Going Global: Upon the 2nd Belt and Road Forum for International Cooperation
In 1978, the Chinese government promoted the “reform and opening up" strategy. After that, China started opening to the world while trying to go abroad for overseas expansion. It is necessary for an enterprise to combine its feature, international environment, and overseas market together while going abroad. From 1978 to 2018, it has been 40 years since China began to reform and expand. During the past 40 years, China has changed quite a lot. In 2010, Chinese GDP exceeded Japan and became the second largest economy in the world. In 2013, the total export-import volume of China was USD 4.16 trillion, which ranked 1st in the world. In 2015, Chinese outbound direct investment (ODI) exceeded foreign direct investment (FDI) for the first time. Chinese enterprises became more and more mature and active around the world. In 2018, there were 120 Chinese enterprises in the Fortune Global 500. During the past 40 years, the Chinese economy changed a lot.
In 2013, chairman XI Jinping (习近平) initiated “The Belt and Road” concept. Since that, China has signed 174 “Belt and Road” cooperation documents with 126 countries and 29 international organizations, targeting to boost the economic cooperation between China and the countries within the Belt and Road project. With 6 years of development, the Belt and Road achieved more than expected. The total trade volume between China and the Belt and Road countries exceeded USD 6 trillion, and the ODI exceeded USD 80 billion.
Starting from Apr 25, 2019, to Apr 27, 2019, China will hold the 2nd Belt and Road Forum for International Cooperation. Chairmen and leaders from 37 countries will attend the forum with UN Secretary-General and the president of the International Monetary Fund. In total, nearly 5000 foreign guests from more than 150 countries and 90 international organizations will be attending the forum. More than 4,100 journalists, including 1,600 from overseas, have registered to cover the second Belt and Road Forum.
With the 2nd Belt and Road Forum being held, EqualOcean wants to give analysis about the overseas expansion of 3 modes of enterprises’ and chooses Huawei, Xiaomi and ByteDance, which are companies from the EqualOcean 500 list as examples. According to EO Intelligence, there are 3 kinds of overseas expansion currently, classified by the products and services enterprises offer: companies offer infrastructures, devices, and virtual services. In this analysis, we have selected Huawei as the representative of infrastructure provider, Xiaomi as the provider of devices and ByteDance as the provider of virtual services, to analyze the overseas expansion situation for Chinese enterprises. When creating overseas expansion strategies, an enterprise must consider the related economic situation of the target area.
The Middle East has a perfect market system and a high GDP per capita, and the competition is not violent, which generates a high unit price per customer. Europe and North America have a mature market system and a high unit price per customer, but since it has a fully-developed infrastructure, they are a competitive market. India has the second largest population in the world, however, its market is relatively dispersive. Southeast Asia has a great market and a high ratio of young people however, the magnates are competing actively with each other. Africa’s infrastructure is not well-developed but its economy is increasing rapidly, and the market is at an early stage. Latin America has a lot of young people and an open culture, while there’s not a violent competition in its market. However, Latin America is far from China, which may generate difficulties for Chinese enterprises to do overseas expansions.
Huawei: going abroad with happiness and tears
As a leading ICT (Information, Communication, and Technology) solutions provider, Huawei began its 5G research and development in 2009. Currently, Huawei has more than 2000 5G engineers and 11 5G R&D centers globally and has built partner relationships with more than 20 leading telecom carriers in the world.
According to GFK, a Germany third-party statistic institution, Huawei occupies more than 15% of the smartphone market share in 33 countries, and more than 20%of the market share in 18 countries. In Northeast Europe, Huawei’s market share is about 17.5%; in Western Europe, Huawei occupies 12.1% of the total market share. In Africa, Huawei has more than 15% of the total market share, and in other markets such as Latin America and the Middle East, Huawei occupies almost 15%.
Huawei’s 5G facilities are popular in those markets because of its leading technology. Huawei owns the world’s largest 5G patents and breaks the Qualcomm’s monopoly in the telecom field. In MWC 2018 (Mobile World Congress), Huawei published 5G chip Balong 5G01, which is the first 5G commercial chip based on 3GPP standard. On the other hand, Huawei has strong price advantages. Comparing with the price of 5G facilities from other countries, Huawei’s infrastructures are 20% lower. Due to the large purchasing scale of the 5G base stations and related facilities, the price advantages make Huawei’s 5G facilities extremely popular in the world.
Happiness always goes with tears. Although Huawei’s overseas expansion gained great success, the company experienced hard times as well. The U.S. government keeps claiming that cooperating with Huawei to build the 5G network may lead to the disclosure of private information of the country. Besides the U.S., countries such as Japan, Australia, and India, all announced to reject the possible cooperation with Huawei previously. For countries banned Huawei, they received a lot of doubt both from Huawei and the domestic carriers. They believe that Huawei’s low price and leading technology brings lots of advantages, and banning Huawei is unfair and wrong. Recently, Huawei signed a “no-spy” contract with the Germany government, which guarantees that Huawei will never install a backdoor on its 5G facilities. After the signing of the agreement, Huawei may have the opportunity to join the 5G network construction of Germany. Australia also changed its attitude and allowed Huawei to build the 5G base station in Perth. The Indian government allowed Huawei to join the test of Indian 5G telecom facilities as well.
Although it has not been smooth for Huawei expanding abroad, as the 5G era approaches, more and more market requirements would be generated and with its advanced technology and relatively lower price, Huawei’s overseas expansion may have more opportunities.
