China's export landscape has undergone significant shifts in recent years.

In April 2024, while China's exports surged to Southeast Asia and the Middle East, they declined in established markets like the US, Australia, South Korea, and the EU. China's manufacturing sector also excelled, with car exports surpassing Japan's. Additionally, Chinese cultural exports, including gaming, animation, and cosmetics, gained momentum in Japan, marking a reversal compared to previous years when Japan was a cultural hotspot. These trends underscore China's evolving trade dynamics and expanding cultural influence on the global stage.

Therefore, the overseas expansion of Chinese enterprises is an important focal point, not only concerning the vitality of the Chinese economy but also influencing the global industrial structure and development pace.

In the last post, we translated part of the article published by Invisible Waves. In early 2024, they interviewed over a dozen investors at the forefront of globalized investment. Most have been deeply involved in one particular market for years, were pioneers in emerging markets, or possess substantial investment experience in a niche sector for Chinese companies venturing overseas.

In Part I, we delved into the stories of Chinese enterprises venturing into North America, the Middle East, and Europe. In today's post, we will unveil the industrial landscapes, challenges, and opportunities in four additional regions- Latin America, Japan, Southeast Asia, and Africa- exploring this trend's impact on the global economy.

[Baiguan: Invisible Waves is an investment reporting account under 36Kr, with a focus on tech startups, venture capital, and innovative business strategies]

Key insights in this article include:

Latin America: Countries like Mexico, propelled by the COVID-19 pandemic and US nearshoring initiatives, are witnessing a resurgence in manufacturing, coupled with soaring demand in sectors like e-commerce and fintech.
Japan: Emerging opportunities lie in two main tracks – state-driven initiatives in new energy industries and novel consumer trends such as the adoption of Chinese cosmetics brands and the growth of IP industries.
Southeast Asia: Despite the exit of international capital and layoffs in the tech sector, new opportunities arise from the resurgence of offline retail consumption and the transformation of the manufacturing industry, making it more conducive for industrial investments and private equity.
Africa: With its vast and youthful population, Africa holds immense potential for consumer opportunities. However, its venture capital industry is still nascent, awaiting further infrastructure development.

Subscribe now

Latin America's manufacturing renaissance: Mexico leading the charge, driving demand in the new economy

For the venture capital community going global, Latin America has often been viewed as a distant corner, a forgotten realm eclipsed by more prominent frontiers like Africa. The magical realism of Latin America depicted in One Hundred Years of Solitude is lamentable, and economists repeatedly use the "Latin America trap" to warn countries on the edge of modernization.

Unlike the geographical meaning of "South America". Latin America, which includes parts of the American continent, is a cultural regional concept shaped by Spanish and Portuguese influence, dominated by Spanish as the lingua franca. Regarding population, size, and GDP per capita, Brazil, Mexico, Colombia, and Argentina are the top four markets.

Mexico: manufacturing boom; e-commerce and fintech on the rise

At the forefront stands Mexico, one of the largest economies in Latin America, which experienced rapid development for more than 30 years (1950-1981) and suffered a sharp decline due to the debt crisis, which ended the second "golden age" of economic growth in Latin America (the first golden age was 1870-1930). Although the North American Free Trade Agreement (NAFTA) was signed in 1994, it still could not get out of the predicament for a long time.

Mexico has missed opportunities but now is experiencing a remarkable resurgence. With a population exceeding 130 million, the country is witnessing a renaissance in its manufacturing sector, buoyed by a wave of internet e-commerce and financial technology. Not only has it become the focus of Latin America's venture capital center, but it is also considered as the "fastest growing emerging markets world."

Mexico's manufacturing boom was driven by the COVID-19 pandemic and nearshoring from the US

A significant milestone emerged in 2023, as per data from the Mexican Ministry of Economy, revealing foreign direct investment in Mexico soared to a historic high of $36.058 billion, marking a robust 27% YoY increase. Remarkably, half of these investments flowed into the manufacturing sector.

Mexico's ascendance in manufacturing owes much to shifting global dynamics and favorable policy changes. On the one hand, the escalating costs of cross-border freight due to the pandemic have compelled firms worldwide to rethink supply chain strategies, favoring regionalization. On the other hand, led by the United States, nations are recalibrating from traditional offshoring to nearshoring and "friend-shoring" practices. (Specifically, companies in more advanced countries outsource their business to neighboring countries that are geographically, culturally, and linguistically similar to them to complete their work and services)

Adjacent to the United States, Mexico naturally emerges as a pivotal manufacturing hub in America's supply chain recalibration, particularly in its primary export: automobiles.

