David Zhang: Why I Still Believe in Globalization | Waves World View

"A New Logic for Reaching the World."

By Qian Ren

Edited by Zhiyan Chen

The real difficulties are hitting head-on.

The latest development in the tariff war: on April 15, US Customs launched a new "country-of-origin verification system," cracking down hard on transshipment through countries like Vietnam and Mexico to evade tariffs. Violators face penalties of up to 300% of the evaded tax amount, profit clawbacks spanning ten years, and frozen accounts. The US is demanding importers provide three-tier supply chain traceability documents, with "inspection of every shipment" from targeted countries — Vietnam chief among them.

With compliance costs skyrocketing, all paths for routing goods through third countries are effectively closed. For Chinese companies going global, a fundamental supply chain relocation is now unavoidable.

Yet this reshuffling is essentially a trade-off — exchanging origin status and higher added value for the lowest possible cost. How exactly to execute it, in what order, and to where — these all require extraordinarily careful calculation.

David Wei and the firm he leads, JiaYu Capital, along with its portfolio companies, have been traveling this road for two to three years already. Anker Innovations began preparing contingency plans during the pandemic — shifting portions of its upstream supply chain to Southeast Asia — and today nearly half of its US-bound products are manufactured overseas. Home goods company Ziel Home Technology decided in the second half of 2024 to "further accelerate supply chain migration to Southeast Asia." Both companies announced price hikes directly after the tariff war began; their early supply chain repositioning is precisely what gives them the confidence to hold firm.

Among the global investors interviewed by Waves, Wei stands out as someone who foresaw all of this earlier and moved ahead of time.

When JiaYu Capital pivoted to cross-border e-commerce and brand globalization in 2018, the tariff issue planted its seed. That seed has guided JiaYu's focus in recent years on cross-border companies with factory backgrounds, and by 2022, it had distilled further into the "Tech-Industry-Trade" investment model — technology first, manufacturing-enabled, market-adapted. This model is now being widely validated in new energy, high-tech manufacturing, and other sectors, but it places extraordinarily high demands on a company's strategic resolve and execution capability.

The essence of the "Tech-Industry-Trade" model is reconstructing the logic of global competition through "technology sovereignty + manufacturing control + trade flexibility" — especially suited for Chinese companies breaking through tariffs, technology blockades, and supply chain decoupling. In plain terms: build technology moats, execute effective supply chain migration, and target markets that are politically safer and quality-competitive with the US. The critical success factors are whether technology can stay ahead and how agilely a company can integrate global resources.

Over six years, Wei has repeatedly reminded portfolio companies of two things: first, expand into non-US markets; second, build supply chains outside China. He believes companies should design themselves to be global from birth — Born To Be Global — not belonging to any single country.

The results speak for themselves. Including Anker Innovations and Ziel Home Technology, most of JiaYu's portfolio companies began adjusting several years ago. They have now moved 20-30% of their supply chains to Southeast Asia, and year by year, revenue from outside the US continues to grow. As tariffs close in, this composure is becoming increasingly precious.

More intriguing than the early foresight is the "roadmap" in Wei's hands: What does the ideal global market layout look like? How should the corresponding supply chain be arranged? How to expand product categories? How to build overseas warehouses? And his thinking on the future of globalization investing in the primary market.

When Waves reached out to Wei, he was in Europe visiting a large cross-border logistics service provider's warehouse complex — hundreds of thousands of square meters of overseas storage. Coincidentally, this facility was "about to expand capacity for cross-border e-commerce companies represented by SHEIN and TEMU."

The following is Wei's account, edited by Waves —

Part 01

The Immediate Priority for Chinese Global Companies

1. Any company with annual sales exceeding 1 billion RMB must consider building an overseas supply chain. Companies with only one or two hundred million in annual sales need not bother for now — the costs would outweigh the benefits.

