Zara Zhang and Hans Tung of GGV Capital are the hosts of “GGV 996“, a podcast about entrepreneurship that releases a new episode every two weeks. On the show, they interview movers and shakers of China’s tech industry and discuss how entrepreneurs around the world can learn from China’s tech ecosystem. Recently, the hosts discussed the phenomenon of chuhai, which is a Chinese term that refers to entrepreneurs leaving the country to set up companies abroad, or even larger conglomerates entering emerging markets, such as those in Southeast Asia, Latin America, or Africa. The following is a summary of the conversation between Zhang and Tung.
What are some examples of Chinese companies setting up successful overseas operations?
A huge opportunity lies ahead when Chinese companies are able to build a globalized team that understands foreign cultures and has the skill set as well as requisite knowledge of how to scale and build interesting internet companies outside of China.
The original chuhai company that has done well is Huawei, which went from a telecom equipment player to a consumer-facing handset maker building a global operation. Alongside ZTE, Huawei trained a lot of people who were sent overseas, who later went on to work with startups in countries such as India. Toutiao, Douyin, and ByteDance are some names within the pure internet sector that are worth mentioning.
Another example would be WeChat expanding into and succeeding in Taiwan, Southeast Asia, and India. Similarly, Xiaomi, a Chinese handset player, managed to expand and build a market beyond China, and Alibaba’s partnership with SoftBank in Japan led to its later acquisition of Lazada in Southeast Asia. These companies are successful examples that inspire other companies to move abroad.
What made them succeed?
The key to the success of these companies is the ability to understand the local market. Shopee and Wish have shown that it is possible to build a successful business in the e-commerce space in emerging markets so long as you have a good grasp of the local situations as well as training in the Chinese supply chain. Xiaomi’s success in India, a country that historically has not been as friendly to Chinese ideas, shows that having a local team that devises strategies is crucial.
Is there a particular driver that is making chuhai more common?
The high rate of mobile penetration is a factor that is pushing Chinese entrepreneurs to leave China. Back in 2013, there were already roughly 300 million Chinese smartphone users, whereas the number of PC internet users was about 600 million. Today, mobile internet penetration in China has pretty much reached saturation. This means it’s very hard to have that exponential growth that we saw approximately a decade ago. Chinese entrepreneurs need to look elsewhere. As a result, many Chinese companies are venturing into emerging markets where mobile internet is just taking off.
How can Chinese entrepreneurs and companies better understand a market they plan to enter?
The first step is to hire local Chinese who have lived in those communities for a long time. Individuals who understand both China and the local market are able to figure out the similarities and differences, and make adjustments to the business strategy accordingly. So people who know the local markets well but at the same time have Chinese roots should be the first executive-level hires. Teams that are more cross-cultural and cross-disciplinary will most likely succeed.
If you don’t have overseas talent that has lived there for a long time, the next best thing is to hire Chinese executives who have operated in those markets for five to ten years. But over time, the ability to recruit and build a local team is critical. The chances of succeeding are much higher if the Chinese company can build a local team in addition to having strong knowledge of China’s market.
Where do you think Chinese companies will expand to in the next few years?
For the next five years, Southeast Asia, India, and the Middle East are places that Chinese teams could go to, although the upside may not be as high as it could have been five years ago, considering how quickly the local teams in Southeast Asia and India are learning. Currently, there has yet to be a lot of Chinese companies in Latin America, so if Chinese companies are looking for a market that is large enough, with high GDP per capital and a huge population base, this would be the place to go to.
Do certain regions fit specific Chinese companies better than others?
The company’s nature should be taken into account when picking an emerging market to move into. This is because different stages of development require different kinds of companies. Take India as an example: the Chinese companies that thrive there tend to be handset makers, because that is the first thing Indian consumers buy before going online.
The competition that is present in the market is also an important factor. For instance, in the e-commerce market in Southeast Asia, we see Chinese firms pitted against local players, some of which are invested in by big Chinese companies anyway.
This article is based on an episode of “GGV 996”, a podcast on entrepreneurship in China hosted by GGV Capital’s Hans Tung and Zara Zhang.