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Escape From Involution: The Overseas Expansion of Chinese Technology Companies

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Escape From Involution: The Overseas Expansion of Chinese Technology Companies

The strategic shift of Chinese tech companies toward overseas markets underscores a critical juncture in China’s technological trajectory. 

Escape From Involution: The Overseas Expansion of Chinese Technology Companies

A Chinese mobile phone displays the icons of the messaging app Weixin, left, or WeChat, from Tencent, and Douyin, the Chinese version iteration of short video app TikTok, from ByteDance.

Credit: Depositphotos

Amid an economic slowdown, “involution” has become a buzzword in China, poignantly capturing the essence of the highly competitive and stressful socioeconomic climate within its domestic market. This term conveys intense internal competition and diminishing returns despite increasing efforts, both trends that are particularly evident in the technology sector. 

In response to this challenging environment, Chinese technology companies are increasingly turning toward international markets. This shift signifies not just a quest for new markets, but also a strategic realignment in the face of domestic market saturation and regulatory constraints, highlighting the evolving landscape of global tech dominance.

In the post-COVID era, China’s economy, particularly its technology sector, has not rebounded as robustly as anticipated. This sector, once known for its meteoric growth, is now grappling with “involution” – a state of intense domestic competition and a maturing market that leads to diminishing returns despite heightened efforts and investments. This challenging environment has compelled Chinese tech companies to seek respite and growth opportunities by expanding their operations overseas. By entering less saturated markets, diversifying their revenue sources, and reaching out to new customer bases, these firms aim to overcome the constraints of their domestic landscape. 

Leading this overseas push are internet behemoths like Alibaba, Tencent, and ByteDance, who are making strategic inroads into the United States, Southeast Asia, Europe, and other regions. Their approach involves not just exporting their existing products and services but also customizing them to meet local demands and adhering to the unique regulatory frameworks of these new markets. This international expansion strategy serves a dual purpose: It unlocks new avenues for growth and also acts as a buffer against the limitations and risks inherent in the Chinese market. 

Reflective of this trend, the U.S. market, for instance, has seen a significant growth in the presence of Chinese apps. Notably, four out of the five most downloaded apps in the United States are of Chinese origin: Temu, TikTok, CapCut, and Shein. Particularly interesting is the case of TikTok and the video editing app CapCut. While they appear as distinct, Singapore-based entities on Android and Apple App Stores, both apps are, in fact, subsidiaries of China’s ByteDance. This exemplifies the nuanced strategies employed by Chinese tech companies in their global expansion, often involving rebranding or structuring operations in a manner that aligns with local market dynamics and regulatory requirements. 

This phenomenon of Chinese tech companies’ overseas expansion is a testament to their adaptability and ambition. It not only reflects their endeavor to escape the competitive pressures at home but also underscores their desire to establish a prominent presence on the global technology stage.

Alibaba, a titan in the e-commerce world, has been strategically expanding its footprint, focusing particularly on Southeast Asia and Europe. This expansion leverages its core competencies in e-commerce, cloud computing, and artificial intelligence. A key milestone in this strategy was Alibaba’s acquisition of Lazada, a prominent Southeast Asian e-commerce platform, along with establishing data centers across Europe. These moves are clear indicators of Alibaba’s ambition to be a global leader in e-commerce. 

In 2023, a significant 35 percent of Alibaba Group’s revenue stemmed from international operations, highlighting its transformation from a dominant Chinese e-commerce player to a significant global force. This achievement stands out especially when contrasted with U.S. e-commerce giant Amazon, whose international revenue accounted for 26 percent of its total revenue in the second quarter of 2023. 

On the other hand, Tencent, globally recognized for its social media app WeChat, has been adopting a distinct approach in its global expansion. Rather than direct market entry, Tencent has been focusing on investing in a variety of international tech and gaming companies. Its strategic investments in entities like Snap, Spotify, and a host of gaming companies are a testament to Tencent’s commitment to building a diversified and robust global portfolio. 

This strategy bore fruit in the third quarter of 2023 when Tencent reported a 14 percent increase in international games revenue, reaching 13.3 billion yuan ($1.9 billion). This surge not only reflects Tencent’s growing influence in the global gaming industry but also signifies the increasing importance of international markets in its overall revenue portfolio. 

Both Alibaba and Tencent’s strategies exemplify the varied pathways Chinese tech giants are employing to mitigate domestic market challenges and capture global market opportunities. This diversification of revenue streams and market presence underscores their evolution from national powerhouses to major global competitors.

In addition to examining the financial numbers, my first-hand experiences and analysis of Chinese technology companies’ overseas business practices offers insightful perspectives. The inaugural GITEX Africa conference in Morocco, held in June 2023, served as an excellent showcase for this. The conference highlighted the significant role played by leading Chinese firms like Huawei, Lenovo, and Tecno in aiding Africa’s digital transformation. 

At GITEX Africa, major technology companies, including global giants like HP, Dell, and Orange, competed vigorously to demonstrate their products, each vying for a slice of this burgeoning market. Notably, Huawei and Lenovo, both from China, had some of the largest exhibition areas, indicative of their commitment to the African market. Huawei’s booth, in particular, stood out for its bustling activity and was a hive of interaction and engagement. 

The sales process at Huawei’s booth was especially noteworthy. Huawei offered a broad range of products, from cloud computing solutions for local governments to comprehensive computing solutions for businesses and consumer-focused mobile devices. This holistic approach made Huawei a one-stop-shop for various technological needs in Africa. Their strategy involved in-depth demonstrations, interaction with government officials and business leaders, and personalized discussions in dedicated office spaces within the booth. This approach was not only efficient but also highly effective, setting a high standard for tech exhibition sales processes. 

Another striking example is Tecno Mobile. Founded in 2006 and based in Shenzhen, China, Tecno has primarily focused on markets in the Global South, particularly Africa. Tecno’s dominance in the African mobile phone market is notable, with its brands Tecno, itel, and Infinix gaining substantial traction. The key to Tecno’s success lies in the affordability of its products and the incorporation of features specifically tailored to African users. This strategy has created a significant barrier for international competitors like Samsung and Apple. Inspired by Tecno’s success, other Chinese brands such as Oppo, Vivo, and Xiaomi have also made substantial investments in Africa. 

The case studies of Huawei and Tecno Mobile illustrate how Chinese technology companies are not just selling products but are deeply embedding themselves in local markets. They demonstrate a deep understanding of the needs of these markets and an ability to adapt their strategies accordingly. This approach has proven effective in establishing a strong foothold in the African market, making it challenging for other global tech giants to compete on the same level.

In conclusion, the strategic shift of Chinese technology companies toward overseas expansion, amidst a challenging domestic environment marked by “involution,” underscores a critical juncture in China’s technological trajectory. The success of these companies in diverse international markets not only demonstrates their ability to transcend domestic constraints but also highlights their growing influence in the global tech landscape. The overseas expansion movement might signify the trend of Chinese tech companies transforming into formidable global players.

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