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How China Inc is dealing with the TikTok problem

aMerican Football Fans eating potato chips at Super Bowl parties last month were treated to an unexpected TV commercial. In it, a woman magically switches between chic but inexpensive clothes as she scrolls through a mobile shopping app called Temu. The accompanying song – “I feel so rich; I feel like a billionaire” – refers to the sense of wealth caused by the endless selection and low prices of Temu’s clothes. Since its launch last September, Temu has become the most downloaded app for iPhones. This is quite an achievement for a young Boston-based brand. It’s even more impressive because Temu hails from China.

This is a defining moment for Chinese companies in the West. On the other hand, Chinese brands have never been more popular in America. Behind Temu in US iPhone downloads is CapCut, a video editor, and TikTok, the short-time source. SHEIN, a fashion retailer, ranks above Spotify and Amazon. This year it may pull one of the world’s largest initial public offerings (Subscription) in New York.

At the same time, suspicions of the West about Chinese business are mounting, along with rising geopolitical tensions and mistrust between China and the West. America has banned Huawei, the Chinese telecom equipment maker, at home and crushed its efforts to capture lucrative Western markets. On March 6th, it was reported that the German government was about to ban mobile operators from using Huawei’s toolkit and replacing installed Chinese equipment. TikTok could be subject to similar harsh treatment. Several countries, led by America, are discussing a complete ban on TikTok over concerns about the Chinese government using the platform for anti-Western propaganda or gobbling up Western users’ personal data (TikTok denies these accusations).

For ambitious Chinese companies eyeing affluent Western consumers, this presents a conundrum: How do you do business in places where they are increasingly unwelcome? Companies like Shein, Temu, and the beleaguered TikTok offer answers that have a lot in common. Their success will determine the fate of Chinese trade in the West.

China Inc. began to make its mark in the global markets in the 1980s as foreign companies invested in Chinese factories who then shipped cheap goods to the West. Consumers will purchase these products almost exclusively through retailers such as Walmart or from Western brands that source products from Chinese factories. Then, in the mid-2000s, Chinese companies began to build a presence in overseas markets. Until Uncle Sam cut his wings, Huawei had been selling its range of networking and mobile phones all over the West. Other Chinese champions, such as home appliance maker Haier, have also bought and sponsored Western brands (GEWhite goods department, in the case of Haier). Between 2011 and 2021, Chinese companies acquired nearly $90 billion in foreign retail and consumer brands, according to Refinitiv, a data firm. Many of the targets were Western.

But in recent years, deal-making has slowed. In 2022, Chinese companies will only spend $400 million on foreign brands. Authorities in Beijing have become more wary of capital flight even as Western governments have become increasingly hostile to, and often block, such transactions. Chinese brands seeking to build a Western presence have not had much fun. Lenovo, a Chinese company that acquired it in 2004 ibmPixab’s PC division acquired a modest 15% of the PC division in America Computer The market, is far behind HP and Dell, which together control more than half of it. Xiaomi, which overtook Apple in 2021 to become the second largest smartphone maker in the world, was unable to break through to America.

The recent wave of global Chinese brands have taken a different approach. Many initially looked to the domestic market, before the COVID-19 pandemic and China’s harsh response to it forced them to look abroad for growth, says Jim Fields, a marketer who works with Chinese brands in America. Companies like Shein, Temu, and TikTok may grab headlines, but hundreds of Chinese companies have achieved similar successes in America, Europe, and Japan — using similar strategies.

The first of which is not to brag about China. The Economist He reviewed the sites of dozens of companies and found that most of them could easily pass for a Western brand. Their names sound in English: BettyCora produces press nails; Snapmakers makes 3Dr printers. Almost no one recognizes their country of origin. A young entrepreneur who is currently planning to launch his own brand in America says there has been a long-standing prejudice against Made-in-China goods in developed markets. This perception is associated with the first wave of cheap factory products in the 1980s. The rise of hate crimes against people of Asian descent in America in recent years has discouraged companies from coming across as Chinese. The entrepreneur says that most people hoping to start such a business would avoid referring to China if possible.

The second common feature is the use of smart technology to beat Western competitors in service and price. Many Chinese companies use their own websites and mobile apps to sell directly to customers rather than relying on American retailers. This exempts them from losing margin to retail traders. It also gives them access to data on consumer trends, allowing them to respond quickly to shifts in demand — or even, using sophisticated analytics, to predict these changes and boost supply before consumers place their order.