In the past, US Customs had standards for determining country of origin, but gray areas existed. Some companies exploited loopholes, using third-country transshipment to circumvent high tariffs. Since April 15, US Customs has strictly prohibited this, with severe penalties, especially targeting Vietnam and Mexico. Clearly, Trump is intensifying crackdowns on such practices.

US tariff suppression of China will only grow stricter, and this is irreversible. Admittedly, moving factories and upstream supply chains to Southeast Asia now will increase costs and reduce efficiency. But you must tolerate short-term pain and get the big picture in place first.

Typically, 20-30% of the entire supply chain should be relocated. JiaYu's target for portfolio companies is 30%, especially for those where US business exceeds 50% of revenue.

2. In the past two weeks, Anker Innovations raised prices on dozens of products sold on Amazon by roughly 18%. Our A-share listed portfolio company Ziel Home Technology increased prices by nearly 30%.

Price hikes are just the surface. The real confidence comes from value-for-performance. The old cost-performance advantage no longer works. Companies need to deliver higher performance, functionality, and value, while staying within pricing ranges customers will accept. Whether this leads to overall sales declines remains to be seen, but absolute gross profit must not be sacrificed.

3. The small-package express model involves not just tariffs, but a fundamental business model transformation.

Because the transaction path has changed. Previously, goods went directly from China to consumers via small packages. Now they need to be shipped by container to the US and sold individually — particularly challenging for apparel with numerous SKUs. Even transitioning to local e-commerce, facing many categories with extremely fast turnover, it's difficult in the short term to judge inventory allocation and sell-through rates in the US.

The small-package model must transform. There can be no侥幸心理 [no room for wishful thinking].

4. For TEMU and SHEIN, the best current approach is introducing overseas warehouses and initiating inventory localization.

Over the past two years, TEMU and SHEIN have been pushing merchants to shift from fully managed to semi-managed models, shipping from overseas warehouses and going deeper into localization. They have already pre-positioned some goods in US warehouses. With sufficiently rich historical data, their predictive capability for different categories and styles is relatively strong. But if operating in the US long-term, both companies will likely drastically compress SKU counts. The key lies in forecasting future inventory and dynamically controlling overseas stock.

5. As for whether upstream suppliers should also relocate simultaneously, my advice is: front-load the difficulties, lay out plans early.

Right now everyone is worried — not only about having to detail production processes and every step, but about tracing raw material supply chains. The logic of value-added origin is sound. Over 20 years ago, I was responsible for B&Q Group's entire Asia-Pacific procurement, and there were plenty of certificate-of-origin requirements then. This is nothing new globally.

In just a few short years, China has experienced sequential waves of transfer: finished goods exported to the US, then intermediate goods exported to Southeast Asia, then upstream materials exported to Southeast Asia. Now it's time for upstream supply chains to follow as well.

One of JiaYu's portfolio companies, Hiconics Technology, a ice maker manufacturer, previously discussed whether to build a factory in Mexico. We advised against it. It's difficult to get Hiconics's upstream compressor suppliers to go to Mexico — too far. Compressors represent the highest value-added component in an ice maker system; getting them to relocate to Southeast Asia would be far easier than Mexico.

In international trade, to obtain tariff reductions or preferential treatment, a product's domestic value-added content needs to reach a certain threshold — currently 35%. Many companies look at this statically, saying "I just need to meet the 35% ratio." But in today's trade environment, you need to guard against this ratio suddenly jumping to 50% or 60%. Front-load the difficulties, lay out plans early.

Part 02

In the Long Run, Where Are the Opportunities for Global Entrepreneurship and Investment?

1. Non-US markets: don't underestimate Europe.

JiaYu recently made a major investment in a cross-border logistics service provider. The new orders it's receiving are to expand European warehouse capacity for TEMU and SHEIN. Europe has never had an $800 de minimis exemption policy, nor has it imposed harsh restrictions on small packages. There was a one-time VAT levy a few years ago, and everyone absorbed it.

