A Globalization Guide for Chinese Founders: Slicing the World Horizontally

By Ren Qian and Xu Muxin

Edited by Chen Zhiyan and Liu Jing

If there ever comes a day when Chinese entrepreneurs set their sights on the world as their ultimate market from day one; when venture capitalists no longer treat "going global" as an industry category; and when people no longer raise an eyebrow at multinational enterprises with Chinese DNA — then the starting point of this cognitive shift would be 2023, the year just passed.

TEMU, a name drawn from "Team Up, Price Down," has been the force stirring this wave of globalization. This cross-border e-commerce platform incubated by Pinduoduo launched in the United States in September 2022, and in less than 18 months, it established operations across 47 countries and regions and amassed 200 million users. Overseas e-commerce industry analysts have called it "the fastest-expanding e-commerce platform in history."

Throughout 2023, China's "Four Little Dragons" of cross-border e-commerce — TEMU, SHEIN, AliExpress, and TikTok — raced against one another, pushing rapidly into global markets with North America as their beachhead. Data shows that the four companies collectively ship over 10,000 tons of goods overseas daily, equivalent to the cargo capacity of 108 Boeing freighters.

On another front, Chinese automobiles made their global entrance. In July 2023, China's semi-annual vehicle exports surpassed Japan's for the first time, vaulting the country to the top spot worldwide. Established and emerging Chinese automakers moved on multiple fronts across Southeast Asia, the Middle East, Australia, and Europe. In electric vehicles especially, China has become an undisputed emerging force. In Europe, one in every ten new energy vehicles comes from China; Zeekr and Xpeng both entered Israel to establish operations; over 86% of pure electric vehicles sold in Australia are from China; and BYD's Atto 3 is the best-selling electric vehicle in Malaysia.

Meanwhile, numerous large Chinese industrial enterprises and niche manufacturing champions have also begun making their mark in global markets.

Then there is the entertainment and consumption woven into daily life. TikTok, which has taken the world by storm; Yalla, which dominates the Middle East; and Mixue Ice Cream & Tea, Heytea, and Haidilao — all represent the living force of Chinese enterprises going global.

The changes driving this wave of globalization stem mainly from three factors: (1) domestic supply chains have matured after years of development; (2) more than two decades of internet development have trained Chinese entrepreneurial teams in handling complex situations and organizational management; and (3) the expansion of higher education and the evolution of China's business environment have produced a critical mass of talent with fundamental competencies, business acumen, and technical skills.

Looking back at the history of Chinese enterprises "going out," one can trace an evolution from "goods" to "people," from online to offline —

Starting in the 1990s, beginning with home appliances and other industries, China saw its first wave of product exports. The core model involved Chinese companies finding local agents overseas to sell their goods, with the fundamental goal of increasing revenue through foreign sales.

After the internet took off in 2000, two parallel developments emerged. On one side, domestic teams began taking internet tools and games overseas in search of differentiated markets. On the other, cross-border e-commerce sellers used overseas platforms like eBay, Wish, and Amazon, as well as independent websites, to sell Chinese-made goods across borders. Neither of these two primary business models involved direct contact with overseas consumers; instead, they served local markets remotely through online advertising, customer service, and local partners.

After 2010, as more Chinese employees were posted overseas by their companies, some of them — having lived and worked abroad for a period — discovered business opportunities, particularly by drawing on the rapid development experience of various Chinese industries, and began starting businesses across sectors. Initially, these concentrated heavily in internet-related industries (e-commerce, fintech, entertainment, etc.), before expanding into more consumer-facing sectors.

Around 2015, standout performers from the first three waves, having achieved initial success, began setting their sights on broader global markets with ambitions to become influential enterprises worldwide. At the same time, more founders came to recognize that globalization meant not just products and services, but also proactive efforts in international talent recruitment, cross-border management mechanisms, and optimal resource allocation on a global scale.

While these four stages of Chinese enterprise globalization unfolded sequentially, they will continue to coexist for a considerable time to come.

Over the past year, among venture capital practitioners, the globalization of Chinese enterprises has been described as one of the biggest opportunities to emerge in recent years. Yet when Chinese entrepreneurs and investors actually try to seize this opportunity, they find it presents a complexity that defies simple summary. Through interviews with investors focused on different markets, Anyong Waves has distilled several trends by region:

(1) In North America, Chinese enterprises are showing entirely new faces of next-generation Chinese DNA multinationals in two core directions: cross-border e-commerce and AI + hardware;

(2) In Japan's consumer sector and Latin America's fintech and consumer retail, the "copy from China" logic largely continues;

(3) In Europe, the main appeal still lies in the new energy vehicle supply chain and the extreme cost-performance ratio of Chinese products and brands in consumer sectors;

(4) In the Middle East, local proactive outreach to bring in external enterprises for localization is the most pronounced.

The "time machine model" still works in many regions. But going global itself is an intricate, interlocking journey: due to differences among countries and regions worldwide, this broad direction actually contains entirely distinct multithreaded narratives. How enterprises respond to these entanglements with local history and social context will determine the future of Chinese enterprises as they reach into different corners of the globe.

In early 2024, Anyong Waves interviewed more than ten investors on the front lines of globalization investment. Most have cultivated a single market for many years, or were the first to "eat the crab" in emerging markets, or possess ample investment experience in Chinese enterprises going out in a particular niche. Through our conversations with them, we have summarized the past and present market characteristics, regulatory environments, and visible investment opportunities and challenges across global regions, attempting to form a "Guide to Investing in Chinese Enterprise Globalization."

It must be emphasized that in this round of globalization, financial investors, or primary market institutions, may not be the most critical participants. More of the players are established large companies, along with a considerable number of startups that have envisioned globalization from day one. Thus the investors appearing in this text are presented more as observers of their local markets, beyond their investment roles proper.

Going forward, Anyong Waves will continue publishing frontline observations from practitioners in global markets. Stay tuned.

North America

> Still the Clear Number One

North America has consistently been the top choice for Chinese VC investment in overseas enterprises. According to IT Juzi data, over the past seven years Chinese investment has reached more than 50 countries, and while investment volumes have fluctuated, North America's "first place" position has never changed.

