On April 20, 2018, Source Code Capital’s 2018 Annual Code Class Meeting themed “Opening Sources – Decoding the Future,” commenced in Beijing. Source Code Capital’s Di Yuan, Founder of Zenjoy Kai Xia, Founder of BluePay Rui Chen, and Founder of RozBuzz Ning Chen, all shared their learning and insights on the topic of venturing overseas.

Di Yuan said, “investing into Chinese-angle in the international arena is in some ways an immense blue ocean. But on the way there, it is possible to encounter sharks given its vast openness. It is also possible to have difficult struggles given the depth of the opportunity. Therefore, Chinese enterprises moving to expand overseas are embarking on a very long journey. It is worthwhile to dig deeper for long-term value creation. At the same time, there are many challenges, and we should look at investing our Global+ thesis with caution.”

FOUNDER QUOTES / CEO QUOTES：

• The overseas market is huge, with a global GDP 7 times the Chinese GDP. Even if one only “feeds on the planktons” in this ocean, it is still a significant piece.
• Our vision is to change how 600 million people in Southeast Asia use mobile payments and change their lifestyle.
• The first five years of Chinese technologies going abroad are born out of necessity.
• Take hold of a broad direction with regards to going overseas, and start the exploration with opportunities that are not too difficult at the execution level.
• We started lightweight and grew more heavyweight with time. We are a very typical company that brought technological know-how acquired from operating in the localized Chinese internet market, then established ourselves and grew rapidly in the Southeast Asia local market.
• India is quite a sizable regional market with high potential.
• Our advantage of Chinese resilience and ability to execute is highly competitive in the overseas market. In our eight years of running a business abroad, we deeply felt the velocity of China’s progress and its indomitable entrepreneurial spirit.
• It is very difficult to reach a level of understanding of the European-American markets that would be comparable or superior to local entrepreneurs on their home turf.
• In the future, Chinese internet companies must expand overseas to continue their progress. This is an opportunity for our generation of Internet entrepreneurs.

From the left: Di Yuan, Kai Xia, Rui Chen, Ning Chen

Background Text: “Set sail and launch abroad, for there is so much you can do.”

The full transcript of the panel discussion is below.

Di Yuan, Source Code Capital: Source Code Capital has always had its eyes on the investment domain of Global+, and is constantly learning, discovering, introspectively thinking, and iteratively revising our way of thinking about that domain. During this process, other than relying on our own diligence, we are also fortunate to collaborate with outstanding companies who focus on venturing overseas within our portfolio. Together, we deepen our understanding of this market and explore the great opportunities of bringing Chinese technology and concepts overseas. First, let us welcome our panelists to introduce their companies and businesses.

Kai Xia, Zenjoy: Hello everyone, I am Kai Xia from Zenjoy. From 2010 up to now, we are probably one of the earlier cohorts of Chinese companies to focus on overseas business. Our understanding about venturing overseas is to take hold of a broad direction and start exploring opportunities that are not too difficult at the execution level.

We developed hundreds of products, such as applications comparable to the Cheetah malware sweeper and security application, photograph editors, music and video related utilities, as well as gaming and entertainment software. While these are not particularly difficult to develop, they have a comparatively large market size overseas.

The overseas market is immense, with a global GDP 7 times the Chinese GDP. Even if one only feeds on the planktons in this ocean, it is still a significant piece. We wish to dive deeper as well eventually. We are not focusing on any country in particular across the globe, but we happen to be most heavily involved in the Euro-American markets.

Rui Chen, BluePay: Hello everyone, I am Rui Chen from BluePay. Our focus is only on payments and retail in Southeast Asia.

We have positioned ourselves to be focused on Thailand and Indonesia. Our vision is to change how 600 million people in Southeast Asia use mobile payments and to help improve their lifestyles at the same time. We were founded in January 2015 and launched with local B2B payment gateways in these countries. We then moved on to building a local mobile payments platform. Now, we also established our offline scenarios and produced an integrated online-offline portal for people’s lifestyle.

