Chinese giants retreat overseas

A withdrawal movement from Chinese giants is underway in full swing.

Taking TikTok, the most successful overseas app, as an example, as early as October 2019, Zuckerberg launched a heavy blow against it and launched the short video product Lasso to compete head-on with it; in June this year, in the world's largest Indian market, 59 apps led by TikTok were also officially banned.

It is now facing its darkest moment in history. Although Zhang Yiming’s plan to reach the top has poached former Disney executive Kevin Mayer to lead the company overseas, the de-Sinicization process has not been smooth. Even the location of the overseas headquarters has not been finalized due to the political and business environment and other reasons. TikTok’s future prospects have become confusing.

At almost the same time, Alibaba announced the closure of UC Browser and UC's operations in India; looking back further, in February this year, 45 apps under Cheetah were removed from the shelves by Google, and their advertising accounts were also terminated. Before that, the list of overseas apps that were banned and removed also included iHandy, Chubo and other apps with over 100 million users.

From early tool-based products to the popular content social products, they have all suffered heavy losses overseas. The giants that were once worshipped as gods in China are no longer as popular as they were in China after going overseas.

Due to the intersection of multiple factors, giants' overseas expansion is being forced to press the pause button.

Behind the withdrawal of giants

"Things have changed for the giants overseas," said an Indian entrepreneur who wished to remain anonymous.

According to a person familiar with Alibaba, "Ali's fax machines and servers in India have all been monitored, and after being remotely formatted, all have been reported as damaged." "They announced that they were shutting down their business, but this can be seen as a signal of a contraction in their international business," he emphasized.

In the view of Richard, partner of Daguan Capital, this is also a helpless thing. "The ecosystem has always been stuck in the hands of others, especially the tool-type products that went overseas in the early days. The advertising monetization channels are extremely dependent on Facebook and Google." Therefore, when the political and business environment becomes bad and even conflicts intensify, the giants are the first to be strangled.

Sun Hongfei, head of the Xingshang e-commerce management center, which has expanded to Southeast Asia, India and other places, said that the giants are definitely the first to be targeted overseas. "When large companies go overseas, it's like being watched through a magnifying glass."

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At a recent hearing on TikTok's security issues, testimony stated that in addition to questioning the data collection and storage paths at the product level, U.S. congressmen's accusations against TikTok also pointed to whether its parent company in Beijing, China, would collect user data and hand it over to the government.

In order to cope with the scrutiny from the US government, according to industry insiders, TikTok, which has already established a firm foothold overseas, has already laid off tens of thousands of content reviewers in China. But the situation has not gotten better, and the scrutiny of TikTok is becoming more stringent. In emerging markets outside the European and American markets, as TikTok was banned, the Indian local product Sharechat has also been constantly seizing TikTok's original users.

The giants are beginning to have a hard time overseas. In order to develop smoothly overseas, the giants once showed goodwill to local governments, and Meituan, Alibaba, and Tencent also invested in overseas companies, but the freedom of foreign capital is constantly being restricted.

Indian official regulations require foreign e-commerce companies to adjust their supply chains, stop offering large discounts and store user data on servers in India to protect small physical businesses, protect user data security and provide development space for local Indian technology companies. The Indian government denied that this move was intended to restrict foreign companies, but made it clear that it supports small domestic retailers and resists a single market.

"After several years of development, many countries have now seen through the ambitions and intentions of the giants," said the above-mentioned person familiar with Alibaba.

Of course, there is another more critical reason behind the withdrawal of the giants, that is, except for the relatively successful TikTok, other products are almost difficult to make money. "It is also quite difficult to make money in emerging markets." The person said that according to the information he learned, Alibaba has invested a lot of money in overseas business in recent years, from the early UC browser tool to the short video product Vmate to the e-commerce business, but it is still a long way from profitability.

"The giants go to India to gain users, to a large extent. After all, only a market with a large user scale and size can support the large size of the giants." But the overseas traffic dividends that they value and the dream of replicating the "next China" are being slapped in the face by reality.