This reflects inherent advantages of the North American market itself. For the full year of 2023, US GDP growth reached 2.5%, improving year-over-year. In the fourth quarter report card, personal consumption expenditures — accounting for roughly 70% of the US economy — grew 2.8%. In short, consumer resilience shattered expectations of a US recession, and America remains the world's largest consumer market.

But beyond this, perhaps the most fundamental point is this: venture capital returns require projects with high payoff ratios, and high payoffs demand sufficiently large markets, sufficiently strong founders, sufficiently dense capital, and so on. Surveying more than 50 countries globally, one ultimately finds that only China and the US are suitable markets for large-scale venture capital.

The first round of competition among China's "Four Little Dragons" of cross-border e-commerce unfolded in North America.

In February 2023, Temu spent $14 million to appear on the "American Super Bowl," America's biggest sporting event, capturing the hearts of 100 million American viewers with the line "Shop like a Billionaire." By the third quarter of that year, Temu's GMV had surpassed $5 billion. Thus this dark horse from Pinduoduo burst onto the scene — over the past year, Temu's global downloads exceeded 320 million.

SHEIN was the fastest-growing e-commerce platform in North America in 2022. TikTok leveraged its formidable one billion monthly active users to launch TikTok Shop. AliExpress's AliExpress raced to catch up. One concrete figure illustrates the scale of the four dragons: according to the latest data from cargo consultancy Cargo Facts, Temu ships 4,000 tons daily, SHEIN 5,000 tons, AliExpress 1,000 tons, and TikTok 800 tons.

Yet behind the blossoms lies a fierce, oil-sizzling intensity.

The difficulty is that while the US market is undeniably vast, the share available to Chinese e-commerce is smaller than imagined. According to Morgan Stanley statistics, even a powerhouse like Temu accounts for less than 1% of annual GMV market share. Amazon holds 40%.

The intensity also falls on startup practitioners. For early-stage entrepreneurs, the emergence of phenomenal platforms may not be good news. Zhang Genghua of Source Code Capital told Anyong Waves that this is because the "fully managed" model — where platforms only require sellers to provide products — now appears to be the prevailing trend. While simple and convenient, it also replaces the entrepreneur's role: platforms can connect directly with factories without any "middlemen taking their cut."

The new battlefield of cross-border globalization is gradually becoming dominated by tech giants, causing domestic investors to lose many "gold mining" opportunities. As a firm that "only invests in cross-border globalization," James Liang, founder of Skyline Ventures, told Anyong Waves that he has observed a "gap" in cross-border e-commerce entrepreneurs in North America: "Now you can see trillion-dollar businesses like Pinduoduo, and low-profile small businesses native to the US, but there are very few companies in the middle range of several billion to ten billion dollars — North America urgently needs entrepreneurs." And it is this middle tier of several billion-dollar companies that represents the opportunity for VC.

For VC, North America holds another opportunity: AI hardware.

For Liang, what he is most focused on right now is the opportunity for Chinese AI hardware amid the AI trend, rather than the industry application opportunities that the market generally believes in. His judgment rests on confidence in the advantages of China's manufacturing supply chain.

In early 2024, CES — the "tech world's Super Bowl" — took place in Las Vegas, and virtually every VC looking at overseas markets was on the scene. In the AI + hardware space, Unitree Technology, which had just completed a one billion yuan funding round, sold four units of its humanoid robot on the spot as exhibition products — bear in mind that Unitree's H1 product is priced around $90,000. Additionally, Rabbit, a new company founded by Chinese entrepreneur Lyu Cheng of Raven Tech, released its handheld AI device, the Rabbit R1, priced at $199, and sold 10,000 units on the first day of its first pre-sale round.

This offers a glimpse of a new trend in Chinese consumer electronics: moving toward premiumization. Compared to two years ago, when Chinese manufacturers were mostly tagged as "extremely cost-effective," this year's products are not cheap. Behind this lies the entry of Southeast Asia, with its national push for manufacturing development, which has squeezed China's profit margins in the low-price market. But at the same time, another cohort of manufacturers has seen the possibility of injecting AI into hardware — a new opening for entering North America's premium market.

As for investors, where lie the pain points and opportunities in future North American markets?

The Rabbit R1 is a counterexample. Despite its astonishing sales, it faced considerable consumer-side skepticism. This illustrates an investment logic represented by Liang: invest upstream in the supply chain, not downstream applications with too much uncertainty. This is also where overseas investment in North America diverges from local institutional investment styles. Zhang Genghua points out: comparing investment tendencies at home and abroad, while China is pouring massive investment into hard tech, overseas institutions — especially those in North America — are increasingly "moving from solid to virtual," preferring soft tech-related startups such as AI software. They too have recognized that they hold no obvious advantage over China in hardware mass production and supply chain infrastructure.

Latin America

> The Wolves Have Really Arrived

For the Chinese venture capital community going global, Latin America was once a more distant corner than Africa — a nearly forgotten lost world. The magical realist tableau of Latin America depicted in One Hundred Years of Solitude evokes a melancholy fascination, while economists have repeatedly invoked the "middle-income trap" to warn nations on the margins of modernization.

Unlike the geographic "South America," Latin America is a cultural region encompassing parts of the Americas influenced by Spain and Portugal, where Spanish dominates. By population, scale, and per capita GDP, the top four markets are Brazil, Mexico, Colombia, and Argentina. Mexico, one of Latin America's largest economies, saw three decades of rapid growth (1950–1981) come to an abrupt halt due to a debt crisis, personally ending the region's second "golden age" of economic growth (the first being 1870–1930). Despite signing the North American Free Trade Agreement in 1994, it struggled for a long time to escape its predicament.

Mexico missed its moment once, but dramatic change is underway now: this country of roughly 130 million people has seen manufacturing surge and internet e-commerce and fintech flourish in recent years, not only becoming the focal point of Latin American venture capital but also being regarded as "the world's fastest-growing emerging market." One telling figure: according to Mexico's Ministry of Economy, foreign direct investment in 2023 reached a record $36.058 billion, up 27% from the previous year, with 50% concentrated in manufacturing.