Xiaomi: Successful example for enterprises’ overseas expansion
As one of the largest smartphone manufacturers in the world, Xiaomi pays a lot of attention to its overseas expansion and tries to enter different foreign markets, which set an excellent example for other Chinese enterprises. Xiaomi started its overseas expansion in 2014, and currently, Xiaomi ranks top 5 in terms of smartphone shipments in 25 countries. According to Xiaomi’s 2018 annual report, during the year of 2018, Xiaomi’s income from international markets increased 118.1%, which was CNY 70 billion. Meanwhile, the income from overseas market occupied 40% of the group’s total income, while one year earlier that number was 28%. According to statistics from Canalys, Xiaomi’s smartphone shipment kept ranking 1st during the past 6 quarters, with a YOY growth rate of 59.6%. In Indonesia, Xiaomi’s smartphone shipment had a YOY growth rate of 299.6% and ranked 2nd in terms of market share. In western Europe area, the YOY growth rate of Xiaomi’s smartphone shipment was 415.2%, ranked 4th in terms of market share.
Besides the smartphone business, Xiaomi’s Internet business also progressed a lot in the overseas market. In 2018 Q4, the income of Xiaomi’s Internet business from overseas market occupied 6.3% of the total Internet income, with a YOY growth rate of 1,295.6%. In Aug 2017, Xiaomi published Mi App Store for the Indian market, and 1 year later, the MAU of Mi App Store increased 10 times. Currently, the Mi App Store has entered into different markets including Southeast Asia, Southern Asia, the Far East, and the European market. In the future, Mi App Store would use its resources to help more Chinese enterprises to go abroad.
With its high price-performance ratio, Xiaomi gained great success in the overseas market. Not only focus on the online market, but Xiaomi also paid a lot of attention to the building of offline stores and the localization in foreign countries. In 2017, Xiaomi opened the first Mi home in Bangalore. In addition, in order to respond to the call of the Indian government, Xiaomi settled factories in India to produce the smartphone and TVs that sold to India. With the localized production, Xiaomi’s price became further lower and Xiaomi brand became more popular in the Indian market.
However, Xiaomi’s overseas expansion is not smooth all the way. In the summer of 2013, LEI Jun (雷军), the founder and CEO of Xiaomi group, considered to copy the successful Xiaomi mode in China to Brazil. LEI Jun asked LIN Bin (林斌) the president of Xiaomi to poach Hugo Barra, the vice president of Google as the leader in the exploration of the Brazil market, but they quit Brazil after 1 year. Brazil has strict trading protection of its domestic electronic products, which settles a solid barrier for foreign smartphone manufacturers. A serious auditing mechanism and a high tax rate make Xiaomi hardly survive in the Brazil market.Xiaomi’s success in overseas market has settled a good example for the Chinese enterprise, and the localization remains the hardest problem for the enterprises to face.
ByteDance: media is borderless
As one of the largest Internet company in China, ByteDance made its overseas expansion strategies from the very beginning of its development. In 2017, ByteDance’s revenue was CNY 15 billion. In 2018, that number increased to CNY 50 billion. With Toutiao and Tik Tok, two of the flagship products of ByteDance, this magnate mastered a large user base and is expected to generate more revenue in 2019. With the unsatisfactory market environment in China, it might be harder for ByteDance to keep the same increasing speed in 2019, and the overseas market becomes increasingly important for the company.
Tik Tok is the most successful products of ByteDance, in terms of its overseas expansion. ByteDance published Tik Tok in the summer of 2017, and it got popularity globally in an extremely short time. Currently, Tik Tok covers more than 150 countries and areas globally, and in countries such as Japan, Thailand, Indonesia, Germany, France and Russia, Tik Tok used t0 ranks the 1st many times in the download list of Apple App Store or Google Play. According to Sensor Tower, the foreign user's ratio is 20% in Tik Tok.
Besides Tik Tok, ByteDance also published other Apps in the overseas market. On Apr 3, 2019, ByteDance published Lark, which is an office service App for the business side. Being different from Toutiao and Tik Tok, Lark launched in overseas market firstly and is regarded as the competitor of Ding Talk and the enterprise version of Wechat. Lark offers shared-calendar, online document making, and the IM chatting function, but is only open for the overseas market. Lark is regarded as ByteDance’s test in both the overseas market and the mobile office industry.
Other Apps including comprehensive news APP TopBuzz Video, News Republic, and the short-video sharing platforms such as Flipagram, Vigo Video or BuzzVideo, all based on the artificial intelligence technology and aims to provide contents what overseas users love.
However, the overseas expansion of ByteDance is not always successful. In Feb 2019, FTC (Federal Trade Commission) announced that it has drawn an agreement with Musical.ly, which was acquired by ByteDance, that the later will pay USD 5.7 million for its illegal collection of the children’s information. In Apr 2019, India government banned Tik Tok from Indian Apple App store and Google Play, because of the inappropriate contents in the platform. According to Sensor Tower, the total download volume of Tik Tok was 1 billion globally, which Indian accounted for 300 million of it. After the ban of the Indian government, ByteDance loses USD 500 thousand, and lose 1 million new users every day.
Though ByteDance faced a lot of difficulties and challenges in its overseas expansion process, going abroad is still one of the most important strategies of the company. On Apr 23, 2019, ZHANG Yiming (张一鸣), the founder and CEO of ByteDance, gave a speech on the 1st Digital China Summit. ZHANG disclosed the ByteDance’s overseas expansion strategies in detail at the first time: let the technology go overseas to provide the equal production experience for global users and using the localized operation strategies to meet the different requirements of different markets to build a global communication platform.
With the continuous promotion of “The Belt and Road” strategy, the interaction of Chinese enterprises and other countries in the world would be promoted greatly. The role of overseas expansion would be increasingly important during the development process of enterprises. Meanwhile, the Chinese government encourages excellent enterprises to go abroad and offered related policies. With the successfully opening of the 2nd Belt and Road Forum for International Cooperation, more outstanding companies will go abroad, which is similar to Huawei, Xiaomi and ByteDance.