On June 2, EqualOcean senior analyst Lena Peng released the Stepping into the Parallel Era: GoGlobal Report to the US at the US Sub-Forum. Here is the speech made by Lena transcribed verbatim.
Is going global to the US still an OPTION for companies?
On March 23rd, Shou Zi Chew, the CEO of TikTok testified before the US Congress. Poised and articulate, he tried to explain the issues of youth protection, privacy, and data security related to TikTok. But the MPs were unanimous in their intransigence, choosing not to see, hear or believe the facts, no matter how strongly they were presented.
In the aftermath of this incident, the political risks in the business arena were once again acutely highlighted. On the one hand, Huawei has just recovered from US sanctions, on the other hand, TikTok's future is not promising. From 5G communications to social media apps, from CHIPs to auditing China Stocks' working paper, will the US government's heavy policy come to Temu in the name of anti-dumping? Is going global to the US still an OPTION for companies? In the GoGlobal Report to the US, we attempt to answer these questions from comprehensive perspectives.
2022 was terrible, but probably the best of the following years
2022 will be a tough year for the US and the rest of the world. The epidemic and the Russia-Ukraine conflict have disrupted the order of international commodity trading and the stability of global supply chains. In the US, inflation together with Covid-19 was still haunting, followed by aggressive interest rate hikes giving huge blows to the US, the global financial system, and the real economy. The influx of hot money into the bond and equity markets has triggered an inversion of long-term and short-term Treasury yields; while the cost of business operation has risen, the financing environment has become tougher. How to reduce spending, cut costs, and survive in the harsh environment has become a more pressing issue than purse growth.
Consumers are at the end of the transmission of economic policy. For the time being, the spending power and habits of US consumers have not been greatly affected, and the so-called "collapse of the middle class" is more of a hidden worry than a reality. However, the problem will likely worsen in the second half of 2023 and the years beyond. Statistics have shown that US residents' savings levels and real incomes are decreasing, while their mortgage levels are rising. As the dollar declines as a global currency, the good old days of the US consumers being "fed" by cheap labor from developing countries may be numbered.
In the parallel era, we should abandon illusory security
For companies going global to the US, the aforementioned problems still do not pose the greatest challenge, since the changes described above, are slow and predictable, leaving ample time for companies to respond and even tap into opportunities from them. There are a few companies that have historically emerged from the recession, and their successes have been exemplified in business school courses and consultancy institutions.
What makes us even more anxious is the political risks. Entrepreneurs and start-ups are supposed to be good at business ventures, but now they need to understand politics and where the international landscape is heading. Only by riding the boat of momentum can they be made to achieve success, otherwise when force majeure comes into play, entrepreneurs will end up being collateral damage.
Di Dongsheng, Vice President of the School of International Relations at Renmin University of China, made an incisive prediction about the tendency of the international landscape, which was also explained by EqualOcean founder Mr. Huang Yuanpu in his speech yesterday. In general, with the rise of China's relative position and the weakening of that of the United States, the world will be in a "parallel era" for a long time until a new international political and economic order is formed with China as the core, just like the United States and the Soviet Union during the Cold War.
Suppression and containment will be the sword of Damocles hanging over the heads of companies going global for years to come. This means that there will no longer be a distinction between shallow and deep goods in the US, but only a distinction of whether the volume is large enough to attract attention. Every company that earns foreign exchange from the US has to take specific risks, and the corresponding risk awareness and risk resistance tools should be prepared in advance.
Of course, the level of risk varies from industry to industry and the precautions taken should not be identical. In general, however, it is common practice to find a "middle ground", to share the benefits and risks with local partners, and to engage in moderate political lobbying and opinion-making. But no risk resistance tool can completely avoid risk, and these practices have been adopted by Huawei, DJI, TikTok, JinkoSolar, Trina Solar and others. Reducing the allocation of heavy assets in the US market and increasing the level of R&D investment and autonomy in the upstream core aspects of the enterprise may be the choice to be made in stages by companies going global.
In this context, Mexico has become a popular destination for Chinese companies to build factories abroad. In Mexico's Hofusan Industrial Park gathered Hisense, KUKA, WANWAH, and other Chinese companies' factories. CATL also announced its plans to invest $5 billion in Mexico to build a factory to supply batteries for Tesla and Ford last year.
At the same time, a shift in positioning for the US market is taking place. The US still offers an excellent platform in terms of the globalization of brands and as a testing ground for innovation, especially for start-ups. US consumers are ideal early adopters, with a high acceptance of innovative categories and a greater willingness to pay for quality products and brands.
What opportunities should companies seize when going global to the US?
Despite all the risks we have analyzed, the US, as one of the largest single markets in the world, is still a destination that is difficult for companies to ignore and part with at the current stage, and what opportunities exist in the US market in 2023 can be read in detail in the Report:
As far as the consumer-side market is concerned, specification, cleanliness, and intelligence constitute the three main directions for going global to the US. Specification refers to digging into previously unmet needs and creating a blue ocean in competitive markets, such as plus size women's clothing for Latinas, plus size swimwear, medical apparel, and size-free underwear. Cleanliness is based on China's new energy industry and the US residents' pursuit of low-carbon life, while intelligence in the US is geared towards the huge volume of lazy people's economy, giving rise to a series of specific items such as smart pet products, smart home appliances, smart wearable devices, etc.
The above three directions can also be overlapped. For example, specific categories overlaid with cleanliness create domestic Photovoltaic, which is increasingly valued by leading Photovoltaic companies. Cleanliness overlaid with intelligence results in well-received middle-class products such as home lawnmowers and pool robots. Among them, some low-profile but strong global brands have emerged, such as Greenworks and TTI Group.
In the meanwhile, as the real income of the middle-class declines, cost-effective products are likely to flourish in the US. Temu's entry into the US market at this time has been under great consideration. But the downgrading of consumption is not a slide from quality consumption to the pursuit of low prices; consumers are likely to be more stringent on price while pursuing quality goods. This is a greater opportunity for brands that rely on China's supply chain advantages to enter the mainstream consumer base in the US, but it places higher demands on the operational and localization capabilities of companies.
In terms of technology companies, the stronger ones should shift their attention from product homogeneity to exploring upstream and core competitiveness to strengthen their voice in the global industry chain. Those that are in a position to do so, and whose input-output ratio is calculated appropriately, may find a middle ground, actively export industrial capabilities, and lay out development in emerging markets while winning the US market for their side.
Everyone's destiny is deeply tied up to a larger era. The new generation of companies going global to the US should not just aim for profits, but also shoulder the specific national mission. If burying the head in the sand while making a fortune is no longer possible, why not be open and honest, and achieve cultural confidence through Chinese brand influence? Thank you all!
You can download Stepping into the Parallel Era: GoGlobal Report to the US by clicking the link. For more details, you can scan the QR code for consultation.