The passage of the North American Free Trade Agreement (NAFTA) in 1994 marked a watershed moment for Mexico's automotive industry. Fast forward to July 2020, the United States, Mexico, and Canada ratified the United States-Mexico-Canada Agreement (USMCA), stipulating that vehicles or trucks produced with at least 75% of parts in the United States, Mexico, or Canada can be sold tariff-free. This represents a 12.5% increase from NAFTA's requirement of 62.5%.

Consequently, the previous practice of minimal assembly in Mexico for tariff-free access to the U.S. market has been curtailed. Chinese automakers and component manufacturers are compelled to consider indirectly establishing manufacturing plants in Mexico to access the U.S. market. To date, over ten Chinese automotive manufacturers have announced ventures into Mexico. However, the game-changer lies with Tesla. In March 2023, Musk announced plans to establish Tesla's first factory in Latin America in Mexico, poised to become Tesla's largest production base. This monumental move has triggered a ripple effect domestically, with numerous supporting component enterprises hastening their Mexican factory expansions, banking on Tesla's success. This trend also aligns with our previous observations of multiple Chinese auto parts manufacturers recruiting talents in Mexico based on BigOne's online recruitment data.

Photo Credit: https://teslaside.com/tesla-baike/11708/

Subscribe now

Mexico's manufacturing boom triggers demands of the "new economy", but still remains untapped potential

Mexico's booming manufacturing sector is not only creating incremental growth but also bringing forth new opportunities in the emerging economy. "The rise of manufacturing will bring about a new middle class, which will in turn spur demand for the new economy, similar to the mobile internet application opportunities that occurred in China," said Penglan Zhao, a partner at BAI Capital, who has been deeply involved in Mexico since launching the firm's first project there in 2019.

"At this moment, Mexico is in a phase similar to China around 2014-2015," Penglan Zhao told us. Meanwhile, BAI Capital has recently brought in two venture partners focused on discovering and empowering the Mexican market. One of the partners commented on the Mexican market, saying, "The demand for new software and mobile services has been building up for a long time, and key industry innovation opportunities have matured, with continuous increases in FDI (Foreign Direct Investment) ."

If we follow the development trajectory of China, Mexico is likely to undergo a process from simplicity to complexity: starting from e-commerce, consumer retail, and the "infrastructure" of the new economy (especially in financial technology and logistics), then transitioning to SAAS digitization, and finally moving towards hard-tech industries that require strong technological capabilities. This logic is easy to understand, as glimpsed from the appearance of the first batch of listed companies in Latin America—mostly consumer retail and financial technology companies (such as MercadoLibre and dLocal).

In Latin America's history, two distinct peaks of venture capital activity stand out.

The first surge occurred in 2014, highlighted by Sequoia Capital's investment in Brazil's Nubank and Linio's substantial funding. Meanwhile, HelloFood expanded through acquisitions, and EasyTaxi pursued global growth. However, this momentum quickly subsided.

The second wave commenced with Rappi's rise in on-demand services, backed by a16z and other major investors like Sequoia Capital and DST Global. Notably, China's Didi Chuxing [Baiguan: Didi Chuxing is the Chinese ride-sharing giant] bought control of Brazil's 99 ride-hailing app marking China's entry into Latin American investment. Overall, these periods witnessed significant growth, reaching a peak of $1.1 billion in venture capital investment in 2017.

Now, Latin America is ushering in a third peak, sparked by Shein and Temu

Penglan Zhao told Invisible Waves that before Shein and Temu entered the scene, Mexico's e-commerce market was developing slowly, with only Amazon and MercadoLibre catering to the top-tier customers. This was mainly due to underdeveloped logistics and immature mobile payment systems, with over 80% of transactions still conducted in cash. However, in 2021, Shein and Temu emerged as game-changers, rapidly increasing e-commerce penetration and accelerating infrastructure development. "TikTok is also set to enter the market soon, and with these three players and AliExpress (1688 as an online retail service based in China and owned by the Alibaba Group), the Latin American e-commerce market is poised for significant growth, offering numerous familiar opportunities in the new economy," Penglan Zhao stated.

