Small and midsized Chinese companies, including some that had never thought about venturing overseas before, are increasingly exploring opportunities abroad as domestic competition intensifies and sales slump.
Despite tensions between Washington and Beijing, many of them are setting their sights on the US market due to its vast size and higher margins. Several of these hopefuls took part in the CES trade show in Las Vegas this month, taking the opportunity to show off their products, sound out the market and seek partnerships.
“US investors are more receptive to new technologies and they have the financial capacity to withstand potential losses,” a senior manager at Openverse Technology, a Beijing-based company providing 3D simulations, told Nikkei Asia, though he also acknowledged some concerns over geopolitical tensions, particularly in the realm of chips.
Chinese businesses going overseas is not a new thing, but since the country emerged from three years of stringent pandemic restrictions, tapping foreign markets has become a more urgent imperative, driven by pent-up demand and a desire to sustain international operations after the isolation.
As a result, “going global” has become a buzzword in China over the past year. Local governments have arranged for export-oriented companies to attend exhibitions around the world to “battle for orders”. Some Chinese beverage brands that splashed out in south-east Asia are now establishing themselves in developed economies. Meanwhile, Chinese-founded companies such as fashion retailer Shein and ecommerce platforms Temu and TikTok Shop are rapidly expanding around the world, leveraging the mature domestic supply chain and pushing innovative Chinese business models to a global scale.
Liu Jingfeng, the research director at Shine Global, a Beijing-based consultancy for Chinese companies going overseas, said one notable shift following China’s reopening is that some original design manufacturers (ODMs) and original equipment manufacturers (OEMs) — which design and make products for another company’s brand — are now exploring overseas markets on their own, a contrast to the pre-pandemic era, when most only went overseas if the supply chains they served did.
“The core reason behind this shift is the market change,” Liu said. “The Chinese market has reached a point where it can no longer sustain the high levels of growth seen in the past. Small trading companies in particular find it necessary to expand their operations abroad due to the intense price war at home and a decrease in consumer spending power, resulting in a significant decline in domestic sales.”
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“Moreover, many export-oriented OEMs are heavily impacted by the decline in exports, prompting them to seek alternative sales channels beyond traditional export methods,” Liu added.
China’s exports last year contracted for the first time since 2016 in dollar terms, underscoring sluggish global demand. Among key trading partners, exports to the US led the decline, down 13 per cent from the previous year. Demand from the EU and south-east Asian countries also shrank.
China’s economy grew 5.2 per cent in 2023, beating the official target of roughly 5 per cent. However, concerns about its momentum are lingering amid a property crisis, soft domestic consumption and weak external demand.
Ting Lu, the chief China economist at Nomura, expects China’s consumption to lose further steam, especially after the Chinese new year holiday, as pent-up demand is fully released and households lower their income expectations.
Companies not only have a stronger motive for going overseas, they also have greater means to do so, according to Liu from Shine Global. The emergence of cross-border ecommerce platforms such as Shein, Temu and TikTok Shop last year, along with swift developments in logistics and payment services, has enabled an increasing number of export-driven companies — even some that were on the brink of bankruptcy — to acquire new orders, he said.
Kevin Huang, a senior marketing manager at Mojie, which makes augmented reality glasses for Chinese brands including Oppo, Vivo and ZTE, said the company was eager to sell its products in the US, though it did not have the Federal Communications Commission approval required to sell electronic devices there.
“If we manage to find a US partner already with an FCC authorisation, our products can be sold at higher prices and we can also benefit from the exchange rate difference to increase our profits,” Huang said.
The traditional export model, which involves multiple intermediaries and is sometimes led by official organisations, has various limitations, said Benjamin Xiao, the sales director of a Shenzhen-based OEM. “The only option for further growth for us is to establish a larger factory and compete with established players for orders. However, if we raise the price or have quality flaws, foreign brands will quickly switch to other manufacturers,” he said.
“That’s why we are now considering a dual strategy. In addition to contract manufacturing, we also want to develop our own brand and sell it directly overseas,” he added.
Chris Pereira, founder and CEO of the business consulting group iMpact, said companies in the consumer tech, new energy and biotechnology sectors were particularly prominent in the overseas sales push.
“What is actually happening is Chinese brands and companies are learning how to localise in overseas markets, from branding to team building,” he said.
“The most important trend that we are seeing is China’s industrial base is upgrading to a level that is competitive with western brands and products. So the main thing is, it’s not western companies going to China to procure products, it’s Chinese companies making the product and they’re managing the brand and selling the product overseas by cutting out the middleman,” Pereira said, while noting a number of hurdles.
“Fair treatment, geopolitical tensions, true localisation and cross-cultural management, and marketing strategies in a different market are all the big challenges for Chinese companies operating overseas, particularly in the US,” he said.
Beijing Smartmi Electronic Technology, a subsidiary of the smartphone maker Xiaomi that is trying to sell more air purifiers in the US, has experienced the good and bad of overseas competition.
On the positive side is a more orderly business environment. “When we introduce a product in the domestic market, it will quickly get copied, which is not the case overseas,” said Yu Zhou, global sales director at the company.
Adapting to American tastes, however, has proved challenging. The company tailored its air purifiers based on customer reviews on Amazon, but the product still did not sell well there. “So we shifted our focus to selling it in Russia, which has now become our biggest overseas market,” Zhou said.
A version of this article was first published by Nikkei Asia on January 26. ©2024 Nikkei Inc. All rights reserved.
