news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

China News Service, August 13th. In the accelerated reconstruction of the global industrial chain and value chain, the new round of globalization in the consumer industry has become a force that cannot be ignored. Driven by this force, Chinese consumer companies are actively crossing cultural and regional boundaries to participate in competition and cooperation in the global market. From electronic products to daily necessities, from catering services to cultural creativity, Chinese companies, brands and capital are seeking new positioning in the reshaping of the global industrial chain. This change is not only reflected in the growth of overseas business and market share, but also, with the consumer industry as a slice, deeply reflects the formation of a new order in the global value chain.

Recently, Huatai Securities' podcast column "Taidu Voice" invited Wang Muzi, a consumer industry investor at Taibao Fund, to talk with Weng Yinuo, founding partner of Hongzhang Capital, and Fan Junhao, chief analyst of optional consumption at Huatai Research Institute, switching from the perspective of going overseas to globalization, and then returning from globalization to localization. From the "reborn" of the organizational structure to the "seamless connection" of the supply chain, to the "local customs" of products and services, multiple real cases were used to show the setbacks and reflections, growth and transformation of Chinese companies in international competition, as well as how Chinese companies can seize the opportunity in emerging markets and channel changes such as Southeast Asia, and finally sail to the stars and sea of ​​globalization.

The conversation is organized as follows:

┃Wang Muzi:

Please ask Professor Fan and Professor Weng to talk about this from your respective perspectives. If we take the development stage as a clue, what stages has the globalization of China's consumer industry gone through and what kind of process is this?

┃Fan Junhao:

Chinese consumer goods companies have been going overseas for more than 30 to 40 years. The earliest trade overseas was to sell many cost-effective Chinese products to the world. Immediately after joining the WTO, more companies began to export products and services overseas, and we saw more and more products being sold to the global market. After 2018, with the US imposing tariffs on China, companies began to export their manufacturing end overseas, and a large number of companies entered Southeast Asia, Mexico and other regions and countries to build production bases there. Now we see a very obvious new trend. Chinese companies are beginning to go overseas through brands and business models. This means that Chinese companies are not satisfied with just using the relatively cheap local human capital, but more to export their own brands and export their own value-added, so as to obtain a higher share in the global supply chain. The above are the four stages of Chinese companies going overseas in our eyes.

┃Weng Yinuo:

I would like to add a perspective of ten-year iteration. First, around 2014, the domestic basic manufacturing and light industries such as clothing and furniture experienced cost-side supply chain backup, with Vietnam as the main target. The second time was around 2018, when the automotive parts industry began to back up its supply chain, with Thailand as the main target. Thailand is also a gathering place for the Japanese automotive industry, and has formed a complete industrial supporting system. This is actually a more high-end industrial change. In the third stage, we saw Chinese companies begin to explore going overseas to Indonesia, the most populous country in Southeast Asia, around 2020. Indonesia's official population is 280 million, making it the fourth most populous country in the world. Therefore, in addition to basic manufacturing, it has also begun to have service industries, including the output of brand business models.

Chinese companies have entered the large Indonesian market, both for re-export to Europe and the United States and for local manufacturing to meet the needs of Indonesian consumers. Therefore, we have also seen the formation of three stages in Southeast Asia, including the industry supply chain, manufacturing, services, brands, and the overall migration process of business models.

┃Wang Muzi:

In the current wave of going overseas, people often say that "whoever wins Indonesia wins Southeast Asia." Because in terms of market size, among the six countries in ASEAN, Indonesia's GDP accounts for 40%. What do you think of this, Mr. Weng?

┃Weng Yinuo:

Indonesia's population base, youthfulness, deep links with China, friendly political relations, and deep participation in the Belt and Road Initiative all provide a good foundation for Chinese companies to go global. Indonesia's Jakarta-Bandung high-speed rail is the only one of China's high-speed rail projects that has actually landed overseas. In addition, Indonesia has a very large Chinese base, and the mutual help and cooperation between Chinese people also makes it relatively easy for companies to land their businesses. Especially for consumer companies, the landing, organization, and friendliness of Indonesian businesses are relatively ideal. After 8 to 10 years of hard work, some Chinese entrepreneurs have achieved revenues of more than 1 billion RMB in Indonesia.

Another special thing about Indonesia is that it has a certain influence on the commodity price range, brand consumer habits, etc. in Southeast Asia. If we talk about relatively unified markets, Singapore and Malaysia are a unified large market, and Indonesia and the Philippines are usually considered to be a unified market, with a total population of nearly 400 million and huge market potential. Therefore, thanks to the influence of Indonesia, the industry consensus is often that after developing the Indonesian market, it will naturally extend to the Philippines, a large market with a population of more than 100 million.

