Stories of Chinese enterprises going global: making waves in North America, the Middle East, and Europe (Part I)
Stories of Chinese enterprises going global: making waves in North America, the Middle East, and Europe (Part I)
Imagine a day in the not-too-distant future, when Chinese entrepreneurs will see the global market as their primary arena from day one. Venture capitalists will no longer view “going global” as a niche strategy, and multinational corporations infused with Chinese DNA will be commonplace.
This shift began in 2023.
In 2023, TEMU and other e-commerce giants like SHEIN, AliExpress, and TikTok fiercely competed globally, shipping over 10,000 tons of goods daily. Concurrently, Chinese automakers surged, surpassing Japan in car exports. Electric vehicles, led by brands like Zeekr and Xpeng, gained traction worldwide. Chinese entertainment and consumer brands, such as TikTok and Yalla, further solidified their international presence. This globalization wave stems from a mature domestic supply chain, decades of internet-era innovation, and a robust talent pool fostered by education and a vibrant business environment.
Going global is an intricate and intertwined journey: This overarching direction is underpinned by completely distinct narratives due to the global differences across countries and territories. How to tackle these connections with local histories and social contexts will determine the future of Chinese enterprises worldwide.
In today’s post, we translated an 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.
[Baiguan: Invisible Waves is an investment reporting account under 36Kr, with a focus on tech startups, venture capital, and innovative business strategies]
The original article covers stories of Chinese enterprises in seven global regions, and we will split it into two separate newsletter posts. In today’s part I, let’s explore Chinese enterprises expanding into North America, the Middle East, and Europe. It delves into the history of Chinese companies’ globalization, the varied market dynamics, consumer behaviors, and the strategies Chinese entrepreneurs employ in these challenging yet opportunistic environments.
The historical journey of Chinese enterprises “going global”: from goods to people, from online to offline
Starting in the 1990s with industries like home appliances, Chinese products began to venture overseas. The primary model involved Chinese companies finding local agents abroad to sell their products, aiming to boost revenue through exports.
After the rise of the internet in 2000, on the one hand, domestic teams developed internet tools and games that sought unique market niches overseas, while on the other hand, cross-border e-commerce sellers began selling Chinese-made goods through platforms like eBay, Wish, Amazon, and independent sites. Both business models avoided direct contact with overseas consumers, relying on online advertising, customer service, and remote collaboration with local partners.
Post-2010, as more Chinese employees were sent abroad by their companies, some, having lived and worked overseas for a while, spotted business opportunities based on the rapid development experiences from various industries in China, leading to startups in sectors increasingly relevant to consumer needs, initially focused on internet-related industries (e-commerce, fintech, entertainment, etc.), and later expanding to broader consumer sectors.
Around 2015, leaders of the previous three waves, having achieved initial success, began setting their sights on a broader global market, aspiring to become globally influential enterprises. Moreover, more founders recognized that not only products and services needed to be globalized but also international talent recruitment, transnational management mechanisms, and optimal resource allocation on a global scale.
While these four stages of Chinese companies’ globalization have occurred sequentially, they will likely coexist significantly.
In the past year, venture capitalists have described the globalization of Chinese companies as one of the most significant opportunities of recent years. However, when Chinese entrepreneurs and investors seriously decide to seize this opportunity, they find it presents an indescribably complex set of challenges. Invisible Waves has interviewed investors focusing on various markets, summarizing trends for different regions as follows:
(1) In North America, Chinese enterprises are carving out a new frontier in cross-border e-commerce and AI-enhanced hardware, showcasing the emergence of a new generation of transnational corporations infused with Chinese DNA.
(2) In the Middle East, there is a pronounced drive towards localization, with local markets actively seeking partnerships with foreign firms to meet domestic needs.
(3) European markets are particularly attracted to China’s compelling cost-performance ratio in the new energy vehicle sector and consumer goods.
