneur