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Business

Chinese companies are looking to the US and Asia while growth is slowing at home




BEIJING – Some Chinese consumer brands are looking for growth abroad, in markets such as the US and Southeast Asia.

Take Miniso, a Guangdong-based retailer of toys and household products. Sometimes called China’s Muji, Miniso opened a flagship store in New York City’s SoHo in February.

The store’s gross value – a measure of sales over time – is around $ 500,000 a month, with $ 1 million a month probably by December, founder and CEO Jack Ye told CNBC in late June.

More importantly, he said that for direct-to-retail stores in the United States, Miniso̵[ads1]7;s gross profit margin is well over 50%.

“If we can get a solid foothold here and create a good business, we will have no problem in the United States in general,” Ye said in Mandarin, according to a CNBC translation. His goal is to become the first “$ 10 and under” retailer worldwide.

Miniso stores began to appear in mainland China almost 10 years ago, with overseas expansion starting in 2015 in Singapore. As of March, the company said that 37% of the 5,113 stores were abroad.

Faster growth outside China

Like many other businesses, Miniso saw sales fall during the pandemic. More than two thirds of the revenue still comes from China. However, in recent months, data have shown a relatively rapid increase internationally versus domestically, a result of the varying effects of the pandemic.

During the nine months ended March 31, the company said, China’s revenue grew by 11% year-on-year to 5.91 billion yuan, against 48% foreign growth to 1.86 billion yuan.

China’s retail sales have lagged behind since the pandemic began in 2020. A downturn in the housing market has not helped. Locals’ propensity to save, rather than spend or invest, has climbed to its highest level in 20 years, according to People’s Bank of China surveys.

“Chinese companies expanding into overseas markets will be a big trend going forward,” said Charlie Chen, head of consumer research at China Renaissance. “China has actually entered a relatively prosperous stage with a relatively high GDP per capita.”

He pointed out that for products such as air conditioning, penetration among rural households was 73.8% in 2020 – and even higher by 149.6% in urban areas. China Renaissance expects these penetration rates to increase steadily in the coming years.

“There is very little incremental volume or incremental demand that can be created in China in a short time,” Chen said. “For these air conditioners, household appliances, where they can get more income, it is abroad.”

Miniso opened its first flagship store in New York City’s SoHo in February 2022.

Miniso

In Southeast Asia, air conditioners have a household penetration rate of 15%, according to the International Energy Agency.

The white goods companies Midea, Hisense and Haier Smart Home have pushed their way into markets outside China in recent years. Sharks even bought General Electric’s appliance unit for $ 5.4 billion in 2016. Hisense’s goal is that by 2025, overseas markets will generate half of the total revenue.

These companies are seeing strong growth abroad, if not faster than in China.

“Definitely if [Chinese companies] wants to enter foreign markets, [they] need to build their brand, have to fight with existing competitors, “said Chen.” The cost will not be low. Basically, they would not be profitable. But they are investing. “

If Chinese companies are able to build their brand abroad, they can compete with lower sales prices since they own or work directly with factories in China. It has helped companies like Shein to become an international e-commerce giant.

Similarly, Minisos Ye said his strategy in the US is to combine the company’s supply chain network in China with the work of New York designers – so that the products can go from design to store shelves in about three months.

That process could take six months or even a year if the design firm needed to find its own factories, Ye claimed.

“Abroad, what we are missing right now are design ideas that are suitable for the locals,” he said. He said Miniso plans to open its North American product development center later this year and is looking for office space in New York.

June expansions

Other Chinese companies have pushed for overseas expansion despite Covid travel restrictions.

Ant Group, fintech-affiliated with Alibaba, announced in June that it was launching a digital wholesale bank in Singapore after receiving approval from the Monetary Authority of Singapore.

Also in June, the Hong Kong-listed toy company Pop Mart tested American waters by opening its first temporary location near Los Angeles. The company sells sets of collectibles of toys – in unmarked boxes. This means that a customer can get a new toy to add to a collection, or the same toy that the customer has already bought.

Like Miniso, Pop Mart stores have become commonplace in Chinese malls. There’s even a Pop Mart shop at Universal Beijing Resort.

Localization challenges

It remains to be seen whether the recent foreign growth will last for these Chinese companies.

For business or geopolitical reasons, many Chinese companies have not found success abroad. Take ZTE’s failure to expand its smartphone business in America following US sanctions.

Very successful companies such as the short video company TikTok, owned by Beijing-based ByteDance, have come under pressure from US authorities due to concerns about computer security.

Read more about China from CNBC Pro

This is not to mention the inherent challenge of becoming an effective international organization. A CNBC report on Chinese technology companies found that the business culture at home – which involves heavy use of mandarin and long hours – often took the road abroad and discouraged local employees from staying.

But whether in electric cars or white goods, talks with many Chinese companies reveal a deep-seated but vague ambition that has not been affected by the pandemic: to become a global company.

Publication: NBCUniversal is the parent company of Universal Studios and CNBC.



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