Giants may not understand overseas markets

Masayoshi Son's time machine theory is regarded as a guiding principle by overseas entrepreneurs. However, facing the open international market, the giants who completely copied the Chinese model have not tasted any sweetness.

Richard, a partner of Daguan Capital, told us that if you go overseas with the mentality of attacking with dimensionality reduction, you will fail miserably. It is common for giants who already have successful experience and models to fail to adapt to the local environment when they go abroad.

As one of the earliest entrepreneurs to go overseas, Li Tao, founder of Apus, said that in the early days, going overseas was mainly based on tool-type products. Lightweight products do not require operations and have no cultural constraints, so they can develop quickly. However, as tool-type products are gradually being replaced by content consumption products, going overseas has entered a new stage.

But it is obviously more difficult to export culture and content overseas.

"Because it's too sensitive." Li Tao said that in addition, cultural and other content consumption products also have the highest requirements for localization, such as the localization of text and language, the localization of religious customs, the localization of policies and regulations, and even the localization of behavioral habits. But the more fatal thing is that for overseas giants, sometimes they may not understand the overseas market.

"Because large companies pursue standardization when going overseas, the cost is very high, which is totally incompatible with the immature local market environment." "Sometimes it is not even a problem of products and models," said an investor.

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Sun Hongfei of Xingshang E-commerce expressed the same view. In his opinion, this has a lot to do with organizational structure and capabilities, and of course corporate culture. For giants, they have long dominated the domestic market, but when they go overseas, they face two completely different markets. "We certainly can't compete with giants in China, but overseas it's a different story," said Sun Hongfei.

Especially for Tencent and Alibaba, their organizational structures are quite mature, and their strategies are used in China, but when they go overseas, they find that they are not applicable. "Lazada's vacillation in organizational structure and strategy is an obvious example."

In the process of Alibaba's overseas expansion into Southeast Asia, Alibaba invested $1 billion to acquire a controlling stake in Lazada in 2016, and invested another $1 billion in 2017 to increase its stake to 83%. In March 2018, Alibaba invested another $2 billion. But not long ago, the company welcomed its fourth CEO, Li Chun. From Frenchman Peng Long to Alibaba veteran Peng Lei, and now the reshuffle of power, it is difficult to tell whether this is a company from China or Southeast Asia, and it also reflects from the side that the giants are not always glamorous overseas.

"It's like not thinking clearly about the positioning." Sun Hongfei said. When the positioning is not clear, every step forward overseas will be full of thorns. Only by truly understanding localization can you have smooth overseas operations. The importance of localization can sometimes even directly determine the life or death of a company.

Liu Chunhe, CEO of Chizichuang Technology, an overseas company focusing on games and social networking, said that when they were doing social networking overseas, many anchors would use some jargon and slang during live broadcasts. The Thai catchphrase is 555, and the writing in the Middle East is from right to left. When operating and designing products, relevant details must be followed.

But obviously, for the giants, they would rather directly copy the operational and management experience that has been verified in China, rather than groping from 0 to 1 in a new market.

In addition, in the process of giants' expansion overseas, in addition to the obvious international giants, they sometimes have to guard against attacks from local entrepreneurs.

Giants can't even compete with small and medium-sized entrepreneurs

In emerging markets, it is common to see giants sometimes even fail to outperform small and medium-sized entrepreneurs, including those from China and local entrepreneurs.

"It's difficult for an elephant to turn around." Sun Hongfei vividly described the situation of giants overseas.

"Giants are sometimes overconfident. They used to play this game in China and have too many successful experiences. So it is very difficult for others to convince them." Sun Hongfei stressed that there are many giants who go to overseas markets for inspection, but only a very limited number of them go deep into the markets, let alone deeply understand the complexity of the local markets.