In addition, because Indonesia is dominated by Muslims, its products have halal certification and meet religious requirements, making it more likely for Indonesian products to enter the Middle East market and migrate to such a large market as North Africa and the Middle East. However, many products from Asian countries may not be able to be sold in the Middle East market, so this is another path. Overall, Indonesia is our most optimistic Southeast Asian market at present, and we also agree to a certain extent that "whoever wins Indonesia wins Southeast Asia."

┃Wang Muzi:

Professor Fan, we just discussed that China's larger companies have already expanded into the Southeast Asian market. Are there any other new changes?

┃Fan Junhao:

We just discussed mainly manufacturing overseas or building local production capacity, but there are also cultural overseas businesses. For example, selling trendy toys and IP small ornaments, these products are growing very fast in Thailand, and many Thai celebrities and monks buy their products, so we think this also represents China's cultural overseas business.

There is another special category of cultural export, which is our Chinese food. For example, Haidilao, its overseas platform is called Tehai International. When we were investigating in Vietnam, we visited many Tehai store managers in Vietnam, including their management staff. The average turnover rate of many Haidilao stores in Vietnam is 6.5, which is a very high turnover rate. After we finished dinner, there were still many Vietnamese people queuing at the door of Haidilao at 9:30. Haidilao also adapted to local conditions and combined the hot pot base with local sour and spicy flavors like Thailand, making a localized transformation and upgrade.

We believe that if Chinese companies can adapt to local conditions and iterate their products, business models, management, and supply chains globally, they will be very competitive in the future. This is also one of the reasons why we are very optimistic about the prospects of Chinese consumer goods companies.

┃Wang Muzi:

The needs of consumers in different markets are very different, and both products and brands need to be adjusted accordingly, so localized operations are a problem that all overseas teams need to face. In this regard, I would like to ask the two guests to share their views.

┃Weng Yinuo:

We believe that the core of globalization is actually localization. Since we are going to a completely unfamiliar market, you must integrate into the local market to a high degree in order to operate a business in a local way.

The first issue is the localization of the organization, that is, how to build your overseas operating system. Chinese business managers are generally at the top of the pyramid, but the middle layer needs technical personnel. How to quickly screen and establish a local middle layer team, as well as the running-in efficiency between this layer and the upper layer of the pyramid team, determines the efficiency of the entire organization. Among them, language difference is a very important issue. In Indonesia, the salary level of an ordinary worker is RMB 2,000-2,500, but the salary of regional cadres or department heads in Indonesia who can speak Chinese can reach RMB 8,000-10,000. This layer of people plays an important role in connecting the upper and lower levels. Talents who can communicate upward and promote execution downward are the key points to support the entire system and system.

The second issue is the localization of the supply chain. At the beginning, most companies going overseas actually sell goods, which is essentially trade. But when the trade volume and market share reach a certain stage, many Chinese companies will skip or reorganize their original agents and redefine the market competition pattern by themselves. At this point in time, we see that more and more countries are beginning to form higher tariff barriers on Chinese goods, which also promotes the long-term trend of supply chain and manufacturing localization.

The third issue is supporting facilities. We once visited a factory that manufactures beauty products in Indonesia. The product packaging was very ordinary. But this is already the ceiling of Indonesian packaging. If you want to make it more beautiful, you have to move all the supporting packaging companies in China to Jakarta. So in fact, there are many things missing in the entire supply chain value chain, unlike in China where there are good industrial clusters. Including traffic operation, e-commerce localization strategies are actually different. For example, whether you can find local influencers to support live broadcasts, there are a lot of localization requirements in operational details.

┃Wang Muzi:

We discussed that some companies have done very well in the Chinese market and then went overseas to develop a second growth curve. Is success in the local Chinese market an important condition for success overseas? Are there any other cases you can share?

┃Weng Yinuo:

Currently, Transsion is a benchmark company for the Belt and Road Initiative. It has only been doing overseas business since day one and has not yet entered China for sales. We found that this type of company must have seized the key opportunities in certain regional markets, appeared at that time, and then formed localization capabilities, so that it succeeded in the local market.

But one difficulty is that although Transsion is known as the king of Africa, it has to replicate its experience in Africa to South Asia and South America, which are completely different cultural countries. In the macro sense, it is called globalization or going overseas, but in fact, it is all in very specific regional national markets, and it is difficult to prove the ability to achieve continuous success. Therefore, it is actually very important to explore commonalities. We need to find some underlying logic, model framework, talent and other methodologies.

┃Wang Muzi:

Chinese companies going overseas will face the complexity of overseas market channels. Could you please talk about the different channels you have faced in recent years, the changes in the channels themselves, and how you build your own channel capabilities?

┃Weng Yinuo:

The consumption channel is actually determined by the maturity of the economy. Generally speaking, in the early emerging markets, a large number of commodities are circulated through wholesale, which is a very simple model, and will form a building materials city and a large wholesale market where goods are concentrated and circulated.