Mexico's manufacturing rise stems from shifts in the international landscape and policy opportunities. On one hand, COVID-driven increases in cross-border freight costs forced companies worldwide to consider shortening supply chains. On the other, the U.S. and other countries have gradually moved away from "offshore outsourcing" toward "nearshoring" and "friendshoring" — where companies from more advanced economies outsource to neighboring countries with geographic, cultural, and linguistic proximity.

Mexico, adjacent to the U.S., has naturally become America's manufacturing hub for supply chain restructuring, especially for its largest export: automobiles.

The 1994 North American Free Trade Agreement was undeniably a milestone for Mexico's auto industry. In July 2020, the U.S., Mexico, and Canada signed a new free trade agreement, the USMCA, which stipulates that cars or trucks with at least 75% of their components produced in the U.S., Mexico, or Canada can be sold tariff-free — up 12.5 percentage points from the 62.5% required under the 1994 NAFTA. This means the old practice of minimal assembly in Mexico followed by zero-tariff sales to the U.S. no longer applies. Chinese automakers and parts suppliers have had to consider building factories in Mexico as a backdoor into the U.S. market. To date, more than 10 Chinese automakers have announced plans for Mexico. But the biggest variable is Tesla. In March 2023, Musk said Tesla would build its first Latin American factory in Mexico, which would become Tesla's largest production base. This sent ripples through the industry, with numerous domestic parts suppliers accelerating their Mexico factory plans to bet on Tesla.

Manufacturing's takeoff is creating incremental growth for Mexico while also opening opportunities in the new economy. "Manufacturing growth will bring a wave of new middle class, and the new middle class will spawn demand for a new economy — the same mobile internet application opportunities that happened in China," said Penglan Zhao, partner at BAI Capital, who has been deeply cultivating the local market since making his first investment in Mexico in 2019.

"Mexico is at a stage similar to China around 2014 or 2015," Zhao told us. Meanwhile, BAI Capital recently brought on two venture partners focused on discovering and empowering opportunities in the Mexican market. One of them said of Mexico: "Demand for new software and mobile services has been pent up for a long time, innovation opportunities in key industries have matured, and FDI investment continues to increase."

If we follow China's developmental trajectory, Mexico will most likely experience a progression from simple to complex: starting with e-commerce, consumer retail, and "infrastructure" for the new economy (especially fintech and logistics), then moving to SaaS digitalization, and finally transitioning to hard tech industries requiring strong technical capabilities. The logic is easy to grasp — just look at the profile of Latin America's first batch of listed companies, mostly consumer retail and fintech firms like Mercado Libre and dLocal.

In fact, Latin America has seen two previous venture capital mini-peaks.

The first was in 2014, when Sequoia Capital's inaugural Latin American investment went to Nubank, a Brazilian mobile virtual credit card company that had just been founded. With its simple application process, extremely low annual interest rates, and no annual fees, Nubank quickly became Brazil's premier internet finance company. Around the same time, Latin American e-commerce platform Linio (similar to Lazada, which was later acquired by Alibaba in Southeast Asia) raised substantial funding; food delivery app HelloFood acquired competitors YaY, SeMeAntoja, and Superantojo; and ride-hailing app EasyTaxi, born in Brazil, began global expansion. Yet within a year, this mini-peak came to an abrupt end.

The second venture peak began with the rise of on-demand errand service Rappi. Rappi was a16z's first Latin American investment. It joined Y Combinator in 2016 to raise funding, and its Pre-A round investors were already Andreessen Horowitz, Sequoia Capital, and DST Global. In September 2018, Rappi raised a new $200 million round at a valuation exceeding $1 billion, becoming Latin America's second unicorn.

Chinese tech giants also participated in this Latin American investment wave: in January 2018, Didi Chuxing acquired Brazilian ride-sharing company 99 at a $1 billion valuation — Didi's first overseas acquisition, opening direct battle with Uber in São Paulo, Uber's largest global market. 2017 was a year of notable growth for Latin American venture capital, setting a historical record of $1.1 billion.

Now, Latin America is welcoming a third peak. The catalysts are Shein and Temu. Zhao told An Yong Waves that before Shein and Temu entered, Mexico's e-commerce market developed slowly, with only Amazon and Mercado Libre covering the top-tier customers. This was due to two factors: logistics hadn't expanded, and mobile payments weren't mature enough — over 80% of transactions remained cash-based. Starting in 2021, Shein and Temu became two catfish, rapidly lifting e-commerce penetration and accelerating infrastructure development. "TikTok is about to enter too. These three plus AliExpress will definitely whip the Latin American e-commerce market into shape, creating many new economy opportunities that we're quite familiar with."

Data from RockFlow Research Institute illustrates the point: from 2019 to 2022, Latin America saw 21 large funding rounds (exceeding $200 million), with 10 in e-commerce, 10 in fintech, and 1 in software. The most frequent investors were SoftBank with 7 deals, Tiger Global with 3, and Tencent with 2.

But clearly, such seemingly abundant opportunities won't be captured by most. As we understand it, very few Chinese funds have systematically explored Latin American primary markets. According to Zhao's observations, Mexico has a thin VC ecosystem — fewer than 20 local VC firms, with no more than 10 managing over $100 million in capital, and they can only invest up to Series A. Meanwhile, U.S. mega funds prefer later stages like Series C, leaving "a huge vacuum for $15–20 million Series B rounds."

However, a16z is making its mark in Latin America. After betting on Rappi in 2017, it is now preparing to enter Latin American early-stage investing, particularly in fintech and health tech.

The layout of domestic internet giants in Latin America also merits attention. Since 2018, major M&A deals in Latin America have ranged from $118 million to $650 million, with key acquirers including Okta, Uber, Didi, StoneCo, and Etsy. Tencent's first bet in Brazil was Nubank, followed by a joint $350 million investment with SoftBank in Argentine mobile banking app Ualá in 2021, and a joint investment with SoftBank in Brazilian freight management platform Frete.com. Ant Financial also invested $100 million in Brazilian fintech StoneCo in 2018.

