Up and Down, which direction for PRC’s Tech Giants?

08/05/2019

As many analysts pointed out, China’s digital economy has reached a turning point. How is growing in a mature market? Six top players dominate PRC hi-tech arena

 

Actually People’s Republic business environment as so far changed in last 20 years. Tech giants such as Tencent or Alibaba dominate the scenario, but everybody, in particular new companies like Meitu, Zhihu, Pinduoduo, Little Red Book, Tik Tok and more, are facing challenges and tough questions. The main one is how these platforms can turn their meteoric growth scale into profits, plus, investors and shareholders still have no idea which new hi-tech giant will be list in new Shanghai Nasdaq-style board.

As we know, Chinese digital and tech companies are adapting, able to adjust themselves to new market’s dynamics. This is the main secret behind country’s business philosophy: facing challenges and developing several strategies to take advantage of opportunities.

 

Watching back to some China’s internet companies success stories – such as Maituan or Didi – investment frenzy assumed the main key role for such amazing grew.

 

These huge amount of liquidity have reshaped markets and delivered exponential growth. In short words, these rapid influxes of capital and speculative behavior are so notorious that leading Chinese executives have joked that investors could pump in enough money to make pigs fly. But now, something changed.  The recent struggles let experts argue that some of Chinese hi-tech startups couldn’t last two years. A clear example is Ofo, a bike-sharing firm, has gone from a $2 billion valuation to the verge of bankruptcy.

 

Nevertheless new players arrived in Chinese hi-tech arena. Names such as Baidu, Alibaba, Tencent, Bytedance (alias Tik Tok), Meituan, Didi, Pinduoduo, and JD are, right now, the top 6 main Chinese’s digital economy firms. And actually, they are looking for something more durable and stable, lighting a new path for all companies, making themselves thicker, adding new users, existing offerings and creating  new revenue streams. 

There is no coincidence if, the last two years,  China’s digital giants has restructured themselfs,  re-orienting each company for future growth. Plus, if we cross-reference each restructure’s relationship to the above growth directions, you get a pretty good sense of who’s playing where for future growth.

 

1. Cloud, Big Data and Industry digital Transformation

So called BTA ( Baidu, Tencent and Alibaba) are actually leading player in AI, big data and cloud computing. Thus a new range of services offered by these companies are now available. The main one is without doubt the “industry digital transformation”. Trough big data, tech giants can also offer new products and services to industry. Having shaped consumers’ digital behavior, China’s digital giants are lining up to lead the digital transformation of traditional industries such as retail, hospitality, tourism, and agriculture, packaging software and platforms as services.

 

2. Lower Tier cities

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In the not-so-distant future, more than half of the rich Chinese will be in cities we’ve never heard of, that’s why is important to understand which are the raising markets. Among 3rd, 4th and 5th tier cities new e-commerce platforms such as Pinduoduo, Qutoutiao, and Kuaishou leading the market. Today lower-tier cities are the new foundation of the Chinese economy and, of course, consumptions. Government statistics have always been at the forefront of telling the story of China’s urban reality.

It’s estimated that by 2022 there will be a 56% increase in consumption in urban areas and the middle class will constitute about 54% of the Chinese resident population in the cities. In 2018, China’s total retail sales of consumer goods stood at nearly 38.1 trillion yuan, up 9% from 2017. Final consumption contributed 76.2 percent to China’s GDP growth, 18.6 percentage points more than in 2017.

 

3. Overseas expansion and local services

 

Chinese firms are going global. Alibaba, after Lazada acquisition, dominates China and Southeast Asia e-commerce market. In India Xiaomi is the main smartphone seller while Tencent is investing in entertainment sector in South Korea or in the main Hollywood produced recent blockbuster.  

But why Chinese hi-tech firms are focusing their attention in growing market such as Africa, India and SouthEast Asia? First, China’s digital giants consider themselves well-placed to service mobile-first emerging markets, such as India and South-East Asia. Second, these markets also have the growth prospects associated with relatively low existing internet user penetration.

 

How to understand who is playing where? Nowadays, chinese tech firms are seeking out durable sources of future growth. Thus, they have set a new wave of intense competition among them let Chinese business hi-tech environment much more heterogeneous than western one. 

 

While Baidu continues its push through artificial intelligence investments and applications, Alibaba and Tencent’s investments, products and proxies will fight for market share across all above growth avenues.

Bytedance already become a top player in US and Japan and now plans to take its content creation and recommendation products into lower-tier and overseas markets. Plus, is working to develop next-generation social media and video commerce, overpassing so called social commerce and livestreaming.

Pinduoduo, China’s newest force in e-commerce, is leading lower tier cities market and thanks to Tecentent collaboration its mini-program is on every chinese mobile phone. What about JD? Chinese second-largest e-commerce company is persuing to invest in smart pgistic, both in mainland and overseas. Didi is actually world’s largest transport platform and continues unabated with overseas expansion while Meituan hasn’t abandoned its ambition to be a super-app but has doubled down on services to restaurants and retailers on its platforms, with new features like order-management systems.

 

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