We started “lightweight” and grew substantially with time. We are a very typical company that brought technological know-how acquired from operating in the localized Chinese internet market, founded and started small, and then grow rapidly in the Southeast Asia local market.

Ning Chen, RozBuzz: Hello everyone, I am Ning Chen from RozBuzz. We are a content service provider established in the India market. I am personally an Internet veteran with more than a decade of experience in this field, worked abroad for five years, and worked for about two years in our current company.

There is a clear reason for us to choose India as our target market. India is quite a sizable regional market with high potential. We hope, as a Chinese team and with Chinese capital, we can operate a successful business in the Indian market.

This vision sounds simple when you say it. Let us look back at the era of PC internet and mobile internet. The U.S. is the most influential contender, but it does not have a single success in China. Yesterday, I heard Mr. Wang Xing say that we need to keep a level of awe and apprehension about going overseas. Would the process and setbacks experienced by U.S. companies and teams in China repeat themselves for the Chinese teams as they expand abroad? Can we avert these traps? This is something we must consider seriously.

1. The changing and changeless aspects of going overseas

Di Yuan, Source Code Capital: I invite each of you to share your understanding about Chinese companies going overseas from both the macro and the micro level. Chinese companies started venturing abroad around 2007 and 2008 after Apple launched its first-generation iPhone and the App Store. Please share your personal experiences and perspectives on how Chinese Mobile Internet went overseas in the last decade. Out of the core competencies of Chinese companies venturing abroad, what aspects remain constant in this decade, and what aspects evolved as regions evolved and product categories changed?

Kai Xia, Zenjoy: Chinese overseas ventures experienced and overcame more difficulties as compared to the domestic ventures in the recent years. The difficulties includes languages, culture, and a lack of understandings about foreign markets.

From a breadth-oriented perspective, we lack sufficient understanding of the demands of the various foreign countries and product lines. From a depth perspective, some of the more vertical industries such as e-Commerce and payments all involve some legal aspects. Our understandings about these aspects are relatively lacking.

The last decade is a process to lay the foundation. As Chinese companies have accumulated experiences over the previous ten years, we improved our awareness and understanding of the overseas business environment. We started with straightforward things, such as purely online offerings. Later, we built Bike-sharing in Germany, live-streaming in European, American, and Japanese markets, and other businesses with more emphasis on operations. There is a process to all of these steps.

Our advantage of the Chinese culture of resilience and good execution is highly competitive in the overseas market. In our eight years of business development abroad, we deeply felt the speed of China’s progress and its indomitable entrepreneurial spirit. If we have the same level of understanding in a specific industry, then we would execute faster than either the U.S. counterparts or other countries. The improvement of cross-cultural breadth and knowledge is a process for Chinese companies to ramp up. How Chinese companies integrated overseas, such as in language and other aspects, have been evolving and improving. I think, in the next ten years when the Chinese companies catch-up to foreign competitors in terms of localization, an explosive opportunity will emerge. This is my personal opinion.

Ning Chen, RozBuzz:The first five years of going overseas are born out of necessity. For example, the earliest gaming companies did not make a good profit by publishing domestically. Since the R&D cost for the game is already expended, they might as well try to localize into other markets abroad. The recent five years are marked by proactive expansion; one reason is the opening of these overseas markets, the other reason is that in some sub-verticals, the Chinese market is becoming more of a red ocean.

There is another change. The initial regions for overseas expansion are Hong Kong, Taiwan, and Macau, then Southeast Asia. This is because they have a very similar cultural background as compared to mainland China. Going abroad to these regions was relatively easy. Over the last five years, this is no longer true. Instead, we are expanding all over the world. There are Chinese teams working in comparatively less developed places such as Africa and India.

There is a third change. Initially, people tend to go overseas with games or utility products, because they are relatively easy to localize. After the languages are localized, and as long as they align with local religious practice and cultural conventions, there is not a great need for a strong ground force of operation teams. At that time, globalization was fought with the air force. You send in the bombers instead of your army. Now, many business battles are fought on the ground, emphasizing on local fit, heavy in operations, such as e-Commerce and content-based products that many teams are developing.