In recent years, Huawei, Xiaomi, Didi, Miniso and other B2C companies have made waves in the Latin American market, where there are also prototypes of Dingdong Maicai, Meicai, and Xingsheng Youxuan. Validated experience shows these businesses have far smaller absolute scale in Latin America than in China, but gross margins are significantly higher. Yet due to the natural physical distance, very few Chinese founders are willing to relocate there long-term. Local founders are decent, but still lacking in execution, operations, and product design.

For China-perspective dollar investors, purely localized projects are clearly not the best entry point. Zhao told us, "We need to find natural connections and parallels with China from the angle of Chinese founders and China models, then help our portfolio companies with localization." BAI Capital invested in Stori in 2019 and Trubit in 2021 — both fintech companies that achieved explosive growth. Stori became Mexico's newest unicorn in 2022, while Trubit's business volume grew nearly 50x in just two years.

Mexico won't become an ideal investment destination for everyone. A major pain point of going to Mexico is local security concerns, followed by political and trade policy instability.

But regardless, there are always lone brave souls.

The Middle East

> Don't Just Look at "Going Out" — Pay Attention to "Bringing In" Too

Over the past year, the hottest region by far has been the Middle East. Gulf countries led by the UAE and Saudi Arabia are rapidly becoming the "eye of the storm" — especially Saudi Arabia. In 2023, hundreds of investment institutions visited Saudi Arabia, with Chinese investors and startups organizing nonstop delegations to the Middle East, at one point jokingly dubbed the new "Hundred Regiments Offensive." Regrettably, aside from a handful of companies aligned with local development plans that secured investment, most people — particularly investment institutions — barely raised any money at all.

We noted in our article The Trek to Riyadh that compared to the sovereign wealth funds of the UAE, Kuwait, and Qatar, Saudi Arabia's Public Investment Fund (PIF) is the most difficult to raise capital from. For China's industrial sector, funding from countries like the UAE and Qatar has long been "Old Money." Years ago, several major sovereign funds began entering China and established their own offices. But Saudi Arabia's massive capital only opened to the outside world seven years ago. And due to the country's unique history, state capital with a strategic mission is destined to serve the nation's future development plans.

A Saudi-based investor said that whether government capital or private institutions, their focus leans toward localized investment. Even when investing globally, they hope to attract advanced overseas technology, high-end talent, and even entertainment IP to Saudi Arabia. "Compared to the UAE, most of Saudi Arabia's investment is aimed at national and ethnic revitalization."

A domestic dual-currency fund investor abandoned the Middle East after intensive exploration, believing that "the Middle East is more of a capital-side market, not an asset-side market. The Middle East needs massive foreign investment to replace traditional tourism, entertainment, infrastructure, and so on — it's not endogenous growth."

On the other hand, compared to attracting foreign investment into the Middle East, Middle Eastern capital led by the UAE and Saudi Arabia is more active in outbound investment, particularly in China. According to IT Juzi, in 2023, Middle Eastern capital invested in Chinese companies in more than 10 deals, with transaction value exceeding 20 billion yuan, many of which were mega-investments. Unlike countries such as Singapore that tend to invest in early-stage startups, Middle Eastern capital prefers growth-stage and mature companies. As a result, although Middle Eastern capital lags behind Singapore, Japan, and others in deal count, its odds of hitting unicorns are far higher.

In December 2023, Abu Dhabi investment firm CYVN announced a 15.7 billion yuan investment in NIO, directly pushing this wave of "Middle Eastern tycoon fever" to its peak. In fact, Middle Eastern capital was also active in the primary market last year — for example, in Drip Capital, cross-border e-commerce giant SHEIN, JD Industrial, and mobile esports operator VSPN (which received $265 million in exclusive investment from Savvy Games Group, a subsidiary of Saudi Arabia's sovereign wealth fund, setting a record for the largest single investment in China's sports industry in the past two years).

When Middle Eastern sovereign wealth funds negotiate investment cooperation with Chinese local governments, they focus on local advantage industries, with one consideration being what benefits investing in that industry can bring to their own country. Currently, Middle Eastern capital's China deployments include, on one hand, resource sectors dominated by petrochemical and new energy projects, and on the other, industries such as biopharmaceuticals, internet, and high-end equipment.

In 2024, the first Middle Eastern investment in China went to biopharmaceuticals: Full-Life Technologies announced a $63.3 million funding round, led by Prosperity7 Ventures, a fund under Saudi Aramco's venture capital arm Aramco Ventures. Notably, the last Middle Eastern fund investment in China at the end of 2023 was also executed by Prosperity7 Ventures: leading JH Biosciences' Series B round exceeding 100 million yuan.

According to public information, Saudi Aramco alone invested more than $30 billion in China across all projects in 2023. Based on incomplete statistics, at least seven Middle Eastern investment institutions have invested in Chinese biopharmaceutical companies. Additionally, the spectacle of Middle Eastern consortiums aggressively buying into Chinese new energy vehicles left a deep impression on the market. NIO alone raised more than 20 billion yuan from the Middle East last year.

An investor based in the Middle East told An Yong Waves that the Middle East is better suited for proven, mature products and services. Domestic B2B and government-facing products are relatively suitable for Middle East development, while B2C opportunities are mainly concentrated in consumer goods and entertainment products like games. Compared to equally high-ARPU Western markets, the Middle East doesn't have significant discrimination or barriers against Chinese products. Moreover, business model expansion to the Middle East requires relatively strong localization DNA — pure "air force" expansion struggles to land.

In 2023, Ming Shi Capital founding partner Ming Shi Huang led the firm's team and more than ten portfolio companies on two trips to the Middle East, visiting local officials, investment institutions, and Chinese tech companies like Huawei that have been deeply rooted in the region for years. At the time, he deeply felt that a massive transformation was underway in the Middle East. "The Middle East occupies a very important position in the changing格局 of the future world. It has the opportunity to become an important pole in a global tripolar structure, and it's also a critical foothold and starting point for Chinese tech companies aspiring to go global," Huang said.

