Chinese capital floods into Poland

Xiaomi's Beijing office, China (Jon Russell, CC BY-SA)

The Poland-based distributor ABC Data in September become Chinese mobile phone vendor Xiaomi’s first distributor for the European market, another sign of China’s increased interest in the country.

The Beijing-based mobile phone manufacturer has raised EUR1.29bn in funding since it was established in 2010 and according to a report in Fortune it posted 2015 revenues of EUR11.05bn, selling 70 million phones during the year. The company began selling outside Asia for the first time last year, with the launch of websites for the US and European markets.

The contract will initially include only Poland, where the distributor will offer three of Xiaomi’s smartphone brands: the Mi5; Redmi Note 3 and Redmi 3S.

ABC Data expects to extend its partnership with Xiaomi to fitness bands and audio and portable batteries next year, CEO of ABC Data Ilona Weiss told Channelnomics Europe. ABC Data is looking to eventually offer Xiaomi’s products to seven CEE countries outside Poland: the Czech Republic; Estonia; Latvia; Lithuania; Romania; Slovakia; and Hungary.

„Together with us Xiaomi will answer Europe. In fact, ABC is the only pure distribution partner for Xiaomi and we are even holding their offices because they do not have a regional office in Europe. On behalf of Xiaomi, we will build the European market,” said Weiss.

„[Xiaomi] is a very dynamic company; after five years of running a successful business in China they are going after the global market and [extending] their position in America and Africa and other countries as well. But they will start with us in Europe.”

„There are plenty of distributors in Europe but ABC was chosen by Xiaomi. This is very important for us because it boosts our status as a distributor.”

She claimed that ABC’s competitive edge stems from having four logistics centers across Bucharest, Budapest, Sosnowiec and Warsaw, allowing the distributor to achieve delivery times of between four and 48 hours.

„We have also extended our network of resellers; currently we have 13,000 in CEE. It means we have a fantastic market coverage [with] operations in a region with 100 million people, this is quite significant for the development of Xiaomi.”

But Weiss said she is not worried about how an unfamiliar Chinese brand such as Xiaomi will be received in the CEE market. „ABC is very experienced in running marketing programs for many vendors and this is especially important for Xiaomi and very good for our business. We also work with Huawei and all kinds of vendors who are manufacturers of smartphones and we are able to provide value to the market with all of them,” she said.

„Yes, there is a new player in the market and there will be more challenges now for other vendors to stay competitive [but] we will still co-operate with them. The Polish market has been waiting for [Xiaomi] for some time. There has been some speculation about how Xiaomi will enter the market and the moment finally arrived last week.”

Research house GfK recently reported a 12 per cent year-on-year increase to 16.8 million in smartphone unit sales in the CEE region for the second quarter of this year, with the Ukrainian market swelling by 35 per cent.

ABC Data has a presence in Poland, where 80% of its revenues come from, and the remaining 20 per cent from Lithuania, Estonia, Romania, Czech Republic and Hungary.

ABC Data SA has been the largest MCI Management portfolio company in terms of value. It is the distribution market leader in IT and consumer electronics in Poland and the only entity operating directly in eight countries of Central Eastern Europe. For over 20 years, the company has offered computer equipment, software, consumer electronics and services.

Sino-Polish deals

In June the presidents of China and Poland, Xi Jinping and Andrzej Duda opened the China Railway Express, a 13-day journey from Chengdu, capital of central Sichuan province, to Warsaw.

The rail link – one of the world’s longest – is part of China’s „new silk road” for trade with Europe and is touted as a revival of the ancient Silk Road trade route. Around 20 freight trains run between China and Poland each week carrying electronics, food stuffs, alcohol and car parts, according to Poland’s PKP state railways. The journey takes 11-14 days, a fraction of the 40-50 day transit by sea.

Thanks to deals sealed during Xi’s visit, Poland can now start exporting apples to China. Poland is also eyeing financing by the Asian giant . Xi and Duda inked a broad strategic partnership deal on political and economic cooperation, part of Beijing’s efforts to establish land and sea links for European trade, known as the „Belt and Road” policy.

Warsaw’s drive for closer ties with Beijing is rooted in its „need for capital and export markets beyond Europe, because of the upcoming decrease in EU funds and saturation of the European market,” said Justyna Szczudlik, an analyst with the Warsaw-based Polish Institute of International Affairs.

Poland’s Deputy Development Minister Radoslaw Domagalski said Warsaw was prepared to set up special investment zones „as gateways for Chinese capital into Poland.”

Chinese activity  in Central and Eastern Europe is rooted in the „16+1 Forum” for cooperation between 16 ex-communist Eastern European states and China, launched in 2012 in Warsaw. At the time, Beijing vowed to commit a total of USD10.5bn in credit lines and funds to boost economic ties with the region, but analysts say the capital injections have been slow to materialize.

According to Poland’s PAIZ foreign investment agency former chief, Bartlomiej Pawlak, there are currently around 900 companies with Chinese capital registered in Poland, but he admits that so far, there has been a „lack of spectacular Chinese investment”. Meanwhile, Polish M&A will likely continue to spur in the real estate, telco, IT and health care sectors in 2016, industry insiders said.

In the shadow of the larger transactions were also other deals. Paying EUR312.3m a Chinese firm bought a package of Polish wind power from EDF, while Amrest sold to a Mexican fund for EUR270.8m. TPG Capital has bought TriGranit for both of EUR300m and PKN Orlen was shopping overseas, acquiring 100 per cent of the Canadian company Kicking Horse Energy for more than PLN840m.

Xiaomi's Beijing office, China (Jon Russell, CC BY-SA)

Close slider