Many companies previously focused on the US market have stumbled in Europe due to its many countries and languages. But don't underestimate the European market. In Anker Innovations's current revenue breakdown, the US and Europe are roughly equal. When we invested, its US revenue share was 80-90%; in recent years, Europe's proportion has risen noticeably.

This isn't about deliberately reducing US share — it's about aggressively increasing share outside the US, with Europe as the first choice.

2. Overseas warehouses: the greatest divergence between "going global" and "exporting" lies in overseas warehouses.

Capacity globalization, supply chain globalization, and local inventory models all require building overseas warehouses, and warehouse service providers play a pivotal hub role.

Previously, Chinese companies simply sold goods to large overseas traders — Walmart, Home Depot, and other long-established chains with mature warehousing and distribution systems. Third-party overseas warehouses had no opportunity to介入 [participate in] the back-end supply chain. Now Chinese companies have reached this stage, extending business toward mid- and small-B and C-end customers. The opportunity for overseas warehouses and full supply chain services has arrived.

The cross-border logistics service provider mentioned earlier reached over 13 billion RMB in 2024 revenue, with more than half coming from European destination services for clients. It is rare, almost unique, as a comprehensive service provider primarily focused on European deployment — which indirectly confirms companies' thirst for European layout.

3. Products: overseas-exclusive is better than globally-universal.

Take JiaYu's own investments as examples. Anker Innovations and Ziel Home Technology are both globally-universal types. But in the past two years, investments like Hiconics's ice makers — Chinese people don't buy them at all; AICE's portable refrigerators — very low usage rate among Chinese; and Siji Technology's heat-transfer DIY products — Chinese people simply don't use pure DIY items. These are all overseas-exclusive.

Overseas-exclusive products have lower substitution risk than globally-universal ones. Of course, value-for-performance still matters. Overseas-exclusive products are more sensitive to tariffs and need sufficiently high gross margins to survive.

Value-for-performance means: at the same price as competing brands, compete on performance without cutting prices, iterating performance until consumers can't do without it. I particularly agree with Insta360 founder JK Liu's statement: "It forces us to卷 [push] performance to the point where even with tariffs added, Americans still have to buy it."

4. Globalization is an even more eternal track than consumer.

Right now, many investors in globalization are scared off and not investing. But we believe manufacturing cannot return to Europe and America. Globalization is an even more eternal track than consumer. Investing in cross-border globalization was a strategy JiaYu set in 2017, and it has never changed. Over the past decade, Chinese companies' globalization was "cost-driven," capturing markets with low prices. Now it's "efficiency-driven," creating structural advantages with proven technology, supply chain, and operational capabilities. This is also where JiaYu excels.

Part 03

The Primary Market Needs a New Globalization Investment Strategy

1. I told Pop Mart's Wang Ning: don't do "day laborer business" or "long-term laborer business" — do "landlord business."

Wang Ning came to listen to my consumer course before finalizing his IP and deciding to go global. He asked me, "Would you invest in my trend-buyer store model?" I said: "No."

Why?

First, the model. At the time, Pop Mart was still a buyer store — a "day laborer business" at best, a "long-term laborer business" at most. I said you need to become a "landlord business." What's a landlord business? Anker is a product landlord; Taobao is a user landlord. A double landlord means holding both product/IP and users in your hands — like SHEIN. Later, after Wang Ning developed product IP well, he became a product landlord, then began building a membership system to become a user landlord, and finally a double landlord.

Second, overseas strategic layout. At the time, I said recreate a Pop Mart overseas in five years. Wang Ning thought Southeast Asian markets would be easier. We insisted that a global brand must go to Europe and America. Facts have proven that Pop Mart's success in Europe and America has elevated its global brand势能 [momentum].

Pop Mart relies on the sustained success of IP R&D. Currently, tariffs have relatively little impact on its costs and supply chain. It is more a contest of mindshare and cultural output.