A set of data compiled by RockFlow further illustrates the point: from 2019 to 2022, there were a total of 21 large financing events (over $200 million) in Latin America, with 10 in the e-commerce sector, 10 in financial technology, and 1 in software. The most active investors were SoftBank with 7 investments, Tiger Global with 3, and Tencent with 2.

However, it's evident that these seemingly abundant opportunities are not being seized by the majority. Few Chinese funds have systematically explored the primary market in Latin America. Based on Penglan Zhao's observations, Mexico's venture capital ecosystem is thin, with fewer than 20 local VCs and fewer than 10 managing over $100 million in capital. These funds typically only invest in Series A and earlier stages, while mega funds from the United States prefer to invest in later stages such as Series C. "The $15-20 million Series B round is a huge gap," Penglan Zhao remarked.

Nevertheless, A16Z is starting to make its mark in Latin America. After betting on Rappi in 2017, it is now preparing to venture into early-stage investments in Latin America, especially in financial and medical technology.

The strategic deployment of Chinese internet giants in Latin America is also worth mentioning. Since 2018, major Mergers and acquisitions (M&A) transactions in Latin America have ranged from $118 million to $650 million, involving key acquirers such as Okta, Uber, Didi, StoneCo, and Etsy. Tencent's first bet in Brazil was Nubank, followed by a joint investment with SoftBank in Argentina's mobile banking service app Ualá in 2021, totaling $350 million, and a joint investment with SoftBank in Brazil's freight management platform Frete.com. Ant Financial also invested $100 million in Brazil's financial technology company StoneCo in 2018.

In recent years, Chinese companies such as Huawei, Xiaomi, Didi, and Miniso have made waves in the Latin American market, with the emergence of Chinese community grocery shopping apps such as Dingdong Maicai 叮咚买菜, Meicai美菜, and Xingshen Youxuan兴盛优选. Despite their relatively small presence compared to China, these companies boast significantly higher profit margins in the Latin American market. However, few Chinese founders are willing to reside there due to the natural physical distance. Although local founders are competent, they often lack execution, operation, and product design capabilities.

Photo Credit：https://www.donews.com/news/detail/1/3528527.html

For US dollar investors with a Chinese perspective, purely localized projects are clearly not the best approach. Penglan Zhao explained, "We need to find connections and contrasts with China from the perspective of Chinese founders and the China model, and then help investee companies empower themselves from a localized direction." BAI Capital invested in Stori in 2019 and Trubit in 2021, both financial technology companies that have experienced explosive growth. Stori became Mexico's newest unicorn company in 2022, while Trubit's business volume has grown nearly 50 times in just two years.

Mexico may not be the ideal investment destination for everyone, as venturing into Mexico faces significant challenges, such as local security issues and political and trade policy instability.

However, there are always pioneers.

Subscribe now

Japan: emerging from the "lost three decades," virtual consumption takes the lead

Japan's stock market is on fire. Since the beginning of 2024, it has even broken through the long-standing historical high of 40,000 points, a record untouched for 34 years.

An investor told Invisible Waves that valuations of projects in Japan are starting to rise. A series of changes have led people to re-examine this neighboring country across the sea. After emerging from a period of "lost decades," what challenges and opportunities does the world's third-largest economy hold?

The first wave of Chinese brands venturing into Japan was initiated by consumer giants such as Haier, Hisense, and Lenovo. In recent years, however, Chinese restaurant chains like Haidilao, tea brands represented by Heytea and Nayuki Tea, and Chinese cosmetics brands like Huaxizi and Flower Knows have deeply penetrated the Japanese market.

Venturing into Japan is benefiting from favorable conditions. On the one hand, considering the yen's currency advantage globally costs such as rent and labor in Japan are decreasing. On the other hand, due to the efforts of many brands in the past, domestically produced Chinese goods are no longer synonymous with shoddy craftsmanship.

According to Penglan Zhao, a partner at BAI Capital, Japan's investment opportunities mainly lie in two major areas: one is the state-led new energy industry, and the other is the loosening of long-standing business structures, bringing about new economic opportunities driven by mass entrepreneurship.

