Rediscovering Zinox Computers

Zinox Technologies, makers or distributors of laptops, PCs, UPS and tablets, has had its moments. Founded by legendary ICT businessman,  Leo-Stan Ekeh, Zinox was a pioneer across many sectors in the Nigerian ICT industry. Along with Omatek, Zinox put Nigeria on an effervescence on a path to indigenous ICT capability. Unfortunately, that did not happen: the Nigerian problem was too much for Zinox and Omatek to overcome.

Zinox Technologies Limited manufactures and distributes computers and computer hardware in Africa and internationally. It offers ICT, telecoms, and after sales support solutions. The company sells its products through resellers. Zinox Technologies Limited was founded in 2001 and is based in Lagos, Nigeria. The company has additional offices in West Africa.

During Olusegun Obasanjo’s administration, a government policy was put in place to support local ICT companies. The former president had a vision – support the companies and a virtuoso system of local ICT ecosystem could be stimulated. From that framework, Nigeria could have a new industry, from the lens of creativity, over mere consumerism of technology.

That plan did not work. Zinox’s products did not meet key metrics to government customers that patronized them. Over time, that policy was relaxed. Yet, Zinox still won because the Zinox subsidiaries and sister companies remain one  of the largest distributors of computer systems in the West African markets for global brands like HP, Dell and Lenovo. So, technically, even if governments did not buy PCs with Zinox logo, they did buy products supplied from the Zinox empire.

Of course, making more money was not the only thing Zinox founder was after. Mr Ekeh actually wanted to redesign the ICT sector in his country by making things locally and bringing local innovation, In a speech many years ago in the Harvard Business School, which I listened, he was genuinely focused on building that local capability. His vision was solid as he explained how millions of jobs and economic growth could happen if all kids in Nigeria are provided with laptops and other ICT equipment. He tried, but quickly met the inevitable problems in hardware business: it takes focused and sustained government intervention to build such an industry. There is no single company that can stimulate a hardware ecosystem. It requires the rise of many, at the same time.

With that I mean, you cannot make computers if you have to import all the pieces and then assemble them in Nigeria. Zinox would have done better if there were local companies making RAM, PCBs, components and other units used in its computers. That will save costs and time, and also stimulate many elements in the industry. It remains far cheaper to import one computer than import hundreds of the units, package them, and then resell them in Nigeria. The economics and the numbers are not there. Yet, people do just that because patriotism sometimes goes ahead of sound business strategy.

But it could have worked, if government had supported it more, especially by nurturing local supplier pipelines to Zinox. But that would have been hard, with some of the ICT equipment having quality issues. I cannot blame the government and you cannot say that Zinox did not try.

The Natural Trajectory

What Zinox went through is largely the same way many companies, under government supports, in different countries, emerge to become local technology champions. There is a government patronage to provide assured customer base. It is like the Nigerian government putting an order with say “ABC Group” to buy 1000 trailers of bags of cement, just to assure the firm that it supports its efforts to build a local cement factory. Using that order, the company will not worry if there will be customers to sell to. This is usually necessary in some specific sectors where government wants to stimulate.

Zinox had that opportunity. But it missed it: the products were not optimal. The users complained and largely revolted that government could not impose on them non-optimal products. But the problem is not just Zinox: no company gets it right just as fast. Iconic companies in Japan took years to perfect their products. They had quality issues, but over time, they fixed them. The country stood by them, as they marched through the evolutionary process of improving quality. Samsung experience with its kitchenware is globally celebrated. But the company struggled with quality for years. But using its chaebol, it was able to keep making progress, until it cracked the code.

But for Omatek and Zinox, Nigeria did not waste efforts. It left immediately. Just like that, the natural trajectory was cut-off. Zinox machines were supremely better than most Chinese products we import daily in Nigeria. The government of China continues to support those firms through massive subsidies, cheap loans, and export support assistance. Of course, I am not suggesting that Nigeria could have continued to keep the policy. Yet, the reality is that if it wants to build a local hardware business, it must do so in the future. There is no way around it; unlike software, hardware business is dangerously risky. You do not fix a hardware product (the hardware part) with a software patch which can happen in minutes. In hardware, you recall the product, and that is money. It takes efforts and money to operate in that sector.

Nigeria cannot really build a hardware sector without everyone open to go through that phase of pain where we could all sacrifice small things to support the local industry. But that is not just a hardware sector issue; we barely support local rice producers.

The Talent Problem

Most tablets and smartphones in the world are made by largely four companies: Apple, MediaTek, Flex and Samsung/Huawei. By that I mean the chipset that powers them. Apple makes its own which is largely exclusive to it. Samsung does its own also. Then more than 90% of the Android devices, excluding Samsung and other big brands like Huawei, are powered by MediaTek and Flex technologies. You buy the chipset and you assemble them in your box. For the low quality devices, MediaTek is very popular. If you go to China, in the Shenzhen area, people buy these chipsets and in their garages produce smartphones. The ecosystem is matured, with guys experienced in firmware porting offering services, just like a carpenter going around villages helping people fix broken windows.

