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Why are so many China companies expanding to Southeast Asia?
Editor’s note: This was written by Kayla Matthews, a freelance writer focusing on technology and online media. You can find more of her work on VentureBeat, MakeUseOf, Motherboard and Gear Diary.
If you’ve kept up with global news recently, maybe you’ve noticed a huge increase in Chinese companies moving into Southeast Asia. Let’s take a look at why those investments are advantageous for China and the nations of Southeast Asia, and then explore a few Chinese companies that have made meaningful transitions into neighboring territory.
China Wants to Increase and Maintain Its Economic Might
One of the most prominent reasons for the Chinese expansions is that China wants to keep its economic strength in the world. It has achieved the world’s second-largest economy but the country’s currency, the yuan, has been weakening.
Some analysts think the weakened yuan is an intentional move to encourage more exports. However, the weaker the yuan becomes, the harder it’ll be for China to buy up overseas assets. It’s likely these Chinese expansions into Southeast Asia will continue over the short term as a flurry of activity.
Remarkable Economic Gains for Both China and Southeast Asian Countries
The expansions won’t just positively impact China, though. For example, a partnership known as the Belt and Road Initiative brings economic gains to China and 10 Southeast Asian nations associated with the Association of Southeast Asian Nations (ASEAN).
As of May 2016, the total two-way investments between China and ASEAN countries were the equivalent of over $160 billion. Also, bilateral trade increased from $7.96 billion in 1991 to $472.16 billion in 2015.
China Will Facilitate Infrastructure Improvements
One of the main ways China will assist countries in Southeast Asia is to improve their respective infrastructures. To get things started, China has established three financial institutions that collectively have hundreds of billions of dollars in capital.
The money will go toward making new high-speed rail lines. Ordinarily, nations from Southeast Asia, with the exception of Singapore, have encountered major challenges with building new infrastructure or improving what’s there. Funding from the newly established financial facilities could change that.
Indonesia will get its first nationwide high-speed rail line. While Southeast Asia benefits from better rail networks, China can take advantage of additional opportunities to network with neighboring countries to seek out investment possibilities or strengthen existing connections.
Southeast Asia May See More Visitor Traffic
Travel and tourism analysts say Chinese investments in Southeast Asia may also be advantageous for the cruise industry. Chinese tourists want warm-weather options, and experts say destinations in Southeast Asia like Singapore are excellent places for them to take cruises.
Southeast Asia is home to 600 million people, and some experts say it’s a viable market because people there are ready to take cruises. Provided good progress is made, Chinese investments might soon include mutually beneficial cruise companies that cater to individuals who are ready for relaxing times away from home.
Now that we’ve explored why so many Chinese companies are deciding to move into Southeast Asia, let’s look at a few prime examples of success stories, particularly in the tech sector.
Why is it important for that segment of the marketplace to continually expand into new areas? Tech companies now face global competition from growing third-party services like Amazon and Ebay, as well as authorized tech resellers, forcing them to do what they can to set themselves apart from competitors and win over long-term customers. That’s just one of many reasons why companies seek new territory that’s also often close by.
This leading Chinese smartphone manufacturer announced intentions to begin expanding worldwide several years ago. It started by selling its products in Hong Kong and Taiwan in 2013 and then made its first move into Southeast Asia via Singapore in 2014.
Last fall, the company picked Singapore as the place to launch its first store. Known as Mi Home, the store is at Suntec Mall and sells things like Bluetooth speakers, power banks and of course, smartphones.
The maker of the mobile messaging app WeChat, Tencent Holdings is a Shenzhen-based company that recently announced plans for a joint venture with Ookbee, a digital content-creation business, to find Southeast Asia’s next internet stars.
Tencent Holdings has joined forces with an internet service provider in Indonesia to try to make the most of the web sector there and provide access to some of the country’s 249 million inhabitants. The company also got involved with a deal to produce videos in Thailand.
This new project sees Ookbee potentially gathering over a million pieces of online content over the next three years. There are also reportedly no limits on the kind of content Ookbee might want. The company will experiment with video and may also become interested in text-based books, comic books, and music.
Alibaba is a massive Chinese e-commerce company that many business experts see as a rival to Amazon. More than one-third of Southeast Asia residents are tech-savvy and use smartphones, so the company thought it could find success there. Also, the business was intent to move into the region and assert dominance since some people say Alibaba’s marketplace business model is more suitable to Southeast Asian consumers than what Amazon offers.
The Chinese e-commerce venture will have to adjust to cultural and language differences that are common to the countries it has expanded into. Plus, some countries in Southeast Asia have severe traffic congestion issues, which could make deliveries more difficult. The preferred method of payment in the region is cash upon arrival, and Alibaba will have to account for that, too.
To begin the expansion, Alibaba made its biggest overseas investment to date when it finalized a $1 billion investment deal with Lazada, a privately owned e-commerce company that already has a presence in six of Southeast Asia’s e-commerce markets. In a year, Alibaba made gains throughout Southeast Asia in decisive ways, particularly in logistics, and even online grocery delivery.
Thanks to this overview of an ongoing investment trend, you won’t feel in the dark the next time someone asks you if you’ve heard about a Chinese company that’ll soon break into the Southeast Asian market. It’ll be interesting to see how long the momentum continues, and the short- and long-term impacts it has beyond what’s been discussed here.