North America: prime territory for China’s VC-backed firms abroad
North America has consistently been the top choice for Chinese VC investments in companies going global. According to data from IT Juzi, the data expert on China’s investment market, over the past seven years, Chinese investments have reached more than 50 countries. Although investment volumes have fluctuated, North America’s position as the leader has remained unchallenged.
North America’s market inherently possesses unique advantages. For the entire year of 2023, the U.S. GDP growth rate reached 2.5%, marking a further improvement compared to the previous year. In the fourth quarter, personal consumption expenditures, which account for about 70% of the U.S. economy, grew by 2.8%. It can be said that the resilience of consumers has shattered expectations of a U.S. economic recession, solidifying its status as the world’s largest consumer market.
Beyond this, the most fundamental aspect may lie in the nature of venture capital: returns depend on high-stakes projects. These high stakes imply requirements for a sufficiently large market, exceptionally capable founders, and an intensely concentrated pool of capital. An examination across over fifty countries worldwide reveals that only China and the United States are suited for large-scale venture capital investments.
Cross-border e-commerce: China’s capital arena in North America
The initial competition among the “Four Chinese Tigers of Cross-border E-commerce” occurred in North America.
In February 2023, Temu made a bold $14 million play during America’s cultural showpiece, the Super Bowl, captivating an audience of 100 million with its tagline, “Shop like a Billionaire.” By the third quarter of the same year, Temu’s Gross Merchandise Volume (GMV) had soared past the $5 billion mark. Emerging from the shadow of its parent company, Pinduoduo, this Chinese e-commerce dark horse has made a dramatic entrance on the global stage, with over 320 million downloads worldwide in the past year.
SHEIN was the fastest-growing e-commerce platform in North America in 2022. TikTok leveraged its formidable base of 1 billion monthly active users to launch TikTok Shop, and AliExpress’s growth followed closely. To illustrate the scale of the Four Little Dragons, according to recent data from Cargo Facts, Temu ships 4,000 tons daily, SHEIN ships 5,000 tons, AliExpress 1,000 tons, and TikTok 800 tons.
Yet behind the facade of flourishing blossoms lies the intense fervor of a fiercely competitive market.
The challenge lies in that, despite its vast potential, the U.S. market’s share available to Chinese e-commerce is not as large as one might expect. Morgan Stanley says even a powerhouse like Temu holds less than 1% of the market share annually, compared to Amazon’s 40%.
Emerging entrepreneurs may find themselves at a crossroads. The rise of phenomenon-level platforms is not necessarily a boon for startups. Genghua Zhang of Source Code Capital told Invisible Waves that the full-service platform model, where platforms handle everything from product provision, is becoming increasingly dominant. While this model offers simplicity and convenience, it also supplants the role of entrepreneurs. Platforms now directly liaise with manufacturers, eliminating the need for middlemen to mark up prices.
Major firms increasingly dominate the scenario in the new battleground of cross-border ventures, causing domestic investors to lose many “gold-digging” opportunities. As the founder of Skyline Ventures, an institution that invests solely in cross-border ventures, Jie Liang told Invisible Waves that he observed a “gap” in North American cross-border e-commerce entrepreneurs: “Now we see billion-dollar businesses like Pinduoduo and modest local enterprises in the U.S., but there are few in-between worth tens or hundreds of billions of dollars, a segment where North America desperately needs entrepreneurs.” This is where VCs find their opportunities.
AI hardware: China’s high-end investment breakthrough in North America
For VCs, North America presents another opportunity: AI hardware.
Jie Liang focuses on Chinese AI hardware opportunities under the AI trend rather than the industry applications commonly perceived in the market. His judgment is based on confidence in the advantages of China’s manufacturing supply chain.
At the outset of 2024, the “Tech Spring Festival” CES was held in Las Vegas, drawing virtually all venture capitalists with an eye on international markets. In the AI+Hardware sector, Unitree, fresh from securing $1 billion in funding, sold four units of its humanoid robots at the event—remarkably, each priced around $90,000. Additionally, Rabbit, a new company founded by the Chinese entrepreneur Cheng Lyu of Raven Technology, launched its handheld AI device, the Rabbit R1. Priced at $199, it saw an impressive sale of 10,000 units on the first day of its initial presale.
