For China's Internet Companies, the Global Market Remains a Blue Ocean of Opportunity

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

China's internet companies have polished their skills in the fierce domestic competition to serve users with low-cost and high-quality hardware and software. Thanks to the efforts of countless product managers and technicians, China's internet is now going strong overseas. 

So-called “Going Global” internet companies—e.g. TikTok, SHEIN, Newborn Town Inc. (HK09911), and Anker Innovations (SZ300866)—typify this new cohort of international-facing firms, who build their businesses on a foundation of global markets, cultures and products. 

Chinese internet companies are especially adept in social networking, games, cross-border e-commerce and smart hardware. 

TikTok is one of the biggest examples of this trend. Despite regulatory headwinds in 2020, it witnessed a substantial improvement in key metrics such as user growth and revenue that year. As of January 2021, TikTok had 689 million MAUs worldwide outside China. In just three years, it accumulated the MAUs which took Instagram six years. By 2021, TikTok became the most downloaded app in the world, even surpassing Facebook. 

Newborn Town Inc., which leads in the social networking vertical with its portfolio of apps, saw a sharp 203.2% increase in revenue in 2020, which continued to soar in the first half of 2021. Its revenue reached RMB 1.04 billion ($160.7 million) for the 6 months ending June 30, with an increase of nearly 6 folds YoY, of which the revenue of value-added services reached RMB 0.82 billion ($126.7 million) and increased over 50 times YoY. 

SHEIN, a new star in the world of fast fashion, achieved $10 billion in revenue in 2020, an enormous breakthrough compared to its 2019 figure of $2.8 billion. During the COVID-19 pandemic, SHEIN’s performance was so strong that it was forced to suspend taking new orders for a time. As a global fast fashion e-commerce company, SHEIN is a perfect example of how China's internet companies can operate and attract users across the world. 

According to the data from Forward Industry Research Institute, as of May 31, 2020, the number of global internet users reached 4.648 billion, accounting for 59.6% of the world's population.

This means 40% of the world's population still has no access to the internet—or nearly 3 billion people, mostly in Asia, Africa and Latin America. As adoption grows in these regions, a perfect opportunity is presented to Chinese internet companies which their competitors are not as well-suited to capitalize on. 

On the one hand, traditional internet giants like Facebook and Google rely heavily on internet advertising as a source of profit, which often makes their user experience suffer compared to Chinese apps, which have a more diverse business model, including value-added services, for example.  

On the other hand, China as the biggest emerging market, Chinese companies have a distinct advantage in understanding these emerging markets and their new mobile users. 

It is not surprising that new, China-based apps are rising quickly around the world. Besides well-known cases like TikTok and SHEIN, other Going Global include MICO, an open social networking app from Newborn Town, which has become one of the mainstream social networking apps in Europe, the Middle East, Southeast Asia and South Asia, ranking in the top 10 best-selling social apps in nearly 100 countries.

Kunlun Tech Co., Ltd. (SZ300418), another Chinese Going Global listed company in the field of social networking, has been capturing market share by continuously acquiring social networking products that perform well globally. StarGroup, whose flagship app StarMaker is the largest online Karaoke social networking app in Southeast Asia by the number of users, was acquired earlier this year.

Chinese Going Global companies use lean management to attract users and integrate cultural elements into products. For example, SHEIN drew on their knowledge of KOL marketing—a core part of digital marketing in China for years—to capture the early dividends of KOL marketing in the European and American markets. 

By investing heavily in localization—Newborn Town, for example, has over 10 operation centers in different countries and regions—Chinese companies gain an edge by understanding cultural trends and working with local governments, businesses and institutions.

While some argue that the growth of Chinese companies in the global market is due mainly to huge investment and relatively cheaper costs of human resources, this is hardly the full picture when it comes to Going Global internet firms. Their adherence to lean management principles, versatile business models and advantage in localization has allowed them to become strong competitors to traditional internet giants. 

As mobile phone usage grows in emerging markets, they are especially well-positioned to see an even larger advantage to come. 

Photo by Olivier Bergeron on Unsplash, Photo by Tamara Bellis on Unsplash

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.