Insightful perspective on Chinese companies going "overseas" by Lian Meng, IDG Capital Par

This article is based on a lecture presented by Lian Meng, partner at IDG Capital at ‘2017 IDG VIEW’ that was held on the 28th of March in Beijing.

"An authoritative research company that belongs to WPP released a list of ‘the BRANDZ top 30 China overseas brands in 2017’, on which there are 6 companies that have been invested by IDG Capital: MIUI, Anker, Go Desktop (belongs to the 3G Web Portal), Qihoo 360, IGG and Tencent.

BBC documentary image, Lian Meng used to illustrate his speech about Chinese companies "going overseas"

From the companies’ point of view, they should not confine themselves in domestic market if their products and services are good enough, unless they have certain regional characters, such as selling roasted ducks. The globalization is especially easier to be achieved in the internet and technology industry, like, for example, Google, Amazon, Facebook and so on. Throughout the history of science and technology, there is always a time of communications, connections, conflicts, and disturbances. Innovations begins to appear, grow, and produce new values during these periods.

We are now in a world of "flatness" in which you can see everything, but also in a fragmented world in which you can reach nothing. This is true for you, me, and even worse for many others.

The recent hot spots are things like AI or automatic driving. But have you ever been to Asia or Africa or other countries, or 5th-tired cities in China? Please try to think about how to engage automatic driving in these regions. I always felt these questions are like mysteries. The world is getting longer and longer, and leaders keep running faster and faster. There are those, who are in the back of the team and who have been left behind. And, those in the leading position have turned their businesses into some kind of showing-off. Their products and services are truly magnificent, but far away from universal: how many people can sit on a SpaceX?

We must figure out what things are strategically advantageous for us.

Chinese people are still quite practical. We are now in a slightly leading position, at about 3/7. We can reach the Silicon Valley who is in front of us, and we can give a hand to those brothers who were left behind. In the past three decades we have accumulated many advantages of industrial chain in many industries, so, first, I think that the opportunity of going overseas relies on the globalization of industries in which China has the advantage of industrial chains. In other words, China has advantages on certain things, and has not on certain other things. We must figure out what things are strategically advantageous for us.

Chinese people have done a lot of factory work in the past 30 years, worked very hard while their incomes were still very low. It seems pathetic. But the universe helps those who help themselves. If you are willing to do pathetic things, to the extent that no one else is willing to, then you will end up dominating the whole thing.

The main factories and processing enterprises in various industries were basically started from taking OEM orders. Slowly they have transformed to into ODMs (Original Design Manufacturer), then European or American merchants only had to drop by and pick their favorites. These things count as ‘we did the work no one else is willing to do’, and the result is that a large number of Chinese manufacturing enterprises have 80% -90% shares of the market, even the lower ones have 70% -80%. Then nothing can be made without Chinese manufacturers, especially in the electronics and clothing textile industry. At the beginning they were just a factories, that slowly learned a little about brands, then started doing branding in the domestic market, and now trying to study and follow the global brands, step by step.

The mobile phone is a typical example.

Shenzhen, has the most complete industrial chain of mobile phones in the world. No other place can . This directly leads to an extremely competitive and brutal domestic mobile phone industry. There are all kinds of brands such as MIUI, Oppo, Huawei and so on. And then they found out that outside the country there are a number of local mobile phone brands in India, South America and other places with local channels, that went to Shenzhen and tried to find ODMs. Imagine when integrated Chinese companies with complete industrial chains - from software to hardware, from the products to the channels, and even with integrated supply chains - will go to these markets, what will happen?

India and South America are still competent, but not all parts of the world can do such a thing. The African companies do not have their own brands. In 2016, Shenzhen Transsion had a 50% market share in Africa, while the former overlord Nokia's share only accounted for 15% -20%. Africa looks like a better place to go.

Hence, in the past 30 years, China has done a lot of hard work, but also accumulated a lot of capacities. To export these capacities, provide better products and services for the entire world, is a strategic advantage for us.

Second, the globalization and the internet have narrowed the gap between customers and production. In China, if you opened up a online shop on Taobao you will find that there are numerous shops in the competition with you, because in here we have the largest production capacity and consumer groups in the world. The Chinese people have an infinite wealth of goods which no other countries can enjoy.

