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More and more companies are actively choosing to go overseas. The Middle East and Latin American markets are often called "untapped gold mines" and have become the most attractive new continents. With their huge consumer groups, unique consumption habits and high growth potential, they have attracted the attention of many Chinese companies. Faced with differences in consumption habits and culture, how can we learn more about local cultural characteristics and market conditions more quickly? How can we effectively find local government support and reliable partners? Where is the future growth space?

On August 8 (Thursday) at 19:00, Krypton Live Studio invited Middle Eastern overseas entrepreneur/personal VC investment consultant Gao Song and Xinhong Technology Executive Vice President Meng Jixiong to reveal the secrets of overseas expansion in the Middle East and Latin America.

In this live broadcast, the three guests mainly discussed the following issues:

What was the Middle East market like 8 years ago? How has the current Middle East boom changed from before?

2. Why did Xinhong Technology start to focus on the Latin American market and do cross-border business as early as 2017? What are the biggest changes in recent years?

3. Last year was called the first year of going overseas, and Chinese companies of all sizes began to explore Latin America and the Middle East. So what is the real situation in Latin America and the Middle East?

4. Many CEOs who are going overseas believe that the first thing to do is to go to the local area to observe and experience the local culture. If you choose to go to the Middle East and Latin America, how can you learn about the local cultural characteristics and market conditions more quickly?

5. What challenges do enterprises at different stages face when setting up in the Middle East and Latin America? Are there any common problems faced by large state-owned enterprises, Internet giants, growing enterprises, and startups?

6. How should managers effectively manage the different work habits of employees from the Middle East, Latin America, and China?

7. As a pioneer in expanding into the Middle East and Latin American markets, what suggestions do you have for companies planning to expand overseas?

The following is a conversation between the two guests and 36Kr. Some of the content has been edited:

36Kr: What was the Middle East market like eight years ago? How has the current Middle East boom changed from before?

Gao Song:Eight years ago, the Middle East market was not mature yet and was less popular than it is now. At that time, the Middle East market was recovering from a large-scale social movement, and most countries began to rebuild their economies after the change of regime. At that time, our business was mainly focused on the overseas expansion of asset-light online products. Many people may not be clear about this, so here I would like to share with you the specific concept of the Middle East market. In a narrow sense, it refers to the Arabian Peninsula and its surrounding Gulf countries, and in a broad sense, it includes the entire 22 Arabic-speaking Middle East and North African countries. Each sub-market has both commonalities and independence and complexity.

In recent years, the Middle East market, especially Saudi Arabia and the UAE, has become very popular, both in the venture capital circle and the overseas circle. Saudi Arabia's popularity mainly stems from its ongoing reform and opening up, namely the Saudi Vision 2030, which is promoted by Crown Prince Mohammed bin Salman and aims to achieve comprehensive modernization and secularization of the economy and society. Saudi Arabia has a population of 40 million and abundant oil capital, but its economic structure was single and conservative in the past, so it is now seen as a market full of opportunities, and policies also support the introduction of new technologies and new enterprises. The UAE has always positioned itself as a free trade port, and its business environment and infrastructure construction have competitive advantages in the Middle East, making it the preferred springboard for overseas companies to enter the Middle East. In the past two years, due to changes in the world's political situation, the UAE has not only become a free port, but also a safe haven for capital and enterprises, with a high degree of social openness. Therefore, the current Middle East boom is very different from that 8 years ago, both in scale and concept.

36Kr: Why did Xinhong Technology start focusing on the Latin American market for cross-border business as early as 2017? What are the biggest changes in recent years?