In fact, if globalization simply means "selling products or services to one or two foreign markets," then most Chinese entrepreneurs going abroad have already achieved this. But if it means truly achieving worldwide influence like Coca-Cola, Chinese companies still have a long way to go. Currently, Chinese enterprises with global recognition and deep deployment across all markets remain few and far between, and it's already quite good for startups to achieve localization in 1-2 markets.

The biggest challenge for Chinese companies going global remains talent and global management. An investor based in the Middle East candidly stated that compared to the relatively abundant talent pool for expanding to Europe and America, talent in other emerging markets is still being cultivated and trained — cross-border recruitment and management is far more complex and difficult than operating in China's single market. A company's success in one market doesn't necessarily replicate in another; methodologies are hard to copy at scale.

And for the Middle East market specifically, Huang believes that only founders can make truly long-term decisions and long-term commitments. So founders must make up their minds to go abroad, and currently the best destination for going abroad is the Middle East.

Japan

Emerging from the "Lost Three Decades," Virtual Consumption Leads the Way

Japan's stock market is on fire. After the start of 2024, it even shattered a 34-year-old record, breaking through the 40,000 mark. An investor told Waves that valuations for Japanese projects are starting to climb. This wave of changes has prompted renewed scrutiny of this neighbor across the sea: after emerging from its "lost" period, what challenges and opportunities might the world's third-largest economy hold?

"A Japan that grew up amid disaster has once again taken the lead into the Fourth Consumer Era," wrote Japanese author Miura Atsushi, known for Downward Mobility Society, in his new book The Fourth Consumer Era. The Fourth Consumer Era refers to a period after consumer society has fully developed, when people begin to pursue simplicity and value human relationships.

The first wave of Chinese brands entering Japan was led by commercial and consumer giants like Haier, Hisense, and Lenovo. In recent years, Chinese catering represented by Haidilao, tea brands represented by Mixue Ice Cream & Tea and Nayuki, and domestic cosmetics brands represented by Florasis and Flower Knows have also deeply penetrated the Japanese market.

Going abroad to Japan is riding the east wind. On one hand, considering the yen's currency advantages globally, the weight of Japan's rent and labor costs is diminishing. Moreover, thanks to the efforts of numerous brands before, "made in China" is no longer synonymous with shoddy workmanship.

In the observation of BAI Capital partner Penglan Zhao, Japan's investment opportunities lie mainly in two major tracks: first, the new energy industry guided by national will, and second, the new economic opportunities brought by mass entrepreneurship as long-rigid commercial structures begin to loosen.

The surge in new energy mainly appeared after Japanese government subsidy policies. As early as 2009, Japan issued purchase subsidies for new energy vehicles, and from 2020 to 2022, the intensity doubled repeatedly. The Japanese car market has long been known as one of the hardest to enter — Toyota's monopoly position makes foreign automakers wary. But in electric vehicles, penetration has remained in single digits. The consistently unenthusiastic attitude of Japan's leading automakers is one reason, but this has also given Chinese automakers like BYD an opportunity. In 2023, China's auto exports surpassed Japan's for the first time, making it the world's largest auto exporter — and Japan could be the next stop.

As the world's fourth-largest e-commerce market, Japan's average annual per capita online spending is $1,164 — equivalent to twice China's per capita consumption and exceeding that of the United States. With purchasing power behind it, Japan's e-commerce potential is enormous. In recent years, Japan's e-commerce rate has increased year by year. Over the three years from 2021 to 2023, Japan's average e-commerce growth rate was 12.4%. According to predictions by Japan's Fuji Keizai research institute, Japan's B2C e-commerce market will grow by approximately 4.5% in 2023, presenting vast growth prospects for domestic brands.

The first domestic cosmetics brand to make noise.

Most domestic cosmetics brands' first stop for going abroad was Southeast Asia. Around 2020, emerging domestic beauty brands like Perfect Diary, Colorkey, and Y.O.U collectively went abroad to Southeast Asia, accumulating brand recognition and market share through e-commerce platforms like Shopee and TikTok Shop, successively capturing top rankings in multiple categories. But what followed was a severe homogenization problem — difficult to differentiate. So after sweeping through Southeast Asia, the Japanese and Korean markets, with their cultural and geographic advantages, became the next must-contest battleground for domestic cosmetics brands eager to save themselves, with the Japanese battlefield being the most intense of all. In the first half of 2023, Japan's imports of cosmetics products from China grew approximately 45% year-over-year to about 6.1 billion yen.

Moreover, cosmetics brands don't only have female audiences. Consumption investor Hai Huang, who just returned from a research trip to Japan, discovered that Japan's male cosmetics (including skincare) penetration has reached an astonishing 50%.

Beyond cosmetics, Huang also identified some industries growing against the trend:

Consumption related to the "virtual world" constitutes enormous commercial opportunity in Japan. The current IP industry has two derived business models: one possibility starts from diversification of content formats, extending IP expression to film, television, drama, dance drama, even musical theater — among these forms, games have the highest commercialization efficiency. As is well known, Japan's gaming industry is developed, and it is also the world's third-largest mobile app market. Average revenue per download for mobile games has exceeded $21, ranking first in the world — this figure is more than 4 times that of the US and 1.5 times that of China. Japan's domestically cultivated app market and consumption habits also provide natural soil for overseas entrants. In recent years, multiple games produced by China's Tencent and miHoYo have achieved impressive results. In non-gaming sectors, Chinese teams' social app WePlay and livestreaming app Bigo Live have both topped the charts.

South Korea, also part of the East Asian cultural sphere, is another market that gaming exporters must pay attention to. South Korea has vigorously cultivated its gaming industry and is the world's only country with a separate Game Industry Act. But in market size, South Korea cannot compare with Japan.

The other model centers on derivatives, manufacturing IP into toys, figurines, models, trading cards, and other products. In China, the representative case of this model is Pop Mart.

In Huang's view, real-world entrepreneurship opportunities in Japan today are far fewer than in China, but Japanese people still need a place to put their ambition and dreams. When a society's real-world entrepreneurship opportunities become fewer and fewer, perhaps virtual consumption opportunities will become more and more numerous.