After this stage, the channel distribution agency system began to form some detailed logic according to different categories, and the more mature it is, the more subdivided it is, and then different levels of distribution agency systems will be formed. In a large market like China, there will be agents for sinking markets and agents for first- and second-tier cities. Different systems will have specialized agents, and their division of labor is extremely complex. Then it will enter the stage of deep channel distribution and onlineization of Chinese e-commerce.

Most emerging markets are similar to China in the early 2000s. Generally speaking, large distribution centers have begun to upgrade their channels, and some reliable agents have begun to emerge. Although deep distribution has not yet been formed, its e-commerce has emerged rapidly. E-commerce in many Southeast Asian countries has grown rapidly, but the overall penetration rate is low. In some islands or remote areas, the infrastructure does not support the rapid development of e-commerce. For example, the postal code system is not yet complete.

The distribution system in developed countries is more complete and the infrastructure is better, so the impact of e-commerce will be greater. The emergence of Shein, Temu, and TikTok in China in recent years has actually changed the traffic ecology of many developed countries. This wave is actually a brand new impact on the channel side. However, in developed markets, traditional super retailers still occupy a very important position. This is related to its population structure and residential structure. For example, the United States has a pancake-style living style and does not have the concept of so many communities, so e-commerce is sometimes not so efficient. Instead, everyone gathers in a plaza for centralized purchases. Walmart and Costco are still very mainstream retail formats.

┃Fan Junhao:

China is at the forefront of the world in terms of channel efficiency and competition. We believe that where there is traffic in China is the channel. From the earliest distribution model, to offline specialty stores, large markets, to e-commerce, and now to live streaming, interest e-commerce, and social e-commerce, China's channels are actually reconstructed every few years. One of our slogans at the time was "traffic is the channel, content is marketing." Wherever the traffic in the Chinese market is migrating to, it will be a mainstream channel in the future. Why is the sales of short video e-commerce growing rapidly at present? It is because it has mastered the content and traffic.

Consumers are loyal to good products, but not to channels. They will buy from the channel that can provide the best quality products. Therefore, the entire history of channel changes in China has been both tragic and fertile. Many giants were once very large, but soon fell into decline. However, some emerging companies were able to grow rapidly from a very small scale.

┃Wang Muzi:

At the end of the program, please ask the two teachers to give an outlook and summary. What are the potential directions for the consumer industry in the future?

┃Weng Yinuo:

We have such a progressive logical relationship in the investment process. In the first stage, we will start with channels, which often represent the core of traffic at a certain stage. So from a global perspective, I think observing a regional market and communicating with retailers is a particularly good way, and it is also a clue for our investment layout today.

In the second phase, we will see special opportunities for categories due to the iteration of channels. We often say that from the perspective of global trade, product selection determines life or death. China has the most complete supply chain manufacturing system in the world, providing a large number of category choices. As long as companies choose the right category, it is easy to increase sales overseas, so we will look at the choice of category.

The third stage is its marketing level. Because for most foreign consumers, Chinese brands are new brands. No matter how big you are in China, they are basically indifferent. I did a lot of research in Thailand this time and was particularly touched. I think the core of cultural products is actually very strong. This is also the opportunity we see to create new brands.

In the fourth stage, China is already very strong in applied technology. So digitalization includes professional services of enterprises, such as logistics, which is a super business that Chinese enterprises are particularly good at. This is also an important area we are looking at today.

Finally, what we need today when we go overseas systematically is actually to increasingly abide by local laws, respect local culture, and form long-term barriers and capabilities. We should think with a more long-term perspective. Perhaps today's temporary slowness will be a long-term speed.

┃Fan Junhao:

For the future of consumption, the first direction is definitely to focus on going overseas. Going overseas is a bigger market, and the experience, resources and capabilities of many leading Chinese companies make it very likely to succeed overseas. We think that one of the key investment directions for consumer products is going overseas.

The second direction is to focus on cost-effectiveness. At present, consumers are increasingly pursuing cost-effectiveness, or quality-price ratio. Many consumer product companies no longer rely solely on low prices to enter the market as they did in the past. They are more focused on providing better technology and products. Therefore, we also recommend paying close attention to consumer product companies that can provide high cost-effectiveness.

The third direction is to create products that can provide emotional value. For example, some freshly brewed tea drinks make people very happy when they buy a cup of milk tea. Therefore, we believe that products that are currently priced at a few dozen yuan in China and can satisfy people's small happiness and provide emotional value are also a direction we are optimistic about in the future.

(This program was recorded on July 11, 2024. This podcast does not guarantee the timeliness, accuracy, and completeness of the data and information cited when the program is broadcast.)

(China News Service APP)