This provides a glimpse into the new trend in Chinese consumer electronics, moving towards high-end products. Compared to two years ago, when Chinese manufacturers were labeled “extremely cost-effective,” this year’s products were not cheap. This shift comes as Southeast Asia enters the manufacturing scene, squeezing China’s profit margins in the low-cost market. However, another group of manufacturers sees the potential to infuse AI into hardware, a new opportunity to penetrate the high-end North American market.
For investors, what are the pain points and opportunities in the North American market in the future？
Rabbit R1 serves as a cautionary tale. Despite its impressive sales figures, it has faced considerable skepticism in the consumer market. This exemplifies an investment philosophy championed by Jie Liang: prioritize investments in the supply chain’s upstream sectors rather than in downstream applications with high uncertainty. This approach also distinguishes the investment styles of firms targeting North American markets from those of local institutions. As noted by Genghua Zhang, while domestic investors in China heavily back hard-tech sectors, North American investors and others abroad are increasingly shifting towards “intangible” sectors, favoring startups involved in soft technologies like AI software, where they perceive less of a competitive edge in hardware mass production and supply chain infrastructure compared to China.
Middle East: beyond expansion, embracing inbound opportunities
Going global: the Middle East market pivots intrinsic growth, localization, and refined business models
In the past year, the Middle East has undeniably emerged as the hottest sector on the global stage, with Gulf nations, particularly the UAE and Saudi Arabia, rapidly becoming the epicenter of attention. This surge in interest, especially noted in Saudi Arabia, positions these nations at the heart of the economic storm, drawing keen eyes from international investors.
In 2023, hundreds of investment firms made their way to Saudi Arabia as Chinese investors and startups continuously flocked to the Middle East. Regrettably, aside from a select few companies whose offerings aligned with the region’s development plans and secured funding, the majority—particularly investment institutions—failed to raise substantial capital.
The task of fundraising for Saudi Arabia’s Public Investment Fund (PIF) is more challenging, in stark contrast to the sovereign wealth funds of the UAE, Kuwait, and Qatar. For China’s industrial sector, the capital from the UAE and Qatar has long been considered “Old Money.” These major sovereign funds established their presence in China years ago, each with its own office. However, Saudi Arabia’s substantial capital has only been accessible to the outside world for the past seven years. Additionally, due to Saudi Arabia’s unique historical context, its strategically missioned national capital is inevitably dedicated to serving the nation’s future development plans.
A local Saudi investor stated that the investment focus tends to lean more toward localization, whether it’s government capital or private institutions in Saudi Arabia. Even in the case of global investments, there is a preference to attract advanced technology, high-end talent, and cultural and entertainment IP to Saudi Arabia. “Compared to the UAE, most of Saudi’s investments are aimed at reviving the nation and its people.”
After intensive exploration in the Middle East, a domestic dual-currency fund investor has decided to pull back, believing that “the Middle East favors a capital-driven market, not an asset-driven one. The region needs substantial foreign investments to substitute traditional sectors like tourism, entertainment, and infrastructure—it’s not characterized by endogenous growth.”
An investor in the Middle East shared with Invisible Waves that the region is better suited for proven, mature products and services. Domestic B2B and B2G offerings are particularly well-positioned for growth in the Middle East, while B2C opportunities are predominantly in consumer goods and entertainment products such as gaming. The Middle East exhibits less bias and fewer barriers against Chinese products than the similarly high-value European and American markets. Additionally, taking a business model to the Middle East requires a strong local adaptation strategy. Purely speculative ventures find it challenging to gain a foothold.
Drawing capital: the rise of Middle Eastern investment in China
On the other hand, compared to attracting foreign investment to the Middle East, outward investments from Middle Eastern capitals, particularly the UAE and Saudi Arabia, are more active, especially in China.