Meng Jixiong:Our company is one of the earliest cross-border e-commerce companies in China to enter the Latin American market. Initially, we conducted business in the European and American markets, but in 2017, due to some coincidences, we learned that the online shopping market in Mexico was gradually maturing. At that time, a relative returned from Mexico and told us that the trend of online shopping was becoming more and more popular there, and people were keen on online shopping. This inspired us that since we already had cross-border e-commerce experience in the European and American markets, we might as well try to expand our business to Mexico. Based on this accidental opportunity, we began to ship to Mexico and explore the local market. We found that compared with Europe and the United States, the infrastructure in Latin America is not mature enough, and the entire supply chain is longer. At first, we couldn't even find a suitable logistics provider, and had to contact the shipping company directly to arrange the transportation and customs clearance of goods ourselves. Building a warehousing and logistics system from scratch was a challenging process. Despite the difficult start, we achieved good results in the Mexican market and gradually expanded to other countries such as Peru and Ecuador, becoming one of the early sellers in these markets. With the accumulation of experience, our operations in the Latin American market have become more and more handy.

From 2017 to now, I have a deep feeling about the changes in the Latin American market. First of all, when we first entered the Latin American market, we found that consumer goods there, especially daily necessities, were really scarce. This is mainly because the light industry in Latin America is not well developed. For example, Mexico's industries are mainly concentrated in high value-added fields such as automobiles and home appliances, and it does OEM for major American brands, but daily necessities are relatively scarce. Whatever we sold at the beginning was sold out very quickly, and the turnover rate was particularly high. At the beginning, the Latin American market may still be in the so-called first consumption era, with few materials and limited choices for consumers, who were not very picky about style, quality and materials. No matter what we sent, the goods were sold out quickly. The after-sales requirements were not high, so it was relatively simple to do at that time. But as the market gradually opened up, especially in the past two years, the Latin American market has received more and more attention, and many high-quality Chinese brands have also entered. Consumers' consumption habits began to change, the balance of supply and demand was broken, and they began to enter the second consumption era. Now, consumers are more diversified in choosing products, not only requiring them to be usable, but also beautiful in style and diverse in functions. This shows that the market is constantly opening up. We clearly feel that the market is slowly opening up, and many domestic companies and big brands have also entered this market. However, compared with the European and American markets, the Latin American consumer market is still in a relatively early stage. But the changes are real, and we have a deep understanding of this.

36Kr: Last year was called the first year of going overseas, and Chinese companies of all sizes began to explore Latin America and the Middle East. So what is the real situation in Latin America and the Middle East?

Gao Song:Regarding the Middle East market, especially Saudi Arabia and the United Arab Emirates mentioned earlier. In the past year and a half, there have indeed been many delegations going there, both at the policy level and at the private level, and the number of people is quite large, and they are mainly concentrated in the Gulf countries. The market is also increasingly focusing on the Middle East media reports. But in fact, compared with the number of projects that have actually landed and the number of delegations, it has not yet reached the hot state we expected. I think that at present, everyone is still mainly in the learning and trial stage. The possible reason is that the two waves of going overseas are different. In the wave eight years ago, many companies already had mature business models and good cash flow in China, and they wanted to replicate their successful models overseas. But now, many companies may be forced to find new markets to maintain cash flow because of overcapacity in China. So the pressure on entrepreneurs now is completely different from that eight years ago. They are more fighting for survival, which makes them more cautious when choosing to go to the Middle East.

In addition, the Middle East market is not a unified market. Many people may think that the Middle East is a country full of rich people, but in fact, in countries like Saudi Arabia, the gap between the rich and the poor may be very large. And the market capacity of truly wealthy countries such as Qatar, Kuwait, and the United Arab Emirates is very small. Entrepreneurs will consider whether it is worth investing high costs to serve only a small number of people with purchasing power. When they look at the wider Middle East market, such as Iraq, Egypt, Syria, and Morocco, they will find that although the population is large, the infrastructure is backward and the payment ability is limited. These situations may be beyond their expectations and make them realize the complexity of the Middle East market. Therefore, especially for small and medium-sized enterprises, their landing is not as hot as imagined. Moreover, what really makes the Middle East market hot is actually closely related to national policies. Many large-scale investments and cooperation are often led by the government and carried out under a large economic framework.

