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China companies making vast inroads into South-east Asia - tripleyou - 01-02-2024
China companies making vast inroads into South-east Asia
Jan 02, 2024
AS CHINA finally did away with its prolonged Covid-19 restrictions in the early part of 2023, the rest of the year saw scores of Chinese companies begin or resume their overseas expansion plans.
The country’s tepid domestic market and a global trend of revenge spending led to many Chinese businesses big and small feeling the pressing need to venture overseas, with South-east Asia regarded as the top destination of most.
We look at the performance and outlook of some Chinese companies in the region across different industries. Here’s what to expect in the coming year.
Temu: Doing it the consignment way
Temu, an e-commerce platform affiliated with Chinese tech company Pinduoduo (PDD), is fast taking the rest of the world by storm.
Since its entrance into the United States in September 2022, Temu has grown to account for nearly 17 per cent of market share in the US’ discount-store categories.
The platform first entered South-east Asia via the Philippines in August 2023, followed by Malaysia a month later.
Rather than serving as a marketplace for local merchants, Temu operates on a consignment basis with merchants in China, and it is the first e-commerce platform to operate with such a business model.
Merchants are solely responsible for providing the goods, while Temu provides logistics, customer service and other forms of support. Despite having their individual stores, the merchants have little control over the product listings and pricing.
The low prices are possible due to the extensive Chinese supply chain, while the consignment model lowers the barriers to entry for sellers, making it easier for them to sell their goods overseas through Temu.
The consignment model is revolutionising many of the older players in the industry. For instance, Amazon announced in September last year that it is launching Supply Chain by Amazon, an end-to-end supply chain service to its sellers.
Temu has also replicated the expansion strategies that enabled its parent company PDD to penetrate the Chinese market and compete with e-commerce giant Alibaba. These strategies involve offering low prices, engaging in extensive advertising, and leveraging social media.
Miniso: Franchise versus agency model
Nine years after opening its first overseas store in Singapore, Miniso has gone on to spread its footprint in many other parts of the world, including in South-east Asia.
The lifestyle brand and retailer took quite a hit from the Covid-19 pandemic, with its share price plunging from a high of US$30 at the start of 2021 to just US$5 in mid-2022.
However, the company staged a big comeback in 2023 with record net profits of 642 million yuan (S$119.3 million) in the most recent quarter ended Sep 30. Its share price is currently around US$20.
Much of its growth came from its operations outside China. The first nine months of 2023 saw overseas revenue growing by more than 40 per cent year on year, while overseas net profit increased by over 60 per cent.
Of late, Miniso has shifted from a mix of franchising and direct management to collaborating with local agents. These agents, who are often established local retailers, manage daily operations such as site selection, product choices and staff recruitment. Their familiarity with the local environment and the consumption behaviours of local consumers help Miniso to adapt quickly to different markets.
As at Sep 30, 2023, Miniso had a total of 2,313 stores overseas, with only 202 under direct management. Of the remainder, 90 per cent are operated by agents.
The rapid growth can also be attributed to the group’s upgraded business strategy of collaborating with some of the world’s biggest intellectual property (IP) owners such as Barbie, Disney and Sanrio, which add to the brand’s product differentiation.
In early December, Miniso opened its first IP Collection Store in Singapore, at VivoCity mall. IP joint products now account for more than 25 per cent of the group’s global sales.
miHoYo: Rise amid ByteDance’s retreat
China’s US$45 billion gaming industry suffered a hard blow on Dec 22 after the government’s move to limit the amount of time and money spent on online games.
While the new rules have yet to be finalised, and the government has since sought to soften its stance, this is not the first instance of Chinese regulators targeting the lucrative gaming industry. In 2021, strict rules were imposed to restrict the access to video games for those under 18.
The tightening of regulations has propelled developers and publishers to go overseas in search of growth.
While many are familiar with the likes of tech giants Tencent and NetEase, one somewhat lesser known player, miHoYo, is making waves in the sector. With 5,000 employees globally – a quarter of the size of Tencent’s gaming division – the Shanghai-based studio’s popular Genshin Impact was the third-highest grossing mobile game in South-east Asia in the first half of 2023.
The studio’s newest title, Honkai: Star Rail, launched in April 2023, has also gained global recognition, including winning the Best Mobile Game at The Game Awards, often hailed as the Oscars for the gaming industry.
In 2022, miHoYo made Singapore the headquarters for its global publishing subsidiary, HoYoVerse, illustrating its commitment to expanding in the region.
All this is happening as South-east Asia’s gaming scene undergoes a major shake-up, with ByteDance slashing its entire gaming unit.
The Chinese Internet company owns Moonton Technology, the developer behind the region’s most popular and highest-grossing mobile game, Mobile Legends: Bang Bang. As ByteDance exits the gaming space, it has been reported that it is eyeing a sale for Moonton.
GWM: The lesser-known EV contender
Chinese automotive manufacturer BYD bills itself as the biggest car brand you’ve never heard of, as it gets close to overtaking Tesla as the world’s most popular electric vehicle (EV) maker.
While the statement is no longer true given BYD’s immense popularity in the region and beyond, there are other EV players in South-east Asia which are stamping their mark.
Great Wall Motor (GWM) – with its compact EV brand Ora and SUV brand Haval – is busy expanding in Malaysia. GWM launched its fully-owned Malaysian subsidiary on Jul 5 and inked a deal with Malaysia-listed EP Manufacturing for the production and assembly of its products in Melaka by the end of 2024.
It also entered Singapore in August with its Ora brand, partnering Jardine Cycle & Carriage as its distributor and dealer.
The group had been expanding its capacity in Thailand much earlier. In 2020, GWM acquired production facilities in Rayong province from General Motors after the US automotive giant shuttered its operations in Thailand.
South-east Asia will continue to see heated competition among China’s EV makers. Besides BYD and GWM, other key players include Hozon, the maker of Neta EVs, which launched its first overseas production plant in Thailand on Dec 4, and SAIC Motor, whose subsidiary MG had its first Thailand-produced EV roll off the production line in November.
Cotti: South-east Asia, the new battleground
Since its March debut in Singapore, tech-enabled coffee chain Luckin has experienced rapid growth, attracting customers with its flavoured coffee and all sorts of discounts.
Luckin is facing competition from Chinese rival Cotti Coffee. In August, Cotti opened its first South-east Asia store in Indonesia, followed by launches in Malaysia, Thailand, Vietnam and Singapore. The Singapore outlet is located at One Raffles Link.
Cotti was established in 2022 by Luckin’s founders Charles Lu and Jenny Qian. The shared genes of the two brands mean that they have very similar business models and product offerings, which resulted in a heated price war as each company slashed prices.
In Singapore, an opening promotion has all drinks priced at S$3.90, except for an Americano which costs S$1.90.
Cotti joins a growing list of international coffee chains that have recently expanded in Singapore, including South Korea’s Compose Coffee and Taiwan’s Louisa Coffee.