Beyond the virtual world, another highly developed industry in Japan is wellness. According to Amazon data, affluent and leisure-rich seniors are a noteworthy online shopping group — their investment in fitness is 7 times that of young people.

Compared with China, Japan is a highly mature, highly developed, and large consumer market. Its offline channel share is very large, and online, there are no giant apps controlling closed e-commerce loops. According to data, Japan's social e-commerce penetration rate has long remained below 10%. Therefore, Japanese companies' commitment and determination toward e-commerce operations are not very firm, and their operational capabilities and experience are relatively lacking. To some extent, room for Chinese companies to "dimensionally reduce" and strike still exists.

But Japan, which has experienced the pain of the "Lost Three Decades," and China, where new consumption's flowering has just ended — brands accustomed to the domestic market still need to overcome all manner of acclimation issues. For example, Chinese brands have benefited from China's highly developed e-commerce market and are accustomed to "fast." If explosive growth doesn't arrive within a few months, brands are likely to develop thoughts of retreat. Nayuki, which went abroad to Japan only to return defeated, is one such case.

Of course, for new consumption brands still in China, learning how to be "slow" is also a required course.

Southeast Asia

Abandoned? Consumer Retail Is Still Going Strong

Southeast Asia's once-sizzling venture capital scene is cooling. A 2023 Southeast Asia internet report jointly published by Google, Temasek, and Bain noted that funding in the region had fallen to a six-year low, with 88% of investors facing a more difficult exit environment. Specifically, seed and Series A funding dropped 68% in a single year, while Series D+ funding plummeted 77%. The retreat of international hot money appears to be an irreversible trend for Southeast Asian markets.

Looking back eight years, Southeast Asia was nearly the first choice for Chinese venture capital going abroad. Around 2015, numerous Chinese investment firms, inspired by Masayoshi Son's time machine theory, came to Southeast Asia seeking gold—attempting to replicate China's mature business models in emerging markets. At the time, there was virtually no local venture capital, and early entrepreneurs focused on B2C models like ride-sharing, e-commerce, and gaming—straightforward, proven business models that were generally localized versions of internationally successful companies. After 2018, thanks to mobile device penetration and consumers' rapid adoption of new technologies, B2B and B2B2C business models began to emerge.

But the vast majority of institutions that bet on Southeast Asia ultimately returned empty-handed.

Since September 2022, when Sea—dubbed "Southeast Asia's little Tencent"—laid off roughly 7,000 employees, Sea's stock price has shrunk nearly 90% from its post-IPO peak of $202.6 billion. In June 2023, Southeast Asian ride-hailing giant Grab announced layoffs exceeding 1,000 people, representing 11% of total staff. Indonesia's largest tech company GoTo posted net losses exceeding 50% in 2022 and cut 1,300 jobs.

Lu Yu, managing partner of 01VC, told us that 01VC began looking at Southeast Asia around 2016, bringing numerous entrepreneurs and major tech company employees to scout the market, and making incubation-style investments in many early-stage founders across various sectors. But they later discovered this didn't work, "because these people weren't fundamentally founders—they were essentially pushed into it by us."

At the time, Yu had a saying: "Don't get excited on your first trip. Go three times and see if you're still excited. Actually, many people after three trips no longer wanted to set up shop. Many places you visit and realize there's simply no opportunity, because the chain hasn't formed."

Yu believes every overseas region has its own characteristics. For example, what Saudi Arabia needs most is infrastructure, equipment—perhaps not e-commerce or internet at all. Another crucial point: companies need to follow the major players, such as how CATL and BYD are building factories overseas, even how milk tea brands are expanding. Follow that chain.

Facing a rapidly changing Southeast Asia that is simultaneously revealing more opportunities, investors may find it difficult to formulate relatively long-term answers to certain unresolved propositions.

However, multiple investors indicated that 2024 may be a pivotal year for Southeast Asia: following the great migration of tech talent caused by layoffs, the region is now seeing new growth opportunities in offline retail consumption and manufacturing transformation.

Weijie Zhang, who previously invested locally in Vietnam and joined a Singapore family office last year, told us that investing in Southeast Asia requires abandoning the scale expectations of China and the US. Instead of traditional valuation thinking, adopt a business mindset—investors need not exit, but can recoup initial investment costs through cash flow or equity profit dividends from portfolio companies.

According to Zhang's observations, Southeast Asia at this moment is better suited for business-minded projects. "This stems from differences in consumption habits. We must recognize reality—Chinese business tactics are exceptional globally and cannot be entirely replicated." Zhang believes that currently, Southeast Asian markets don't offer huge opportunities for VCs and early-stage investors, because individual markets are too small and there's little disruptive innovation. Trying to achieve outsized returns is difficult. "But there are opportunities for strategic investors and PE."

One case is Mekong Capital, a Vietnam-focused consumer PE firm, and its investment in Pizza 4P's. The latter is a chain pizza restaurant founded by a Japanese couple in Vietnam, combining Japanese concepts with exceptionally attentive service. After expanding to 8 stores in 2018, Mekong Capital invested and grew it to 27 stores by 2022 before successfully exiting. In 2022, Pizza 4P's had after-tax profits of $3.5 million; Tokyo-based Cool Japan Fund invested $10 million to take over.

It's understood that Mekong Capital doesn't invest in franchises, only directly operated stores, and is entirely focused on Vietnam. Its founder is from Chicago and went to Vietnam in 1996, initially investing in import-export companies—a very different approach from Chinese capital.

Mixue Ice Cream & Tea is currently one of the brands most deeply rooted in Southeast Asian markets, with nearly 4,000 stores. Almost contemporaneous with Mixue's overseas expansion was Ba Wang Cha Ji. According to official data, Ba Wang Cha Ji currently has nearly 100 overseas stores, distributed across Malaysia, Singapore, and Thailand, with Malaysia alone exceeding 50 stores—already ranking as a top tea brand locally. Heytea also launched in Malaysia in the second half of 2023, and Nayuki has re-entered the Southeast Asian market, opening its first store in Thailand.