In the PC world, Intel rules the world. AMD though promising these days, is not really a factor, especially in products sold in Nigeria. Most cores are powered by Intel.  Zinox worked with Intel and Microsoft in its products. To make this type of product, Zinox will actually need to have a ready pipeline of talent, mainly from the Nigerian universities. The model of sending staff abroad for training or bringing expatriates to train staff in Nigeria will be limited for a sustained production system at this level. There is no way Zinox will sustain a top-grade production system with that type of model. This is the weakest link in Zinox strategy. The local support ecosystem is not there, thereby pushing labour cost high and exposing the business to risks. When you know that replacing departed staff could mean sending another engineer to U.S. for months, you will see the challenges of building a hardware business in Nigeria.

Indeed, Zinox’s challenges are largely issues it cannot individually deal with. Nigeria does not have the talent pipeline for what it plans to do. I have explained that Nigeria needs a national policy to stimulate the microelectronics industry.

Microelectronics is an engineering field that focuses on the design and manufacturing of electronics related products. Largely, every industrial sector depends on microelectronics as microchip, its bye-product, is the engine that powers the knowledge economy through provision of efficient computational systems. What we call ICT is an application-product of microelectronics as without the latter; the former can neither be possible nor advance. A creative ICT based economy requires a microelectronics strategy to help nurture sustainable innovation.

The Support Base

Who will like to run an electronics production system with generators? Only brave men like Mr Ekeh. The fundamentals do not make sense considering that it costs nothing to ship things from China, and Nigeria has an open import policy where any electronics can be imported. From electricity to water, the person making in China has a huge cost advantage. That means, Zinox products will naturally be costlier. But in this age of Internet with prices in our fingertips, it does not have the pricing power to recover those costs. So, at the end, it has to price to compete which means it will have lower margins.

Also, the market it serves is limited. Unlike the global brands like HP and Dell which can produce devices in millions, Zinox production capacity, I expect, is in the low thousands of units. In electronics, cost drops on volume. That means, Zinox systems are naturally going to be more expensive.

Combine that with the banking lending rates, you will see that Zinox must be magical to actually survive in producing its products in Nigeria. I do not see any specific advantage it enjoys for making in Nigeria, except that the factory could have a Nigerian flag on top of it with the keyboard having the Naira sign. I am not sure that is what Mr Ekeh cares about.

Yet, The Zinox Opportunity

Interestingly, Zinox has a promising future. Zinox has since changed its business. It has gone beyond making PCs to include services like educational contents and digital logistics in its business. Those services will be the future of the firm. Making PC is not really a great business: using the smiling curve, it is at the center which gets the lowest value. Zinox is moving to the edges with the services like Yudala, a hybrid ecommerce firm (i.e. both physical and internet based). It needs to move into ICT integration services at scale because those command more value than making PCs. That will help the firm build resilience from the low margin PC making business.

Zinox has accumulated capabilities and is certainly positioned to lead in unlocking more values in the broad ICT sector. It has to take its business to the upstream, but this time, not in building production systems in Nigeria where it will nearly not work. You do not produce computers with generators. There are fundamental things government must deliver before electronics manufacturing can happen locally. The process is so advanced that you cannot even afford electricity failure during production.

Aliko Dangote, Africa’s richest citizen, is a genius in mastering what it takes to move from a sectoral downtime to the upstream. He enters a sector, he begins the Accumulation of Capability, and systematically moves away from everyone. As soon as he does that, he takes industry leadership, making entry barriers harder, with economies of scale. Over time, he perfects that system, delivering higher productivity and economies of speed. His margin skyrockets, every other person struggles – most exit. He has won. In this videocast, I explain the Dangote strategy and what you can learn from it. A former trader, he now controls the largest conglomerate in West Africa, generating excess of $3 billion and employing about 30,000 people; he shows how wealth is built.

Zinox can replicate what Dangote Group does in the industries it operates in the ICT sector.

All Together

Zinox is rediscovering its vision: “To be the leading and preferred source of world-class Information Communication Technology products and solutions in Africa”. That vision will not have happened with making PCs in Nigeria. Today, it has transmuted itself, moving into services, away from the center of the smiling curve. But even as it adapts, Zinox brings the experience of the accumulated capabilities over the lost voyage in the hardware production business. Only the Nigerian government will decide when electronics production can happen in Nigeria, profitably and competitively. Until that electricity comes, Zinox  should not bother. There is no shame to that. Software, they say, will eat the world, Zinox can rediscover its vision by being a good integrator, ICT support firm and distributor of hardware, leaving the hardware production out of the business model.

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