Meng Jixiong:The Latin American market is actually quite complex. The Latin America we are talking about includes Mexico, Central America and South America, mainly the Spanish- and Portuguese-speaking regions. But this market is actually quite fragmented. Some places are particularly hot right now, such as Mexico and Brazil, especially Mexico, which is extremely hot right now. Many Chinese companies and established European companies are flocking there. From our actual experience, for example, the price of a direct flight from Beijing to Mexico City can be seen. The price is very high, usually more than 10,000, and the hotels there are also very expensive. Ordinary hotels cost hundreds of dollars a night, and it is likely that there are Chinese people around.

Let's talk about the warehouse rent. When we first rented it, it was probably 70 or 80 pesos (Mexican currency) per square meter. Now I heard that some places have risen to more than 250 pesos, which is more than 100 yuan per square meter in RMB. This price is even higher than some commercial office buildings in Guangzhou CBD, which is enough to show how hot Mexico is now. Analyzing the reasons, first of all, the Sino-US trade barriers, especially the trade issues between the United States and China, have put pressure on many companies that originally did OEM in the Pearl River Delta. They were advised to move their production bases to Mexico as soon as possible. Mexico is close to the United States, the transportation cost is low, and there is a free trade agreement in North America. Goods made in Mexico are tax-free when entering the United States and Canada. Therefore, many companies have visited and landed in Mexico in the past two years.

But there is a saying called "false prosperity". It looks beautiful, but in fact there are many problems. For example, the largest platform in Mexico is called Meikeduo. The prices of the goods on it seem very high and the profits are good, but what we actually need to consider is the circulation of goods in Latin America. For example, the logistics turnover rate is very low. Logistics to the United States may take about a month, but it basically takes more than two months to Latin America. In addition, the local logistics and infrastructure are not mature enough, and the logistics loss is very large. We used to send some high-priced 3C products there, and often we sent out 100, and finally received 80, which was considered good. So although the market looks hot, there are actually many challenges.

36Kr: Many CEOs who have gone overseas believe that the first thing we should do when going overseas is to go to the local area to observe and experience the local culture. If you choose to go overseas to the Middle East and Latin America, how can you learn about the local cultural characteristics and market conditions more quickly?

Gao Song:Compared with Latin America, the Middle East feels more mysterious. The discourse system and culture of the Middle East are very unique and somewhat distant from the West. Therefore, to truly understand the Middle East market, experiencing the local culture is an essential step, which requires a lot of time.

First of all, I think the first thing to do when you go to the Middle East is to learn English well. Communication barrier-free is the foundation. Then try to find an Arab friend, which is very important for understanding their cultural habits. Although I have studied Arabic for ten years, I feel that there is still a long way to go to fully understand their social culture. Middle Eastern culture has a strong religious dependence, and there are many requirements and taboos for interpersonal communication, business habits, and promotion of products and services. In addition, you cannot rely too much on local Chinese, because there are not many Chinese who truly understand and integrate into the local society. Through Arab friends or communities, you can better understand the living habits and thinking patterns of consumers. For example, Middle Eastern people eat late, and may not eat dinner until 9, 10, or 11 o'clock in the evening, which is a challenge to our operating strategy. In China, we may think that 6 or 7 o'clock in the evening is peak time, but this may not be the case in the Middle East. These details can only be understood after experiencing them locally. Furthermore, the infrastructure and information level in the Middle East are not fully developed, and there are many information gaps. These information gaps need to be made up through the guidance of industry insiders and social relationships with acquaintances to help you get on the right path and avoid pitfalls. In general, gaining an in-depth understanding of the Middle East market requires time and guidance from local people.