Beyond offline consumer retail, e-commerce platforms from major internet companies seem to have never considered withdrawing from Southeast Asian markets, and are even further expanding their presence. Thus, we see Shopee, Lazada, and TikTok Shop forming a "tripartite standoff," with Temu also working to join.

On another front, in recent years, influenced by weakening demographic dividends, rising labor costs, and industrial upgrading in China, major global terminal manufacturers have been establishing factories in Southeast Asia. These international companies are gradually shifting their production capacity from China to Southeast Asia, where costs are lower. In the automotive sector, a group of companies led by Tesla and BYD have continued increasing investments in Southeast Asian countries.

Vietnam has been the biggest beneficiary of manufacturing migration from China, not only hosting Samsung's largest global production base, but also seeing growth in Apple's supply chain companies in Vietnam since 2018. Currently, many electronic component production bases such as Foxconn and Compal Electronics have gathered here. The expansion of electronics manufacturing has made Vietnam the fastest-growing economy in Southeast Asia.

Europe

A Treacherous Road Ahead, But Learn to Earn Slow Money

For many Chinese companies going global, Europe remains an ancient market that is still a high ground for product standards, technological innovation, market presence, and brand prestige. It also boasts a high-quality talent pool composed of overseas Chinese and international students. It remains a "battleground that no strategist would concede."

However, when examined from a regional market perspective, the four sub-regions — Northern Europe, Western Europe, Southern Europe, and Central and Eastern Europe — are hardly comparable in terms of regional economies, income levels, and population quality.

"Europe is seen as a very mature market, but culturally and characteristically, it's both large and fragmented. The EU claims integration, but relations between member states remain relatively loose, with different cultures and customs," Zhao Jing, partner at Cathay Capital, told An Yong Waves.

Zhao holds engineering master's and PhD degrees in chemical engineering from the National School of Chemistry of France. He spent 15 years in Europe from his studies through his career. Before joining Cathay Capital in 2019, he worked nearly a decade at TotalEnergies in Europe. In his view, the internal regional differences within Europe offer abundant niche markets and track opportunities for smaller brands going overseas — and this very diversity can itself be a business opportunity.

The most typical example is PingPong, a cross-border payment platform headquartered in Hangzhou, Zhejiang. With 50 countries across Europe operating 29 different currencies, plus varying payment and financial regulations across jurisdictions, businesses operating in Europe inevitably face a complex payment environment with additional fees and exchange rate risks. In 2017, PingPong obtained a Payment Institution license from Luxembourg's CSSF, enabling cross-border collection and local payment services for merchants. In 2020, it upgraded to an Electronic Money Institution license with stored value and expanded functionalities, and in 2023 secured a UK EMI license, achieving compliant operations across 28 European countries. PingPong has become one of the cross-border payment companies with the broadest licensed operational scope in European countries.

Specifically, Northern Europe (Sweden, Norway, Denmark, Finland, Iceland) and Western Europe (UK, France, Germany, etc.) sit at the top of Europe's development pyramid, relying primarily on industry and services encompassing trade, transport, communications, and finance. Southern Europe (Italy, Spain, Greece, etc.) occupies the middle tier, with tourism and agriculture holding their economies hostage and insufficient growth momentum. Central and Eastern Europe (Hungary, Poland, Czech Republic, etc.), though mostly former Warsaw Pact countries with relatively weaker economic foundations, has been vigorously pushing "de-agriculturalization" and embracing new energy industries in recent years.

Income levels vary considerably across regions as well. Northern and Western Europe generally have per capita GDP above $40,000, with Ireland — where high-tech output accounts for 40% of total GDP — reaching $103,000, hence higher price levels. Southern Europe's per capita GDP hovers around $20,000–30,000; with weak economic resilience, few high value-added industries, and heavy government debt, the middle class favors cost-effective products. Central and Eastern European countries range from $10,000–20,000 in per capita GDP, with low price levels — procurement unit prices at discount chains like Lidl and Aldi already fall below those in China's second- and third-tier cities.

"European consumers are generally perceived as having relatively high purchasing power. On one hand, they place greater emphasis on product experience, personalization, and service customization; on the other, once they recognize a brand, they demonstrate relatively high loyalty."

This user profile means European consumers and businesses care not only about product quality at purchase, but also post-purchase service and experience. Zhao has observed in the recent wave of overseas expansion that Chinese companies entering Europe still largely operate on the logic of "manufacturing overcapacity, pushing极致性价比 goods into Europe." But they remain at a relatively rudimentary stage when it comes to after-sales service, personalization, and sustainable operations.

"Entering the European market must be a long-term process, not just a one-off transaction of selling products. The loyalty characteristics European users show toward brands are actually a double-edged sword — do well on product plus service, and the brand keeps improving and appreciating in value. Conversely, once problems arise, the negative effects in the European market may be greater than in other markets."

This observation aligns with the premiumization and customization trends in Chinese products sold to Europe in recent years. For instance, in 2018, Haier acquired Italian company Candy, and Hisense acquired European white goods manufacturer Gorenje. Previously, Japanese, Korean, European, and American firms dominated Europe's premium home appliance market. With improving product strength and brand power from Chinese companies, along with increasing market penetration, they have now become a new force in Europe's premium home appliance market.

Zhao particularly noted Europe's position as the "global ESG high ground." "The vast majority of new international trade policies related to dual carbon are led by Europe — this is essentially an expression of the European market's focus on long-termism."

Because Europe's strong regulatory environment is not particularly friendly to local startups, and SMEs face relatively high financing costs, this creates space for technology-enabled new business models already validated in China. Among these, the new energy vehicle supply chain has made the boldest moves.

For the European market, leading companies in Chinese supply chains have been making continuous moves: In July 2023, SAIC Motor announced its decision to build a factory in Europe; in December, BYD announced a new energy vehicle production base in Hungary; power battery manufacturers including CATL, SVOLT, Envision AESC, and Gotion High-tech announced production bases in Germany, Spain, and other countries years earlier; and NIO, representing the new force of EV makers, announced in October 2022 that it would open direct stores in Germany, the Netherlands, and other countries to enter the European market. According to data cited by European Commission President Ursula von der Leyen in last year's State of the Union address, Chinese electric vehicles' market share in Europe has risen to 8%, and is projected to reach 15% in the EU by 2025.