The fervor for new energy primarily emerged after Japan's government subsidy policies. As early as 2009, Japan introduced purchase subsidies for new energy vehicles, a policy that saw intensified efforts from 2020 to 2022. Japan's automotive market has long been considered one of the most difficult to penetrate, with Toyota's monopoly making foreign carmakers wary. However, penetration of electric vehicles has remained in the single digits, partly due to the passive stance of leading Japanese automakers, offering opportunities for Chinese companies like BYD. In 2023, Chinese automobile exports surpassed Japan's, making Japan the potential next destination as the world's largest automobile exporter.

Rising penetration of E-commerce in Japan offers growth prospects for Chinese consumer brands

As the world's fourth-largest e-commerce market, Japan boasts an annual per capita online shopping expenditure of $1164, double that of China's and surpassing even the United States.

Backed by purchasing power, Japan's e-commerce potential is immense. In recent years, the e-commerce adoption rate in Japan has been increasing steadily, with an average growth rate of 12.4% from 2021 to 2023. According to forecasts from the Fuji Economic Research Institute, Japan's B2C e-commerce market is expected to grow by around 4.5% in 2023, presenting vast growth prospects for Chinese brands.

The first wave of prominence is Chinese cosmetics.

Most Chinese cosmetics brands set their sights on Southeast Asia as their first overseas market. Around 2020, Perfect Diary, Colorkey, Y.O.U, and other emerging Chinese beauty brands collectively ventured into Southeast Asia, accumulating brand recognition and market share through platforms like Shopee and TikTok shops, subsequently topping numerous category rankings. However, this led to significant homogeneity issues, particularly after sweeping through Southeast Asia. Hence, with cultural and geographical advantages, the Japanese and South Korean markets became the next battlegrounds for Chinese cosmetics eager to distinguish themselves, with Japan being the most fiercely contested. In the first half of 2023, imports of cosmetic products from China to Japan increased by approximately 45% to around 6.1 billion yen.

Moreover, cosmetic brands are not solely targeting female audiences. Hai Huang, a consumer investment professional who recently returned from studying in Japan, discovered that the penetration rate of male cosmetics (including skincare products) in Japan has reached a staggering 50%.

Japanese men are showing a growing emphasis on personal grooming and appearance. Photo Credit: PIXTA

Additionally, Consumption related to the "virtual world" presents significant commercial opportunities in Japan. The current IP industry has spawned two derivative business models: one involves diversifying the forms of content and extending IP representation to movies, TV shows, dramas, ballets, and even musicals, with gaming being the most commercially efficient among these forms.

As widely known, Japan boasts a thriving gaming industry and ranks as the world's third-largest mobile app market. The average single download payment for mobile games exceeds $21, surpassing the rest of the world and towering over the US by more than 4 times and China by 1.5 times. Japan's locally nurtured app market and consumer habits have naturally provided a fertile ground for overseas entrants. In recent years, several games produced by Chinese companies like Tencent and miHoYo have achieved remarkable success. Beyond gaming, social apps like WePlay and live streaming apps like Bigo Live, both developed by Chinese teams, have also made notable appearances on the charts.

Another model revolves around derivative products, with IP transformed into toys, figures, models, trading cards, and more. In China, a prime example of this model is Pop Mart.

In Hai Huang's view, physical entrepreneurship opportunities in Japan are far fewer today compared to China. Nevertheless, the Japanese still need a place to harbor their ambitions and dreams. As opportunities for physical entrepreneurship diminish in society, virtual consumption opportunities may proliferate.

Outside the virtual world, the healthcare sector is another highly developed industry in Japan. According to Amazon data, the affluent elderly population is a noteworthy online shopping demographic, with their fitness investments being 7 times that of younger generations.

Opportunities and challenges

Compared to Chinese markets, Japan represents a highly mature, developed, and sizable consumer market. Its offline channels dominate, and there is no dominant e-commerce ecosystem controlled by giant apps. Data shows Japan's e-commerce penetration rate has long remained below 10%. Therefore, Japanese companies' commitment and investment in e-commerce are not very strong, and their operational capabilities and experience are relatively limited. To a certain extent, there still exists room for Chinese companies to capitalize on this.