In Sun Hongfei's view, the giants are not short of excellent talents, but that does not mean that the talents are placed in the right positions. One fact cannot be ignored, that is, the giants are not as flexible as small and medium-sized entrepreneurial teams in the process of personnel scheduling and coordination with domestic personnel.

According to Sun Hongfei, some of the personnel sent out by some giants cannot even speak foreign languages ​​when they meet with local people. Even more exaggerated situations occur from time to time. "This is obviously not suitable for development in the local area. It can be said that they are not even familiar with the basic local conditions."

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Xingshang E-commerce India team (Photo: provided by the interviewee)

For giants that have already reached a market value of tens of billions or even migrated in China, the usual practice when entering a new market is to quickly deploy people and resources, and when they find that it is not working, they will quickly change their strategy. "But in emerging markets, there is no mature model to refer to, and everyone is crossing the river by feeling the stones."

Under such circumstances, some small and medium-sized entrepreneurs can thrive in their local area and even make a fortune. "We small and medium-sized entrepreneurs have small goals, unlike the giants, who have big goals and want to reach the top. Our goal of finding a market is different from ours. We need to find a large space to accommodate them and justify the return on capital," said Sun Hongfei.

Shopee, founded in 2015, has surpassed Lazada as a latecomer. According to the joint e-commerce report of App Annie and iPrice Group in the second quarter of 2019, Shopee successfully surpassed Lazada in terms of monthly active users, desktop and mobile network visits, and total downloads in that quarter. Public data shows that the number of Shopee stores has exceeded Lazada. Taking the data of the Malaysian site as an example, Shopee has 230,000 stores and Lazada has 140,000 stores. This must be unexpected when Alibaba is marching into Southeast Asia.

Various signs indicate that giants are constantly losing their overseas positions, and everything is accelerating under the catalysis of internal and external environments such as the epidemic.

Giants going overseas: Has the turning point arrived?

After a long period of aggressive overseas expansion, whether the giants admit it or not, one fact is that it is not easy to capture the overseas market. Does this mean that the turning point for the giants to go overseas has arrived and the end has come?

Regarding this, Liu Chunhe said that we need to look at the giants and overseas issues from a longer time point. "As long as the industry is leading, any country in the world can use this product, even in Africa. In this process, all these phased and individual problems are not mainstream. The development of any industry takes time."

In his opinion, giants like ByteDance, Tencent, and Alibaba have reached their ceiling in the domestic market and must go overseas.

Of course, the current situation of the giants overseas is not always prosperous, which also serves as a warning to other entrepreneurs. "At present, Chinese entrepreneurs going overseas not only test their market capabilities and company organizational capabilities, but also their response to geopolitics, that is, the comprehensive capabilities of the startup company." Of course, ROI and profitability must also be considered.

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But after this wave of setbacks, will the enthusiasm for going overseas continue? Li Tao and other entrepreneurs gave a nearly unanimous answer: yes.

"It's not just the Internet that needs to go overseas, the entire Chinese economy must go overseas." Only by treating the world's 7 billion people as a large market can the need for production capacity be met. However, Li Tao also said that the regions with high ceilings in the future are still in emerging markets. It has long been a consensus that e-commerce, consumer goods, games and other products will usher in an explosion in emerging markets.

Li Tao also offered his own suggestions for entrepreneurs who want to go to emerging markets:

First of all, we should base ourselves on products, polish them well and enhance our ability to resist risks;

Secondly, learn to make good use of capital advantages;

Again, tool products are a thing of the past.

He said that the next three to five years will be an opportunity for content and cultural products, and it is too early to layout commercial service products. Specific problems need to be analyzed specifically at the implementation level. For example, the interfaces and operating methods of products in different countries are definitely very different. Only by breaking away from the Chinese people's cognition can we make products that serve all mankind.

With the development of 5G, industries related to deep technology will also become new development opportunities, but it should be noted that technological leadership is not the decisive factor for success in going overseas. "In the end, it is still a competition of comprehensive capabilities."