However, for Europe — a traditional stronghold of established automakers — these moves carry a more acute sense of threat, bringing Europe's characteristic of heavy policy influence into full play. In early 2023, Turkey proposed an additional 40% tariff on Chinese-made pure electric vehicles versus 10% for other countries; by year-end, it added requirements that "new energy vehicles declared for import from overseas must obtain additional licensing documents to enter." On September 13, European Commission President Ursula von der Leyen announced in her State of the Union address to the European Parliament that the Commission was launching an anti-subsidy investigation into Chinese electric vehicles. The smart hardware and fintech sectors, meanwhile, face the EU's stringent privacy laws (such as GDPR) and big data regulatory frameworks.

From Chinese companies' current solutions, reverse joint ventures and building factories overseas represent possible hedges against political risk. For example, Stellantis Group is planning to introduce Leapmotor electric vehicle production lines at its Mirafiori plant in Turin, Italy through its joint venture with Leapmotor — Leapmotor International. Once production begins, this avoids potential tariffs while European localized production also removes obstacles from carbon footprint credit subsidy rules, and a fully European-based supply chain lays groundwork for exports to the North American market.

Additionally, finding local service providers as partners, or directly acquiring local companies for resource integration and building local teams on the ground, has become a choice for many companies. For instance, when Alibaba Cloud established its first European data center in Germany, it reached a strategic partnership with telecom giant Vodafone.

Africa is often called the world's last billion-user internet market, and for Chinese investors, it seems like a time machine back to China's golden age of the internet. The continent comprises dozens of nations with nearly 1.4 billion people, over 60% of whom are under 25 — its average age far below aging Europe (43) and China (37). By 2034, Africa's working-age population is projected to hit 1.1 billion, with this demographic dividend set to be unleashed through industrialization.

Yet infrastructure constraints have made regional fragmentation pronounced. When companies talk about "going global" to Africa, they typically mean Sub-Saharan "Black Africa" — East African markets like Kenya, Ethiopia, and Tanzania; West African markets like Nigeria, Côte d'Ivoire, Ghana, and Cameroon. Venture capital activity concentrates most heavily in Nigeria and Kenya.

These two countries are Africa's economic frontrunners. Nigeria, with a population rivaling Shanghai's, is the continent's most populous nation — and the first battleground for Transsion, the "King of Africa," in its continental conquest. Kenya, meanwhile, serves as the "entry point" for much capital and enterprise entering Africa; many financial institutions choose it as their first African stop or regional headquarters, given its relatively welcoming stance toward foreign capital and its regional influence in East Africa. Kenya also leads East Africa in technological development. Its telecom sector matured early, anchored by Safaricom, the region's largest carrier. Building on this, Kenya birthed the mobile payment system M-Pesa before 2010, earning the moniker "Silicon Savannah."

But infrastructure, technology, and economic development are merely prerequisites for venture capital to take root. Just as in China two decades ago, a single flight from the U.S. could carry every VC interested in the market's future. Zhang Lingxiu, partner at Roselake Ventures, once summarized: in Africa, secondary markets and late-stage investing have deeper histories, but venture capital is only just getting started — VC institutions and scaled, professionalized investing have only emerged in the past five years.

According to the African Private Equity and Venture Capital Association, African VC investment reached $895 million in Q3 2023, up 28% year-over-year and roughly 20 times the level five years prior. Notably, in a soft fundraising quarter, Africa was the only region globally to post double-digit growth.

While Africa's startup ecosystem lags far behind China's in development stage, the generational gap with Southeast Asia is only about four to five years. By VC fundraising volume, Southeast Asia's 2022 total exceeded $10 billion; Africa's was roughly two-thirds that size. Beyond rapid growth, fintech has exploded over the past five years. Of Africa's dozen-plus unicorns, eight are fintech companies, with Nigeria as their stronghold hosting six — including Flutterwave, Interswitch, and OPay.

Beyond fintech, African e-commerce is accelerating quickly. Regional e-commerce transaction volume is projected to grow 50% by 2025, with online shoppers rising from 334 million in 2021 to 519 million — a 56% surge — and 80-90% of these light industrial goods come from China.

One standout result: Chinese cross-border e-commerce platform Shein has surpassed Walmart and Amazon to become the most-downloaded shopping app on South Africa's Google Play.

Africa has become fertile ground for cross-border e-commerce, with surrounding industry chains — e-commerce logistics, SaaS, and more — also hitting the fast lane. Beyond Shein and Amazon, there's Jumia, Africa's first U.S.-listed unicorn e-commerce platform, along with its acquired local marketplace Zando.co.za and online ordering platforms from traditional supermarkets.

The success of Transsion, the "King of Africa," has also given Chinese e-commerce players confidence: precisely targeted pricing can indeed cultivate a thriving consumer market. In recent years, niche segments like short-drama apps, wigs, and even nail art have begun producing serious business.

Additionally, green tech represented by new energy — electric vehicles for mobility, for instance — is developing rapidly. Citing observations from prominent clean energy outlet CleanTechnica, Chinese-made Volkswagen ID. models have appeared in large numbers at Ethiopian dealerships and on local roads, becoming mainstream in that EV market; in Ghana, several companies and startups offer over 20 Chinese-made electric vehicle models; in Rwanda, GoKabisa has brought Geely's Geometry E pure-electric SUV to market; BYD supplies the only new electric commercial vehicles available in Zimbabwe and Kenya; SAIC Maxus's Deliver 3 and DFSK's EC3 have become star products in South Africa with year-over-year sales growth.

But poor road conditions across Africa make leapfrogging straight from internal combustion to electric vehicles still a distant dream. The continent remains in the early stages of EV adoption.

For many investors, infrastructure remains the biggest obstacle to entering Africa. One VC partner told Yong Yong that they had researched and even invested in African projects, only to conclude the infrastructure was too underdeveloped — "even if Wang Xing or Yiming Zhang came, it wouldn't help."

Image source: Yong Yong editorial team