"However, there is only one reason for you to go to Shenzhen. That is to make money, to do business."

Third, the diligent entrepreneurs. I spent most of my time in Guangzhou and Shenzhen. In the first two years Shenzhen was a hot spot, I had many people asking me why entrepreneurs from Shenzhen were so capable of doing businesses. The house price in Shenzhen is rising very fast. Well, I think that, people have a lot of reasons to go to Beijing. For money, for the education, for a career in politics, arts,...whatever it might be. However, there is only one reason for you to go to Shenzhen. That is to make money, to do business. It is very difficult to have a best solution if you have multiple goals, yet a single goal can be most horrifying. Some people say that Chinese people can do nothing, have no fun, and their greatest ability is to make money. However, I think this is the most powerful strength, combined with our boring personalities, it can be a good thing.

Finally, the market is extremely broad. Sometimes the competition in Chinese domestic market has reached the stage of fabricating demands, like serving food to someone who has already stuffed. But you will find out that there are countless people all over the world who have not tasted them yet.

IDG Capital has already led a number of companies in the direction of going overseas. Among them there is Anker’s vision called ‘carrying forward the beauty of Chinese manufacturing’, which I really like. In the total amount of Chinese exports the 3C products and the textile industry accounted for 40% and more than 10% respectively, and many other industries accounted for 50% -70% or more of the global total production. The last person who has such a big impact on business in China is Zhen He. The greatest companies in America are global companies, and the greatest companies in China should be global companies. Otherwise China is not a global country.

Let us take a look at what the leaders of these two countries have donelast year. One of them said that money does not grow on trees, so we should roll up our sleeves and start hard working, which fully demonstrated the glorious essence of Chinese people that they have no other hobbies other than making money. Another one, Donald Trump, wanted to tear the United States from the process of globalization. All companies will have to confront a variety of global uncertainties, and I have to say that this is a very strange world, but it is also a great opportunity."

After his speech, Lian Meng, the partner of IDG Capital had a talk about going overseas with four representatives of overseas investment enterprises: the senior investment director of Anker, Huang Hai, the founder and CEO of Ezbuy, He Jian, the founder and CEO of Club Factory, Lou Yun, and the founder and CEO of CastBox, Wang Xiaoyu. (Picture below)

► Anker: Engaged in the production of mobile power, charger, bluetooth peripherals, data lines and other intelligent digital peripheral products. Its USB charging products are in the leading position in multiple markets in the North America, Japan and Europe.

► Ezbuy: The largest cross-border e-commerce company in Southeast Asia, provides high-quality goods for customers in China, the United States, South Korea and other regions.

► Club Factory: An aggregated 2C overseas e-commerce company transformed from a company who provides big data services for cross-border exporting B-side businesses. Has more than 2.2 million SKUs, its business covering India, the Middle East, Europe, United States and Southeast Asia.

► CastBox: An aggregated audio application, provides more than 450,000 channels for users to choose. The topics include art, education, games, children’s program, family, literature and so on, and recommending contents based on the preferences and histories of users, was ranked the third in the world's most popular applications in 2016 of Google Play .

Huang Hai, Anker:

First, please allow me to introduce our company, ANKER. Our company has been established for five years, the founding team consist of four former Chinese Google employees. Our business model is quite simple. Unlike most of the internet companies, we are focusing on the field of intelligent digital peripherals, aiming at the opportunity of ‘going overseas’ and trying to achieve excellence on the products segments. We have achieved very good effects after 5 years of hard works, occupied a considerable position in overseas markets. The amount of sales has reached 2.5 billion in 2016, basically from Europe and the United States, our online net profits has reached more than 300 million.

As Lian Meng was saying, we created our own business model with the idea of ‘going overseas’, and help Chinese industries to be better at it. Because to ‘go overseas’ would require to put different fleets together in order to make the best team.

Lou Yun, Club Factory:

I am a ‘science geek’ who graduated from the department of computer science, at the University of Stanford. After returning home I am very fortunate to get an investment from the IDG Capital . At that time we were engaged in the data analysis tools of 2B cross-border e-commerce businesses, and later we transformed into the Club Factory in 2C. Last year our application was ranked the first for a period of time in India. Our vision is customer-centered, to help our customers become more beautiful.