2. We missed SHEIN.

We actually signed a term sheet (TS) with SHEIN. Chris Xu came to our office the first time at a $200 million post-money valuation, but I ultimately rejected it. The main reason was user experience. At the time, I placed five clothing orders in the US. Delivery took about 29 days, and after one wash, severe shrinkage occurred. I felt there was a quality problem. My judgment was that this company's user experience was failing.

There was another chance to invest later, and we missed that too. Mainly, we greatly underestimated the company's growth and improvement, and also underestimated the progress in international small-package logistics infrastructure. We also looked at Zongteng Logistics, which originally solved SHEIN's small-package overseas shipping problem — a very impressive company with its own fleet of aircraft. We missed that too.

3. What SHEIN taught me — astonishing customer acquisition cost, and control over factories.

We always worry that customer acquisition costs for cross-border e-commerce will keep rising, especially for independent sites. But SHEIN acquired customers by selling low-priced products — like 99-cent clothes, but only if you downloaded the app first. This was extremely clever. Many companies spend over ten dollars in advertising to sell something for several dozen dollars, paying Google and Facebook. SHEIN passed the savings to consumers. Every customer's first order lost over ten dollars, but compared to the current $50 customer acquisition cost, it was still cheap. With enough app downloads, then building out product breadth and ensuring repurchase — very clever.

For relatively few SKUs with stable products, you must have factories. For many SKUs with fast product iteration and instability, you definitely can't own factories yourself, but you must have influence over factories. SHEIN invested enormous effort in transforming factories. Though it doesn't directly own factories, it controls many — not through equity, but through orders and digitization. So SHEIN's R&D, style development, and design capabilities are also very strong.

4. One measure of organizational efficiency: new category sales reaching 1 billion RMB should happen at least 1 year faster than the previous category did.

For a company to grow, it's nothing more than expanding regions, channels, categories, and brands. But these don't all happen simultaneously; they need to be sequenced according to the company's different states.

Take Anker Innovations as an example. Power banks have a low ceiling. After power banks reached $100 million in sales, the choice was to hold the brand and expand categories — namely, headphones. Headphones have much higher unit prices and market potential than power banks. After entering headphones, Anker realized it needed a new brand to match this higher-ceiling industry. At this point, it needed to hold the category and expand brands. So Anker launched a premium headphone brand, Soundcore, with products priced at $160-190. This way it could capture users across different price bands. Anker also has a third business segment: smart home.

We believe one measure of whether an organization is efficient is whether new category sales reaching 1 billion RMB happens at least one year faster than the previous category did. Anker achieved this.

5. Don't be a capital hunter; be a capital farmer.

Investors shouldn't obsess over whether global companies will expand categories. We dared to invest in Hiconics making ice makers because it has no competitors in this niche — even if it never expands categories, it's a single-category champion. But other categories, like power banks or robot vacuums, are too competitive; it's hard to remain a category champion long-term. These require the ability to continuously expand categories.

Whether a company will expand categories in the future — consensus must be reached before investing. This is where JiaYu's value lies. We aren't capital hunters; we're capital farmers who set strategy together with companies. Some companies don't accept co-developed strategy; we simply don't invest.

6. Anker Innovations opened exclusive investment windows for JiaYu three times, because we created incremental value.

Anker Innovations was one of JiaYu RMB Fund I's largest single investments. We invested in three rounds, each time with an exclusive window the company opened specifically for JiaYu.

In early 2016, we discovered Anker Innovations (then called Oceanwing) through industry research. We found that while Anker had strong product capabilities, it faced challenges in organizational building and strategic planning. So before any investment, we conducted three rounds of deep management consulting. After completing each phase, Anker exclusively gave us an investment opportunity. All three investment opportunities were created because they recognized our consulting empowerment.

When money alone can't open the door, break through by creating incremental value.

Image source | Unsplash

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