However, despite Japan's painful experience of the "Lost Decades" and China's recent booming consumer market, brands accustomed to the Chinese market still need to overcome various challenges. For instance, Chinese brands benefit from the highly developed Chinese e-commerce market and are accustomed to speed. They may consider withdrawing if they fail to achieve explosive growth within a few months. The case of Nayuki Tea, which returned empty-handed after venturing into Japan, is a prime example.

For new consumer brands still in China's market, learning to be "slow" and "patient" to better adapt to other markets is also an essential lesson.

Subscribe now

Southeast Asia: overlooked? retail consumption on the rise

Southeast Asia, once ablaze with venture capital fervor, now finds itself drifting apart from its former glory. According to the 2023 Southeast Asia Internet Report jointly released by Google, Temasek, and Bain, the total financing amount in Southeast Asia for 2023 has plummeted to its lowest point in six years. 88% of investors believe they face a more challenging "exit environment." Specifically, within just one year, the total amount of seed and Series A financing has declined by 68%, while Series D and later-stage financing has plummeted by 77%.

The retreat of international capital appears to be an irreversible trend in the Southeast Asian market. Looking back eight years, Southeast Asia was almost the first choice for Chinese venture capital to go global: around 2015, many Chinese investment institutions, emulating Masayoshi Son's time machine theory, arrived in Southeast Asia digging gold, attempting to replicate China's mature business models in emerging markets.

At that time, there were hardly any localized venture capital initiatives, and early-stage entrepreneurs were more focused on B2C models such as ride-sharing, e-commerce, and gaming. The business models were relatively straightforward and validated, often local versions of successful international startups. After 2018, with the proliferation of mobile devices and rapid consumer adoption of new technologies, we began to see the emergence of B2B and B2B2C business models.

However, the majority of institutions betting on Southeast Asia eventually returned empty-handed.

Since Sea, once dubbed the "Tencent of Southeast Asia," announced layoffs of around 7,000 employees in September 2022, its stock price has plummeted by nearly 90% from its peak value of $202.6 billion shortly after going public. In June 2023, Southeast Asia's ride-hailing giant Grab announced layoffs of over 1,000 employees, accounting for 11% of its total workforce. Indonesia's largest tech company, GoTo, reported a net loss of over 50% in 2022 and laid off 1,300 employees.

Venture Capitalist Yu Lu, a managing partner at Zero-One Capital, informed us that around 2016, Zero-One began looking into Southeast Asia. At that time, they took many entrepreneurs and professionals from major companies to explore the market and invested in many early-stage founders through an incubation approach. However, they later found that this approach didn't work because "these individuals fundamentally aren't founders (they were coerced by us)."
At that time, Yu Lu had a saying: "Don't get excited the first time you go; go three times first and see if you're still excited. In fact, many people, after going three times, don't want to set foot there anymore. After going to many places, you'll find that there are simply no opportunities because the chain hasn't been established."
Yu Lu believes that each outbound region has its own characteristics. For example, Saudi Arabia's greatest need is infrastructure and equipment, which may not involve e-commerce and the internet at all. Another crucial point is that companies need to follow major players, such as how companies like CATL and BYD are setting up factories overseas, or even how bubble tea brands are expanding, following along this chain.

Facing the rapidly changing but opportunity-rich Southeast Asia, investors may find it difficult to provide a relatively long-term answer to some unresolved questions.

Emerging opportunities for offline retail consumption and manufacturing industry transformation

However, several investors suggest that 2024 might be a pivotal year for Southeast Asia: after the massive migration of tech industry personnel due to layoffs, Southeast Asia is experiencing an increase in opportunities for offline retail consumption and manufacturing industry transformation.

Weijie Zhang, who previously made investments in Vietnam and joined a Singaporean family office last year, told us that investing in Southeast Asia shouldn't have the same expectations for scale as China or the United States. Instead, it might be wise to shift from a traditional valuation perspective to a business-oriented approach—investors may not need to exit, but rather recoup their initial investment costs through a portion of cash flow or equity profit sharing from the invested projects.
In the eyes of Weijie Zhang, Southeast Asia at this juncture is better suited for projects with a business-oriented mindset. "This is due to the differences in consumer habits. We need to acknowledge reality; the Chinese business approach is unique globally and cannot be simply replicated," he remarked. Zhang believes that the current opportunities in the Southeast Asian market for venture capitalists and early-stage investors aren't as vast because individual market sizes are small, and there isn't much room for disruptive innovation. He noted, "It's challenging to make big gains from small ventures, but there are opportunities for industry investments and private equity."

