Chinese tech companies are on an Asian roll. Around half of Chinese smartphone manufacturer Xiaomi’s shipment comes from overseas markets, primarily India. Alibaba counts Southeast Asia market as one of the primary destinations of its globalization drive. As China tightens control on the online gaming sector, Tencent is also looking at the region to boost revenue.
At the recently concluded TechCrunch Shenzhen 2018, several panel discussions tackled the questions: What are the underlying factors pushing Chinese companies to Southeast Asia? What are the benefits and potential pitfalls that await them there?
Many of the driving forces relate to macro factors at home, and apply across a wide array of industries in China and not just tech. Panelist Chris Tran, executive director of North Ridge Partners, explained that China is no longer a low-cost manufacturing hub. Nor is it, demographically speaking, a young place anymore.
By contrast, Southeast Asia population of under 30s was booming, especially across markets such as Vietnam, Indonesia and the Philippines, he said, giving rise to a growing middle class. “We’re just waiting for that demographic dividend,” said Tran. “That’s going to be a massive benefit.”
Conditions specific to the tech market in China also are pushing companies to other Asian countries. Take internet. China is quickly reaching saturation where the growth trajectory of new netizens is flattening. Data from research company Quest Mobile showed that China’s monthly active mobile users grow by roughly 20 million to 1.1 billion from around 1.09 billion in the first half of this year—a 0.4% year-on-year increase.
Meanwhile, the rivalry among players in China’s tech market continues to rise. Michael Wang, CEO and founder of keyboard developer CooTek, told conference participants that, five years ago, in the internet space, competition meant going head to head with other internet companies to win over new users.
“But now, as rivalry reaches a feverish pitch, competition can come from rivals a completely different sector,” said Wang adding that the key metric these days is hours of user engagement.
Wang cited the example of where social networking app WeChat is fighting against livestreaming platform Douyin, and the prize is user engagement as measured in hours.
Tran of North Ridge Partners said one reason Southeast Asia appealed to Chinese investors included complementary or similar cultures and thinking.
But it was the “enabling regulatory frameworks” in place in many countries that made for lower barriers of entry that underscored the region’s appeal to Chinese investors, he said.
“These markets are open because they have a very pragmatic view of innovation,” said Tran. “Privacy and data are, of course, a very important topics, but there are fewer concerns around that and more concerns about being the ‘cash economy’ to ‘cashless online’ first.”
In the early years of this decade, a first group Chinese tech startups were beginning to look to overseas markets, including to Southeast Asia. Cheetah Mobile is among a series of utility app developers that pioneered the trend. The company earns more than two-thirds of its revenue coming from overseas users.
When looking back, company founder and CEO Fu Sheng told the Financial Times that Chinese users have “more alternatives” and the core of the decision was that “the competition was less intense (abroad).”
Another leader in the trend is mobile software company APUS. Its products had acquired more than one billion users globally in more than 200 countries by 2017. Nearly half of the users come from South Asia or Southeast Asian markets.
Content giant ByteDance is also gaining momentum with short video app Tik Tok in the global market. Known in China as Douyin, Tik Tok climbed the app store rankings around the world, especially in Southeast Asian countries—taking top spots on Google apps store in Vietnam, Thailand, and Malaysia since the beginning of this year.
Chinese tech giants are also targeting expansion through partnerships with local affiliates. Alibaba and Lazada, the e-commerce firm Alibaba owns and operates out of Southeast Asia, held joint Singles’ Day promotions across the region. Lazada’s gross merchandise volume in Singapore spiked seven-fold compared to the year prior.
No need to go it alone
It’s not just the big players that are entering Southeast Asia. Tran of Northridge points a wave of smaller, often little heard of players, from the hardware and software industry. Some examples include sleep monitoring device maker Sleepace and fintech company PINTEC.
Nor do Chinese players have to go it alone into Southeast Asia. Toa Charm, chief public mission officer for Hong Kong innovation and digital tech hub Cyberport, said that the special administrative region could help enhance Chinese brands chances of success because it offers a solid regulatory framework for emerging industries, including fintech.
Chinese companies that passed Hong Kong’s regulatory regime would also benefit when they expanded in Southeast Asia because Hong Kong’s standards were well-respected throughout the region, he said.
Alan Kuan Hsu, co-founder and general partner of KK Fund, said Chinese companies were increasingly realizing that they need to seek partners if they are to be truly successful in the region. “If you don’t have local context, you don’t know what you’re doing,” he said.
Additional reporting by Colum Murphy.