According to IT Juzi, in 2023, Middle Eastern investments in Chinese companies exceeded ten instances, with total financing events surpassing 20 billion yuan. These investments were notably substantial. Unlike Singapore and other nations focusing on startups, Middle Eastern capital targets more developed and mature companies. Therefore, although there is a gap in the volume of investments compared to countries like Singapore and Japan, the probability of Middle Eastern capital investing in Chinese unicorns is significantly higher.
In December 2023, Abu Dhabi investment firm CYVN announced an investment of 15.7 billion yuan in NIO, pushing this year’s “Middle East wealth rush” to a peak. Middle Eastern capital was also active in the primary market last year, investing in companies like Drip Irrigation Giant, cross-border e-commerce titan SHEIN, JD Industrial Goods, and mobile esports operator “Hero Sports VSPN” (which received an exclusive investment of $265 million from Savvy Games Group under the Saudi Public Investment Fund, setting a record for the most significant single investment in the domestic sports industry in nearly two years).
When Middle Eastern sovereign wealth funds negotiate investment cooperation with Chinese local governments, one consideration is how investing in local industries can benefit their country. Middle Eastern capital’s investments in China are primarily in resource sectors like petrochemical and new energy projects and biomedicine, internet, and high-end equipment industries.
In 2024, the Middle East made its inaugural investment in China’s biopharmaceutical sector: Fulean Technology announced a financing round of $63.3 million, led by Prosperity7 Ventures, a fund under Aramco Ventures. It is noteworthy that the last investment from Middle Eastern funds in China in 2023 was also orchestrated by Prosperity7 Ventures, leading a multi-hundred-million yuan Series B funding round for Cispoly [Baiguan: Cispoly is a cutting-edge enterprise at the forefront of biotechnological innovation with a dedicated focus on advancing women’s health].
Based on publicly available data, Saudi Aramco alone invested over $30 billion in projects across China in 2023. Incomplete statistics indicate that at least seven Middle Eastern investment institutions have poured capital into Chinese biopharmaceutical companies. Additionally, the Middle Eastern consortium’s aggressive acquisitions in China’s new energy vehicle sector have significantly impacted the market. Notably, NIO, a single enterprise, secured over 20 billion yuan in funding from the Middle East last year.
Strategic foothold: the Middle East as a crucial gateway for China’s global business ambitions with a long-term vision
In 2023, Mingming Huang, founding partner of Mingshi Capital, led his team and representatives from over ten portfolio companies on two trips to the Middle East. There, they met with local officials, investment bodies, and seasoned Chinese tech firms like Huawei that have deeply rooted themselves in the region. During these visits, Huang keenly observed a massive transformation unfolding in the Middle East. “The Middle East is pivotal in the changing global landscape, poised to become a major player in the world’s emerging tri-polar power structure. It also serves as a critical foothold and starting point for Chinese tech companies aspiring to go global,” Huang noted.
The primary challenge for Chinese firms in globalization remains talent and global management. An investor in the Middle East candidly expressed that emerging markets are still developing and training their workforce compared to Western markets’ more decadent talent pools. Recruiting and managing transnational operations are significantly more complex and challenging than in domestic markets. Success in one market does not guarantee replication in another, as methodologies are hard to scale universally.
Regarding the Middle Eastern market, Mingming Huang believes only founders can make long-term decisions and commitments. Therefore, founders must be resolute in their decision to go global, and currently, the Middle East stands out as the most promising destination for such ventures.
Europe: navigating challenges with a long-term, sustainable investment approach
Europe’s market landscape: vast and fragmented—spotlight on niche startup opportunities
For many Chinese enterprises venturing abroad, Europe remains a battleground of necessity—where high standards in product, technological innovation, and branding converge. Europe is still considered a prime territory with its rich talent pool of overseas Chinese and international students.
However, when viewed from a regional perspective, Northern, Western, Southern, and Eastern Europe each present unique economic profiles, income levels, and population qualities that are markedly distinct.
“Although the European market is considered well-established, its vastness and fragmentation are evident in its cultural and characteristic diversity. Despite the semblance of integration within the European Union, the ties between its member states remain relatively loose, each preserving distinct cultures and customs,” Jing Zhao, a partner at Kaihui Fund, told Invisible Waves.