For example, we recently held a very interesting event and invited two Emiratis with status in the local area, or what we call "white robes" (this is the name for local people), to share with us. After the sharing, our entrepreneurs were very happy and came forward to take photos with them and shake hands. Then there was a small episode. A female entrepreneur wanted to shake hands with one of the Emiratis, but found that the other party did not extend his hand, but put his hand on his chest and bowed. She was confused and didn't understand why he didn't shake hands with her. In fact, this is one of their cultural habits: between men and women, they usually don't shake hands easily. If it is between the same sex, shaking hands is fine. Moreover, on the streets of the Middle East, you often see two men walking hand in hand. They are just good friends. This is a way for them to express friendship. The Middle East is a region that pays great attention to etiquette and they are very confident in their culture. Therefore, there are many rules for greetings. Different occasions, such as good morning, just waking up, attending a funeral, before and after a meal, when you are sick or recovering, have special ways of greeting. These are all important parts of understanding and integrating into the Middle Eastern culture.

Meng Jixiong:When I want to learn about a market, I will contact local businessmen or traders through friends and get a preliminary understanding of the local situation from them. If I feel it is necessary, I will make an appointment with them and go directly to the site for investigation. I personally prefer to go to the site to see it, because the information obtained from the media or web pages is very one-sided. When I arrive in a country, I will visit multiple cities and like to go shopping, from the most luxurious to the places where ordinary people spend more, and wholesale markets, because I am very interested in our retail business. I will also try to integrate into the local area and eat the local food. For example, when I went to Kenya in April this year, I hired a local black driver to take me to the place where the locals eat. He took me to a market with a relatively backward environment. We ate local food and experienced the local consumption habits and diet. I think that to really understand a country or market, you need to go there in person. Different cities in the same country may also be very different.

As for Latin America, their living habits are somewhat similar to those of Europe and America, because the Latin American market was once a colony of Spain and Portugal, and their consumption habits and living habits are similar to those of Spain, such as liking instant gratification and playing. They get off work earlier than us, and before getting off work they will dress up carefully, take a shower, put on makeup, and then go to various parties, which are held almost every day. They really like to play, and instead of taking a nap at noon, they play ball or cards. There are still quite a lot of cultural differences between them and us. In short, the best way to understand a market is to experience the local customs and practices in person.

36Kr: What challenges do enterprises at different stages face when setting up in the Middle East and Latin America? Are there any common problems faced by large state-owned enterprises, Internet giants, growing enterprises, and startups?

Gao Song:At present, the companies that go overseas to the Middle East are mainly large state-owned enterprises, which went overseas earlier and usually rely on national policies to participate in large projects and cooperation. The projects these companies are involved in are large in scale and long in cycle, and they have the trust of the state, but sometimes they will encounter pressure in payment. Some state-owned enterprises will also encounter projects that require advance payment, but there is a great deal of uncertainty in the return cycle and effect of advance payment, which is also the reason why many state-owned enterprises are reluctant to get involved in such projects, because they have indeed encountered many problems in the past.

On the other hand, some large enterprises have performed well in the Middle East market. We have seen that many Internet products have achieved remarkable results in the Middle East. This is mainly because the religious and moral standards of the Middle Eastern society are high, which is completely opposite to the relaxed atmosphere in Latin America. It is a rule-bound society. Internet business is mostly related to human nature, so it is easy to achieve results. But this is also a double-edged sword. These companies will encounter challenges in terms of policies. For example, a live broadcast company encountered serious public opinion storms in Egypt. Despite the achievements, policy challenges still exist. At present, more and more e-commerce giants and service-oriented companies are entering the Middle East market. We look forward to their performance because they may have greater room for development.

For growing companies, they may have just started to pay attention to the Middle East market and are still in the learning stage. For them, the biggest challenge is how to truly understand this market, find people who can succeed, summarize standard operating procedures (SOPs), and find a stable path to enter the Middle East market. For smaller startups, or even individuals who open small restaurants or milk tea shops, asset-light operations or whether they can be effectively executed and implemented after investing certain assets are very critical. In an unfamiliar environment, facing potentially high policy thresholds, they need to overcome challenges such as language, policy, and communication to complete the construction process from 0 to 1. This is a question that these entrepreneurs need to think deeply about.

