How Chinese Companies Expand Globally Despite Headwinds

Chinese companies face a threefold challenge in expanding internationally. The first is rising trade tensions with the United States. The once globally dominant flow of trade between the U.S. and China has been curtailed by increased tariffs and export controls.  The second challenge is new investment regulations put in place by other countries and local jurisdictions. Governments in North America and Western Europe have increased their regulatory scrutiny of foreign businesses, especially Chinese ones.  Third, while emerging markets hold the potential for growth, Chinese companies often face infrastructure deficits, bureaucratic inefficiency, and unfamiliar cultures in such markets.

How are Chinese companies tackling these challenges? Executives in China are strategically using microregions for global marketing.  

Even within the same country, microregions vary widely from one another in terms of incomes, demographics, infrastructures, governance, and friendliness to foreign businesses. They present executives with a more fine-grained picture of where global opportunities are situated compared to looking for opportunities at the national level. In most cases, Chinese executives analyze and identify international business opportunities with a focus on these smaller geographic entities rather than country markets, although some very small countries, such as Singapore, constitute a microregion on their own.

Chinese executives, thinking at the microregion level comes naturally, given China’s development history. Of the 2 billion people in microregions who achieved high living standards during the past 20 years, 1.1 billion lived in China. Even before economic reforms were rolled out in the 1980s, China had adopted a historically decentralized pattern of economic development. Chinese businesses naturally engage locally because that is how most of them got started.

Three place-based strategies that are helping Chinese companies expand internationally in these challenging times.

1. Finding new routes to existing markets. Chinese companies are turning to microregions that provide a viable pathway to existing markets that might have grown harder to access, such as those in North America and Europe. It means relocating operations to strategically advantageous places where companies can add value.  This generally takes two broad forms:  adding non-China locations to their supply chains and relocate the entire business from China to a receptive microregion to gain a different nationality and potentially circumvent certain challenges associated with its original nationality.
2. Building hubs to reach emerging markets. Africa, Latin America, the Middle East, and Southeast Asia are also areas in which Chinese businesses are building beachheads to access emerging markets.
3. Going virtual through digital talent hubs. Finally, Chinese companies are using digital talent hubs to expand into both familiar and new markets. This strategy uses digital technologies and distributed digital talent to virtually connect resources and opportunities, reducing the need to deal with complex and changing investment regimes in target markets.

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