Zhao, holding engineering and doctoral degrees in Chemical Engineering from the French National School of Chemical Engineering, has lived in Europe for 15 years. Before joining Kaihui Funds in 2019, he spent nearly a decade at Total Energies in Europe. In his view, the regional disparities within Europe offer numerous niche markets and opportunities for small and medium-sized brands, with this diversity itself presenting a business opportunity.
A prime example is PingPong, a cross-border payment platform based in Hangzhou, Zhejiang. With Europe’s 50 countries using 29 different currencies and varying payment and financial regulations, businesses inevitably face a complex payment environment, incurring additional costs and exchange rate risks. In 2017, PingPong obtained a Payment Institution license from the Luxembourg CSSF, enabling it to provide cross-border receiving and local payment services. By 2020, it had upgraded to an Electronic Money Institution, offering more functionalities, and in 2023, it acquired a UK EMI license, thus ensuring compliance in 28 European countries. PingPong has become one of Europe’s most broadly licensed cross-border payment enterprises.
Specifically, the Nordic countries (Sweden, Norway, Denmark, Finland, Iceland) and Western Europe (including the UK, France, and Germany) are at the pinnacle of European development, relying heavily on industries and services such as trade, transport, communications, and finance. Southern Europe (Italy, Spain, Greece) occupies a middle tier, with tourism and agriculture vital to their economies yet lacking growth momentum. Eastern Europe (Hungary, Poland, Czech Republic), formerly dominated by the Warsaw Pact nations, although economically weaker, has been vigorously pushing for de-agriculturalization and embracing the new energy industry.
Income levels also vary significantly across regions. The Nordic and Western European nations have a per capita GDP generally above $40,000, with Ireland—a high-tech powerhouse—reaching $103,000, hence higher living costs. Southern Europe’s GDP ranges between $20,000 and $30,000, marked by weaker economic resilience, fewer high-value industries, and substantial government debt, making mid-tier value products more appealing. In Eastern Europe, where the GDP per capita hovers between $10,000 and $20,000, the cost of living is lower, and local discount supermarkets like Lidl and Aldi often offer lower prices than those found in China’s second and third-tier cities.
The long-term focus in Europe: strong buying power, emphasis on quality and service, high consumer loyalty
“European consumers are generally perceived to have high purchasing power, focusing significantly on product experience, personalization, and customized services. Once they embrace a brand, they exhibit high loyalty,” Zhao notes.
This consumer profile underlines that European customers and businesses care about product quality, post-purchase services, and experiences. Observing the recent trend of Chinese enterprises expanding into Europe, Zhao finds that while they excel in manufacturing surplus and offering extreme cost-effectiveness, they are still nascent in areas like after-sales service, customization, and sustainable operations.
Venturing into the European market is invariably a long-term endeavor, not merely a one-off transaction of selling products. European consumers exhibit a distinctive loyalty to brands, which can be a double-edged sword. With superior products and services, a brand can flourish and increasingly add value. Conversely, should issues arise, the negative repercussions in the European market could be more pronounced than in others.
This observation aligns with the trend over the past two years, in which Chinese products exported to Europe have exhibited characteristics of high-end and customized offerings. For instance 2018, Haier acquired the Italian company Candy, and Hisense purchased the European appliance firm Gorenje. Previously, enterprises from Japan, Korea, and the West dominated Europe’s high-end home appliance market. However, with the enhancement of Chinese companies’ product and brand capabilities and increased market penetration, they have emerged as new powers in Europe’s premium appliance sector. Zhao specifically highlighted Europe’s position as the “global pinnacle of ESG,” noting, “The majority of new international trade policies related to dual carbon goals are primarily led by Europe, which fundamentally reflects the European market’s focus on long-term sustainability.”
Given Europe’s stringent regulatory environment, which is not particularly favorable for local startups and high financing costs for SMEs, proven Chinese business models in technology find opportunities to thrive. The most significant moves have come from the new energy vehicle industry chain.