Meng Jixiong:Let's talk about the Latin American market from two aspects. First, state-owned enterprises and central enterprises in Latin America mainly cooperate with the government to undertake large-scale infrastructure projects such as roads, transportation and communication facilities. I am not very familiar with this area, but I know more about consumer electronics brands and overseas platforms. At present, there are many opportunities in the Latin American market. Chinese big brands are performing well there, such as domestic mobile phone and new energy vehicle brands, which have high sales and brand awareness. Latin American consumers are highly receptive to emerging brands and pay more attention to cost performance, unlike the European and American markets, where brand loyalty is so high.

But at the same time, there are some problems in the Latin American market. Since these countries are at an early stage of development, there are many small and scattered traders, who are not doing well in taxation and compliance, and are still in a wild growth period. This has caused some challenges for big brands to go overseas. For example, some mobile phone brands sell products in Latin America that are not customized for the market, but enter the market through flashing and other means, forming unfair competition with products from regular channels. In addition, the security environment in Latin America is not stable enough compared to China. Companies that make high-priced or high-value-added products should pay special attention to safety issues. When doing business in Latin America, we should not only pay attention to product quality and government relations, but also consider how to protect product safety and how to avoid trouble with the government and local gangs. These are all factors that need to be considered.

36Kr: Given the different working habits of employees from the Middle East, Latin America, and China, how should managers effectively manage them?

Gao Song:I think people in the Middle East are very particular about respect, which may be the first problem that many managers encounter. Our traditional management methods may be a bit harsh for them. In addition, people in the Middle East pay much attention to personal relationships, so if you can provide some humanistic care outside of the management level, it will give managers extra points. For example, some small favors are actually what managers need to pay attention to. For example, when we were sailing in Egypt, I would give candy to the team on any holiday. We had a team of 40 people. We gave some candy on holidays, and then held a small meeting for half an hour, chatting about the recent situation while giving candy. This half-work and half-chat form can quickly narrow the distance between managers and employees. In addition, we may traditionally believe that managers have a high status and may sometimes use power or status to force some things. But in the Middle East, this approach can easily cause disgust. Middle Eastern people believe that no matter how high or low their status is, if managers show disrespect for them, they will not cooperate, and they would even rather give up their jobs. Although not everyone will be so extreme, this is an issue that managers need to be careful about.

Meng Jixiong:Our approach is mainly to respect local culture. We have tried to export China's management model there before, but later we found that it was actually quite difficult. At the beginning, we didn't quite understand their practices, such as why they had to take a shower during working hours. But slowly, we began to understand, because the entire market and employment environment were like this, so we gradually accepted the local culture. Now, we are more likely to use local people to manage local people. Secondly, at the execution level, we are also investing in IT. For example, on the warehousing side, if it depends entirely on manpower, the efficiency will be very low. We now use algorithms to optimize picking routes and strategies, reduce the parts that require human thinking, and directly execute according to the instructions of the system. We are gradually reducing human intervention and improving efficiency through systematization and standardized processes. Through systematization and process standardization, we can improve work efficiency.

36Kr: How to establish more effective government cooperation relationships in the Latin American and Middle Eastern markets?

Gao Song:In more "wild" markets like Egypt and Iraq, the threshold for establishing government relations is very high, and usually requires strong endorsements or introductions from friends. For example, in Morocco, customs clearance may be completed quickly through informal channels, while the formal process may take a long time. This requires the formulation of corresponding strategies based on specific business, scale and level. The Gulf countries are relatively open and friendly to the Chinese. In addition to relying on work background, connections are also established through introductions from acquaintances and using acquaintances. Middle Eastern people value personal relationships and usually establish good personal relationships before discussing business intersections. They value character and beliefs. Therefore, when dealing with Middle Eastern governments, we must focus on leaving a good impression and maintaining frequent communication. They pay attention to this aspect and often have home visits, coffee, farm visits, etc. My Middle Eastern friends think I am not like a typical Chinese because I will take the initiative to participate in their traditional cultural activities, such as eating hand-held rice. They think I am novel and respect their culture. After establishing a foundation of trust and sincerity, they may share resources, but this sharing is not directly for monetary returns, but because of trust and enthusiasm.