This “make-to-order” has allowed Shein to triple its US revenue between 2020 and 2022, to more than $20 billion. Its application attracts 30 million monthly users in America. Hundreds of Chinese companies are now experimenting with this model in the US market. Halara, a new womenswear retailer, receives around 1.5 million digital visitors per month for its app. Newchic, the competitor, is drawing 1.7 million. The ability of Chinese companies to understand their customers through data analytics is a huge advantage in developed markets, says Shen Cheng of the consulting firm Bain & Company.

Companies’ smart use of technology and supply chains allows them to limit their non-Chinese assets – their third joint strategy. Being short on assets attracts investors, notes Zhou Bing, of 36 crowns, a Chinese research firm. They help cut costs while reducing the risk of asset stranding if Western politicians increase pressure.

For many Chinese brands, their only Western assets are customer-facing websites and apps. Although it recently opened a distribution center in Indiana, Shein ships most of its merchandise directly from China to customers in America, bypassing warehouses. Despite its Boston base, Temu reportedly has no plans to use warehouses in America, let alone factories. Naturehike, a manufacturer of camping goods, expanded rapidly across the West and Japan without employing a single person outside of China. Instead, Wang Fangfang, a spokeswoman for the company, says it is ramping up its on-demand manufacturing capacity so it can better understand its customers from afar. in feb CATL It agreed to provide Ford with batteries for its electric cars by licensing its patents to the US automaker instead of building its own factory in America.

The most dramatic way in which some Chinese companies are trying to protect themselves from Western backlash, as well as Communist Party interference in their Western businesses, is to distance their governance structures from China. The first big name to follow this strategy was ByteDance, the parent company of TikTok. From the start, it has kept TikTok’s popular Chinese sister app, Douyin, completely separate from the version used in the rest of the world (which in turn cannot be used in China). TikTok then moved its headquarters to Singapore and tried to distance itself from the decision-making process at ByteDance’s headquarters in Beijing. Now it reportedly wants to create a US subsidiary charged with protecting the app, which will report to an outside board of directors rather than ByteDance. ByteDance itself confirms that it is based in the Cayman Islands, not China.

Since none of this fully satisfied Western regulators, other Chinese companies still went further. Last year, Chen also deported to Singapore, from Guangzhou. The city-state is now its legal and operational home. Add in its New York planned menu and its CEOs getting rough when you call their Chinese company. It looks like more companies will adopt a version of this model.

It is difficult to measure the success of these strategies. Export figures from China do not differentiate between Chinese brands and goods produced by Western companies. Many packages are sent via courier and are not counted as exports. But it is clear that in at least some niche areas, Chinese brands are taking a significant market share in the West. Anker, an electronics company, has become one of the largest providers of phone chargers and power banks in America. In 2021, half of its $1.8 billion in global revenue came from North America. Less than 4% came from China. Several Chinese makers of robotic vacuum cleaners and other smart appliances are now cited as global top sellers along with American and German companies. One such company, Roborock, had sales of $500 million in 2021, which is 58% of its total revenue, up from 14% just two years ago. Its main market is America. Several Chinese companies, such as EcoFlow, are poised to dominate the home power bank market in America.

Investors are optimistic. Shane Subscription It can be great. Late last year, Hidden Hill Capital, a Singaporean fund, raised nearly $500 million in partnership with TPG, an American private equity giant, to invest in companies that support the supply chains of future global brands. However, some of the entrepreneurs behind these success stories worry about their business prospects. One concern is getting over the “Made in China” label, which historically didn’t scream quality. This fear is exacerbated by fake or poorly made products, which can damage the reputation of Chinese companies that have invested in research and development. Two years ago, Amazon banned 600 Chinese brands over concerns that they were putting out fake reviews of their own merchandise.

It is the deteriorating Sino-US relations that keep Chinese leaders up for their most awake nights. For many of them, TikTok is the leader. The company said in January it would set up a data center in America to store US users’ data and give US authorities access to its algorithms; on March 6th Wall Street Journal It stated that it was seeking a similar arrangement in Europe. Despite these assurances, a US House of Representatives committee has been developing legislation that would allow President Joe Biden to block the app.

If Beijing and Washington continue to diverge, which seems likely, US politicians could target other Chinese apps, especially those that collect data about shopping habits — that is, most consumer-facing apps. This would turn their technological strength into geopolitical weakness. Countering this threat requires a whole other level of commercial ingenuity.


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