Lian Meng, the partner of IDG Capital:

So the Club Factory is also known as the Indian version of ‘beautifying the real person’.

He Jian, the founder and CEO of Ezbuy :

Ezbuy is in the e-commerce business in Southeast Asia. Most of the goods are cross-border, bought from China and sold in Southeast Asia. Now our main markets include Singapore, Malaysia, Thailand and Indonesia.

Wang Xiaoyu, the founder and CEO of CastBox :

In fact, I started my business in 2009. As a woman I enjoy making money more than shopping. For me, the fastest and most effective way of making money is developing, and now our team members are basically colleagues from Google . CastBox is an audio aggregated application and was ranked third in the Google Play 2016 list for the world's most popular apps. Our goal is to help our users access information anytime, anywhere.

Lian Meng:

What kind of satisfaction and differences does our customers get, and what are the that changes occurred in the industry?

Huang Hai:

Our 3C hardware products are mainly focused on the functional use, but they were sold directly to consumers in Europe, United States and Japan through online sales .

Here we feel deeply the same with Lian Meng. The ‘going overseas’ is not a new topic. Since the ‘reform and opening up’ the slogan of ‘going overseas’ now has more than 30 years of history. However, other than the well-known brands such as Lenovo, Huawei or MIUI, most of Chinese products are still hidden behind. It is easy to find products which were made in China on the markets in developed countries, but either they were wearing the big companies' brands, or they were made by OEMs. Most of the money was earned by the developed countries. Is it really a good thing for consumers in developed countries? In fact, monopoly has narrowed the accesses for consumers to have enriched products.

In particular, after the development of e-commerce, combined with our 5 years of experiences, we have to some extent poked a hole on the window paper of Chinese products. The traditional monopoly formed by original brands or channels now has been broken. Consumers have more needs, and they think manufacturers can directly hear their own voices. We responded to them directly through internet, coupled with China's accumulation of brands research & development capabilities and powerful supply chains. Thus the sales data have increased.

This is now huge business opportunities our Chinese enterprises are facing. Good things must have the right channels, and the appropriate way of exposing will make consumers satisfied.

Lou Yun:

In his PPT Lian Meng showed two pictures, on the left side there was the Chinese high-speed rail, on the right side there was the picture of a train covered with people.

The picture on the right must be a train in a depressed region. We all learned in China that people’s appearances are mainly relied on make-ups and clothes, while this region does not have Taobao, Meitu or Faceu, or cosmetics. On the one hand, we are trying to help people in these regions with this problem. We exported a lot of high quality products, such as good-looking clothes.

On the other hand, the export supply chain. In fact, the clothes or 3C products which were sold all over the world are mostly made in China, the largest shopping mall in Dubai is located in Chinatown. But its products are 3-5 times more expensive than the same kind of products sold in Yiwu. The former mainstream model of China's exportation is the B2B model, distributed to the wholesale markets all around the world, then distributed to various shops. The process is involved with multiple layers of distributions which leads to abundant stocks on each layer. The dead stocks are huge waste of the industry, and finally lead to the result that wholesale markets were selling something particularly expensive while losing money. So at first we wanted to improve the problem of dead stocks through a data model.

Lian Meng:

Are there any impacts or changes made by Ezbuy in Southeast Asia?

He Jian:

I was engaged in the semiconductor industry by doing chips before I started my own business. The best seller in 2010 was the chip used in Apple 4. At that time I used to go to Singapore to visit my daughter. She would exchange birthday gifts with her friends in kindergarten. There were about 16 children in her class, each year she received 15 gifts, including rubbers, small books, pencils or other kind of gifts which are essentially similar and sold in a public bookstore. I gave her a lot of Korean gadgets bought on Taobao, and they turned out to be very popular among her friends. This is actually the origin of my business idea.

In 2011, the Southeast Asia also had no concept of e-commerce. So I thought maybe I can interface with Taobao.

My daughter is now in the sixth grade. In the past two years I took her back to Shanghai, and she has a classmate from Singapore in the class. During the New Year’s vacation my daughter said that this classmate of hers asked if Ezbuy was her father’s company, my daughter said yes. The classmate said, "it's great, because I can buy English books when I go back to Singapore, and pick them up at Xiamen a few days later." I told this to our team, and I said, we should be more serious now. My daughter's classmate is one of our customers.