The drive towards the European market continues unabated for leading Chinese corporations within the industrial sector. In July 2023, SAIC Motor announced its decision to establish a European factory. Come December, BYD heralded the construction of a new energy vehicle production base in Hungary. Leading power battery manufacturers like CATL, Honeycomb Energy, Envision AESC, and Guoxuan High-Tech had already declared the establishment of production bases in Germany, Spain, and other countries years earlier. New auto manufacturers like NIO, representing a new force in carmaking, also announced opening direct stores in Germany and the Netherlands in October 2022 to penetrate the European market. According to data cited last year by Ursula von der Leyen, President of the European Commission, in her State of the Union Address, the market share of Chinese electric vehicles in Europe has risen to 8%, with projections suggesting it could reach 15% by 2025.
High policy risk in Europe: rising tariffs, anti-subsidy probes, and tightening privacy and big data regulations, etc.
However, these moves pose a perceived threat to Europe’s traditional automotive strongholds, reflecting the influence of robust European policies. At the start of 2023, Turkey imposed a 40% tariff on Chinese-made electric vehicles, compared to a 10% tariff on those from other countries. By the end of the year, additional stipulations were proposed, such as requiring special import licenses for new energy vehicles from abroad. On September 13, during a speech at the European Parliament, von der Leyen announced that the European Commission was initiating an anti-subsidy investigation against Chinese electric vehicles. The intelligent hardware and fintech sectors also confront the EU’s stringent privacy laws (GDPR) and big data regulatory frameworks.
In response, Chinese companies are exploring strategies like reverse joint ventures and overseas manufacturing to hedge against political risks. For example, Stellantis plans to introduce Leapmotor’s electric vehicle production line at the Mirafiori plant in Turin, Italy, through a joint venture—Leapmotor International. With this production line, not only could potential tariffs be circumvented, but localized production in Europe also means that carbon credit subsidy regulations no longer pose a barrier, and a Europe-based supply chain lays the groundwork for exporting to the North American market.
Furthermore, partnering with local service providers or directly acquiring local firms to integrate resources and form local teams is becoming an increasingly popular strategy. For instance, when Alibaba Cloud established its first European data center in Germany, it partnered strategically with telecommunications giant Vodafone.
Our take
For entrepreneurs of Chinese enterprises targetting going abroad and investors seeking investment opportunities in this realm, it’s crucial to comprehend diverse markets, each with unique characteristics, applicable business models, and growth potential. The US offers a vast consumer market, ample capital, and cutting-edge technology hubs. The Middle East is less receptive to new industries, favoring established enterprises for local development. Europe, with its dispersed market, demands high-quality services and loyalty-building efforts.
The term “long-termism,” frequently emphasized by several investors in this article, encapsulates a profound level of localization, including meticulous observation of local consumer demands, respect for indigenous culture, and exploitation of niche market opportunities. It also underscores the imperative for Chinese enterprises to aspire to become influential multinational entities globally rather than confining themselves to one or two isolated markets.
According to an investor interviewee, while many Chinese entrepreneurs succeed by selling products or services in a few foreign markets, achieving global influence comparable to Coca-Cola’s ubiquitous presence remains daunting. Currently, only a handful of Chinese companies have significant global recognition. Even localizing in one or two markets is a notable achievement for startups.
From a long-term perspective, it’s evident that Chinese enterprises still have a considerable distance to traverse on their global journey. To enrich our exploration of Chinese enterprises expanding globally, don’t miss
enlightening podcast. This episode offers a deep dive into the strategies Chinese companies employ overseas, especially in the aftermath of the TikTok “ban.” If you’re keen to understand the intricacies of how these firms adjust and thrive internationally, this podcast provides an invaluable perspective.The entire original article spans seven global regions and is divided into two parts. Part I explores Chinese enterprises expanding into North America, the Middle East, and Europe. Stay tuned for Part II of our series, where we will explore the market landscapes of Latin America, Japan, Southeast Asia, and Africa.