An illustrative example is the investment by Mekong Capital, a private equity firm deeply rooted in Vietnam and focused on consumer businesses, in Pizza 4P's. Founded by a Japanese couple, this chain of pizzerias in Vietnam combines Japanese concepts with exceptional service. After expanding to eight stores by 2018, Mekong Capital's investment helped it grow to 27 stores by 2022, leading to a successful exit. In 2022, Pizza 4P's recorded a post-tax profit of $3.5 million, with Cool Japan Fund from Tokyo injecting $10 million to take over.

Among the brands firmly entrenched in the Southeast Asian market, one of the most prominent is MIXUE Ice Cream & Tea, with its store count nearing the 4,000 mark. Almost contemporaneous with Chatime's expansion into the region was the emergence of CHAGEE. According to official data, CHAGEE now boasts nearly 100 overseas outlets spread across Malaysia, Singapore, and Thailand. With over 50 stores in Malaysia alone, it has already established itself as a leading local tea beverage market player. Joining the fray in the latter half of 2023, Heytea debuted in Malaysia, while Nayuki Tea re-entered the Southeast Asian market, opening its flagship store in Thailand.

Beyond brick-and-mortar retail consumption, it seems that the e-commerce platforms of internet giants have never considered withdrawing from the Southeast Asian market but rather are keen on expanding further. Thus, we witness a tripartite competition emerging among Shopee, Lazada, and TikTok in the e-commerce arena, with Temu striving to join the ranks.

Conversely, in recent years, influenced by factors such as the diminishing demographic dividend in China, rising labor costs, and industrial upgrading, major global terminal manufacturers have been setting up Southeast Asian factories. These international corporations are gradually relocating their production capacity from China to Southeast Asia due to lower costs in the region. In the automotive sector, a slew of companies, including Tesla and BYD, have been increasing their investments in Southeast Asian countries.

Vietnam stands as the prime beneficiary of the shift in manufacturing from China, boasting not only Samsung's largest global production base but also witnessing an increase in the number of Apple's supply chain companies since 2018. Numerous electronic component manufacturing hubs such as Foxconn and Compal Electronics are flocking to Vietnam. The expansion of the electronics manufacturing industry has propelled Vietnam to become the fastest-growing economy in Southeast Asia.

Subscribe now

Africa: future market opportunities await, yet to fully emerge

Africa, often hailed as the world's final frontier in the internet realm appears to be a sort of "time machine" for Chinese investors, transporting them back to the golden age of China's internet.

With numerous countries and a population nearing 1.4 billion, Africa boasts a demographic dividend, with over 60% of its populace under the age of 25, a stark contrast to the aging populations of Europe (average age 43) and China (average age 37). By 2034, Africa's labor force is projected to reach 1.1 billion, unleashing a demographic dividend amid industrialization.

However, due to constraints such as infrastructure, Africa exhibits significant regionalization. Typically, outbound ventures target Sub-Saharan Africa including Kenya, Ethiopia, and Tanzania in East Africa, and Nigeria, Côte d'Ivoire, Ghana, and Cameroon in West Africa. Nigeria and Kenya stand out as hotspots for venture capital activity.

Nigeria and Kenya lead Africa's economic development. Nigeria, with a population comparable to that of Shanghai, is Africa's most populous country. Transsion, the kingpin of African expansion, chose Nigeria as its first battleground. Kenya serves as the gateway for many capital and corporate entrants into Africa. Numerous financial institutions opt for Kenya as their initial entry point or establish regional headquarters there due to its relatively favorable political climate for foreign capital and its influence in East Africa. Furthermore, Kenya's technological advancement places it at the forefront in the region. With an early development in the telecommunications sector and the presence of East Africa's largest telecom company, Safaricom, Kenya birthed the mobile payment system M-Pesa in 2010, earning it the moniker "Silicon Savannah."

However, infrastructure, technology, and economic development are merely the prerequisites for venture capital to establish roots and grow. Like China two decades ago, where a plane from the United States could be filled with venture capitalists intrigued by China's market potential, Africa presents a similar allure. As Roselake Ventures partner Lingxiu Zhang summarized, while secondary markets and later-stage investments in Africa have a relatively longer history, the venture capital scene is just taking off. Venture capital firms and the institutionalization and professionalization of investment have only begun to take shape in the past five years.

