SOMEONE IS COMING FOR YOUR LUNCH ...

A pattern is forming. Chinese internet companies, facing slowing growth in China, are going abroad. They will face lots of challenges as they internationalise and have to face difficulties in localisation, but they have some advantages.

First of all, there is 'China Speed'. You can see it in Temu, which was launched in less than 9 months and after 2,5 years is active in close to 100 markets.

Recently, I posted about how Pinduoduo, Temu's parent company, is run like a military operation, quickly deploying staff to wherever the business 'front' is at any given time. Our latest Tech Buzz China Temu Watch #7 report (techbuzzchina.substack.…) includes an insight into the way Temu launches:

"In emerging markets such as Central and Eastern Europe, Temu has adopted a more flexible strategy. Even if the preparations are only half completed, the platform will start operations (..). This starkly contrasts with the past standard of 80% readiness."

You read that correctly, Temu NORMALLY tends to launch when it is 80% ready. They call that 差不多 (cha bu duo) in China. It has many translations, but in this context, it is like saying, 'That's good enough; let's go!' They will fix the last 20% as they go along. It's one reason why Temu rarely fully complies with local legislation when it launches in a market, fixing any issues later. And now it is even willing to launch at below 80% readiness ...

That's very different from most Western companies that wouldn't launch until everything is in place.

Another aspect is the agility of Chinese companies. As I mentioned in a recent video, they are used to working under the extreme pressure of competition in their domestic market. You can't imagine the cut-throat battles that take place in China. What's more, the government often implements legislation quickly and arbitrarily. The necessity to respond promptly to such unexpected market changes makes these companies much more agile than most Western companies.

And finally, there's funding. While private capital has shunned investments in Chinese internet companies since the government's 'tech rectification', many of these companies have built enormous cash reserves by servicing hundreds of millions of domestic users. The playbook is the same as the one used in China: they subsidise merchants and consumers with waivered commissions and extreme discounts to buy market share and push out the competition. Then, when they become a major player, they raise the prices and become profitable.

This happened with Temu, which uses Pinduoduo's reserves, TikTok Shop, which uses profits from Southeast Asia to build a market in the US and Europe, and Keeta, Meituan's cross-border food delivery company. The latter has been using the above strategy to push out competitors in Hong Kong and has become a market leader there.

Have you ever considered what could happen if Chinese competitors enter your markets? Are you ready for this bloody battle on your home turf?

-Ed