I was very touched by a long letter written by a customer in 2013. He is Malaysian, has five children, and his message is fulfilled with gratitude. He said, "for the first time I was able to buy new clothes and new books for all of my five children." It must be noted that, the Malaysians in Singapore are still relatively poor, in the past few years Ezbuy really has made lives more easier for 30 million people.

Lian Meng:

To some extent, it can be said that Ezbuy has brought Taobao to Southeast Asia, and Club Factory has brought Yiwu to the Middle East, and Anker has brought China's best 3C products to Europe and the United States. What about the CastBox?

Wang Xiaoyu:

CastBox has produced certain localized contents. This is a very heavy work. We have received more than 40,000 thank you letters, of course there are a lot of criticisms, hope that we can do better.

Through these letters, we found that CastBox has added something in users’ daily activities such as driving, entertainment, or walking their dogs. We are mainly focused on European and American markets, but we provide audio services to more than 100 countries around the world. One of our Russian users send us a particularly long mail. He is blind, and the only way he can communicate with the world is through sounds. He is particularly grateful of CastBox, because we perfected the details of our product so that he can hear the content without too much operation.

In fact, we are more like a platform, to finish and distribute on the basis of contents provided by local users. Because there are two problems in audio. Firstly, the efficiency of information access is relatively low. Secondly, the contents themselves are like black boxes, you don't know whether it is good or bad. And the process is generally accompanied by given environments, which makes them difficult to interact with.

However, we hope that, with the improvement of technology, through the introduction of recommended algorithms or voice interactions, etc., we will allow users to hear what they want to hear, to compress the information into audios. We also hope that it will change the way information circulates, so that certain environments in which the information is hard to access can be changed.

Lian Meng:

Is there anything that you are reluctant to do, or believe that it is absolutely forbidden in the process of ‘going overseas’?

Wang Xiaoyu:

There are still a lot of traps. Especially as the process is related to problems of localization. From the micro perspective, many of the users’ behaviors are not the same. For example, I used to work in Ireland during the St. Patrick's Day, and the whole street was wearing a green hat. One of my friends asked me to bring him a gift, so I sent him a green hat. Then he ignored me completely.

(* In Chinese culture, ‘wearing a green hat’ means that the husband was cheated by his wife.)

A lot of things should be noted from the macro perspective. Some teams copied the domestic show mode directly to foreign countries, then found out that it is very difficult to be successful. Because the United States has unlimited resources, the essential needs have been met, including the appreciation mode. And, how to solve the problem of payments? So we should be more careful on planning and thinking.

He Jian:

We are engaged in e-commerce. Let's assume that there are 10 billion GMVs, and 500 million users. Whether these users are distributed in many countries or one place is completely different. In fact, we have teams in several countries. I think we must take a comprehensive view on the localization of the team, it must not be consist of locals entirely, and certainly not all Chinese.

Lou Yun:

The e-commerce business can be divided in two kinds, one has a mature business system, such as the United States, or Western Europe. The second has slowly accepted the concept of e-commerce business, such as Southeast Asia, the Middle East, or India, and so on. I think the things that should be done or should not be done are not the same.

For example, in Europe and the United States consumers are very rational. In fact, the main buyers of luxury brands are already Asian. From the perspective of e-commerce business, some practices are less effective in an extremely rational markets like the United States. Thus we must pay special attention to cost performance in Europe or the United States. Selling expensive goods is also OK, but you have to provide consistent quality.

In the developing countries, it's a different story. They are basically in the early days of e-commerce, or in the stage of education market. In the United States, after three days without receiving the product, the customer will not automatically think that the seller is a liar. But in developing countries, the customers has not formed good payment habits yet, which make building trust a very difficult task. In order to do something well we have to understand the local market.

Huang Hai:

In the past two years, many people have classified us as cross-border e-commerce merchant. But, frankly speaking, we are essentially a branded company. So, we want to do a good job on product quality, put all of our resources into product development, product control and supply chain.

With regard to things we should not do, especially in cross-border transactions, our deepest feeling is the fact that one shall never violate the rules. As an online sales platform, there might be a lot of temptations in the industry. The field is still in the bonus period, some immediate activities would be beneficial in the short term, but once you followed this line, it will not lead to a real course in the long term.

Original article here

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