Africa, the only region globally to achieve double-digit growth in 23Q3

According to data from the African Private Equity and Venture Capital Association, venture capital investments in Africa reached $895 million in the third quarter of 2023, marking a 28% YoY increase and roughly a 20-fold increase from five years ago. In the third quarter, Africa was the only region globally to achieve double-digit growth during a sluggish investment climate.

While Africa's venture capital ecosystem lags far behind its Chinese counterparts, it's only about four to five years behind Southeast Asia in generational terms. Looking at the data on VC funding, Southeast Asia's overall scale exceeded $10 billion in 2022, while Africa's scale during the same period amounted to roughly two-thirds of that. Apart from its rapid growth, the past five years have seen rapid development in the fintech sector. Among the dozen or so unicorns in Africa, eight are fintech companies, with Nigeria serving as their stronghold, boasting six fintech unicorns, including Flutterwave, Interswitch, and Opay.

In addition to fintech, Africa's e-commerce sector is experiencing rapid growth, with regional e-commerce transactions expected to grow by 50% by 2025. The number of online shoppers is projected to increase from 334 million in 2021 to 519 million in 2025, with a growth rate exceeding 56%. Interestingly, the majority of these consumer goods originate from China.

One notable achievement is that the Chinese cross-border e-commerce platform Shein has surpassed Walmart and Amazon to become the most downloaded shopping app on Google Play in South Africa. Africa has indeed become fertile ground for cross-border e-commerce. Alongside e-commerce, related industries such as e-commerce logistics and Software as a service (SaaS) are also experiencing rapid growth. In addition to Shein and Amazon, Africa is home to the first unicorn listed in the United States, the e-commerce platform Jumia, along with its acquisition of the local e-commerce platform zando.co.za and online ordering platforms for some traditional supermarkets.

Shein has surpassed Walmart and Amazon to become the most downloaded shopping app on Google Play in South Africa. Photo Credit: AMZDH

The success of the "King of Africa," Transsion, has also boosted the confidence of Chinese e-commerce companies. It has been proven that with precise positioning in terms of price ranges, Africa can also cultivate a thriving consumer market. Significant business opportunities are emerging in recent years, even in niche sectors such as short video apps, wigs, and nail art.

In addition, green technologies represented by new energy, such as electric vehicles for transportation, are also developing rapidly. According to the observation of the well-known clean energy media Cleantechnica, in Ethiopia, the Volkswagen ID. model made in China has appeared in large numbers in dealer showrooms and on the road and has become one of the mainstream products in the local electric vehicle market; in Ghana, several companies and start-ups provide more than 20 Chinese-made electric vehicles for the local area; in Rwanda, GoKabisa has brought Geely's Geometry E pure electric SUV to the local area; the only new electric trucks available in Zimbabwe and Kenya are provided by BYD; SAIC Maxus Delivery 3 and Dongfeng Xiaokang EC3 have become star products in the South African market, with sales increasing year by year.

Chinese electric vehicles are gaining significant traction in Africa, capturing the attention of international investors. Photo Credit: https://www.nengyuanjie.net/article/72488.html

Our take

Venturing abroad is a broad subject, often seen as Chinese enterprises expanding beyond domestic markets to unlock a second growth curve and mitigate intense competition at home. Yet, for investors in the venture capital industry and entrepreneurs eyeing international markets, the complexity of overseas ventures could far surpass Chinese domestic challenges. The two translated articles comprehensively depict the global industrial landscape, revealing stark differences across regions in market size, talent pools, infrastructure, policy favorability, and cultural receptivity. Each market harbors unique risks and opportunities, necessitating tailored approaches in funding and business models.

Smoothly bridging information divides and presenting accurate facts lies at the heart of Baiguan's mission. We remain committed to delivering high-quality, impartial content on stories from China and worldwide. Please stay connected as we delve into burgeoning markets and navigating investment prospects worldwide.

If you enjoy Baiguan, we encourage you to share it with friends, colleagues, or anyone who may find value in our content. Our most supportive friend can earn up to 1 year free subscription ($150!) through our referral program. If you are already subscribed to the paid version of my newsletter, your subscription will be extended.

Share

Related Reads

Stories of Chinese enterprises going global…