Meng Jixiong:It is relatively simple to communicate with people in Latin America, and there are not so many rules. Basically, you can quickly get familiar with them by having a meal, drinking, or going out to play. In general, the atmosphere in Latin America is easygoing. But it should be noted that in Latin America, especially in places like Mexico, you still have to abide by the local "law of the jungle". In the past two years, as the market heats up, many businesses and individuals have poured in, but some people do not abide by the rules after entering, which disrupts the balance of the market. For example, everyone was originally at peace, and suddenly someone entered the market by dumping at a low price or through capital monopoly, affecting the living space of others, which will naturally cause the other party to fight back. Therefore, when doing business in Latin America, try to keep a low profile, don't be too ostentatious, and respect the local market rules. The locals are actually very simple. As long as you interact with them sincerely, such as having a meal together, taking a walk, and chatting, they will think you are good, and then everyone will be familiar with each other. As long as you don't break the local rules, you can establish a good relationship with them.

36Kr: As a pioneer in expanding into the Middle East and Latin American markets, what suggestions do you have for companies planning to expand overseas?

Meng Jixiong:Regarding the Latin American market, I think the first issue is safety. No matter where you are, personal safety always comes first.

The second is to play to one's own strengths. Based on the advantages of one's own industry, one should have a deep understanding of the upstream and downstream industries and surrounding areas, and explore whether the Latin American market has the opportunity to become a starting point or a starting point for business. One should have a deep understanding of one's own industry, and not blindly follow the trend, such as doing e-commerce if others are doing well in e-commerce, or doing logistics if others are doing well in logistics, while ignoring the instability and uncertainty of the industry itself.

The third is to build a moat. While expanding the market, you must establish your own competitive advantages. Although the Latin American market is large, the population size of each country is limited. We must be vigilant about the balance between supply and demand and avoid excessive investment leading to market saturation. Small markets are prone to imbalance due to excessive competition. Once there is oversupply, not only may there be losses, but also a series of subsequent problems. Therefore, we must be highly sensitive to the market and have a keen sense of the market.

Gao Song:Regarding the Middle East market, I think the first thing is to do a good job of homework in the Middle East. The Middle East is much more complicated than we think. If you can deeply understand the Middle East, you have surpassed many entrepreneurs and competitors in the market. The Middle East is currently more policy-oriented, so to enjoy the policy dividends, you need to have a deep understanding of the country's development status and policies. For example, you can study Saudi Arabia's 2030 Vision to see which industries have opportunities; the UAE's D33 plan is also worth studying, understanding these policy documents, and making adequate preparations for yourself.

The second is to focus on localization, especially in a unique system like the Middle East. It is very important for us to understand the way of thinking and market habits of Middle Eastern people. With a large amount of capital and enterprises pouring into the Middle East market, companies that can do a good job of localization will be able to seize the opportunity and have future development space and first-mover advantage.

The third is to adjust expectations reasonably. We need to remain calm and patient. There are undoubtedly many opportunities in the Middle East, but we are also the first explorers. We must have confidence and actively believe in the future, but we must also be prepared for a long-term battle to overcome the various difficulties in emerging markets. People who go overseas can clearly feel that the Chinese market is really rare. There are few such high-quality business environments, infrastructures and efficiency in the world. In other places, it may take many years to replicate such an environment. Therefore, we need to adjust our expectations and cannot simply copy and paste the domestic model abroad.

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