Di Yuan, Source Code Capital: Let me extend this question to Mr. Rui Chen from BluePay. Perhaps not everyone is familiar with Mr. Chen’s background. He joined Huawei after he graduated, and worked for Huawei’s overseas business for more than fifteen years. He devoted an extended period of his career to building the Southeast Asian market. In the twenty years of history about Chinese companies moving overseas, Huawei is a very typical company. Thus I would like to invite Mr. Chen to share his understandings about Chinese companies going abroad based on his own experience. Under this backdrop of integrating new technologies driven by mobile internet, what is your core methodology? In this new era driven by mobile internet, what are some of the aspects for us to improve on?

Rui Chen, BluePay: Based on my experience of working abroad at the very beginning, and the Southeast Asia market which I am familiar with, I have a different perspective. People say going overseas is a thing to be wary of, but I see it as a thing of faith. Since my graduation, I followed the trend of history and joined in this progress.

More than a decade ago, when I was working at Huawei, when we go out for business development, clients would say, why are the Chinese companies not making leather ware, sundries, shoes or clothing, but creating high tech devices?

However, ten years ago a lot has changed. Our clients included some senior management from telecom companies in Southeast Asia. We had a great relationship with people who are British and French. When we all exchanged ideas, we heard from Westerners say that in the telecom industry, if one believes Chinese technology and quality is second-tier, then they need to be educated. In my impression, this is the real voice of the customer and the progress of China. The Chinese production power and quality is advancing.

The founding and progress of our company are in alignment with the trends of this era. We are a local company in Southeast Asia with a Chinese founder, not a Chinese company that expanded overseas to that local market. It is possible to make up for deficiencies in resource or expertise through mergers and investment.

We started from the ground up in a local market. We continue to iterate, optimize and adjust at high velocity through the process from building ourselves up, acquiring customers, building the business, developing competencies, and acquiring additional resources. We built our end-to-end team and competencies ourselves. The downside is that we picked a path that is indeed exhausting. The upside is we have control over the end-to-end process, and we can iterate and evolve rapidly at a rate faster than local competitors. We are also very fortunate with outstanding Chinese and local colleagues joining us regularly. The obstacles to crossing the cultural and language barriers did not obstruct our shared vision, objectives, or core values. Instead, we grew more passionate and fearless as we venture together. Many things initially seemed out of control of both our resources and our ability, but things changed really quickly after some time, and we built up quickly.

2. How to take going overseas from zero to one

Di Yuan, Source Code Capital: After all of you found your opportunities in the European, American, and Southeast Asia or India markets, what are some of your insights along the way during the deployment of your business from “zero to one”?

Ning Chen, RozBuzz: We are familiar with the Indian market, and we can see many international teams in this market. We often divide them into three categories. The first is Chinese teams, they take a similar approach, trying to make an edge in being more integrated locally and more effective in execution. The second is European or American companies, especially American ones, who have more advanced technologies and products. However, they are not willing to invest further into their businesses when they become operations-heavy, and thus move slower. The third category is locally grown Indian startups, there were not many of them several years ago, but many entered the field in recent years. These companies are incredibly robust.

Di Yuan, Source Code Capital: How does Mr. Xia view the relatively tough competitive field in the Euro-American market amongst the global markets? What are some of the experiences you could share with everyone here?

Kai Xia, Zenjoy: Euro-America is an immense market. For example, the American market is larger than the Chinese market. If you add some of the other countries in the Anglosphere such as the UK or Australia, these add up to a large market as well. This is also a mature market, without as much growth potential as compared to the new ones. In the Euro-American market, everyone is trying to find a product and market segment in a field comparatively low in growth potential.

Furthermore, Chinese companies often have some advantage in newer markets, such as stronger internet talents or business acumen. In America and Europe, they do not necessarily have this edge. The local players have experienced teams and well-developed business understandings. They do not move as fast in a high-growth market though, and this is the advantage of Chinese companies. We are solid in execution. Our flexibility is a crucial advantage in changing environments, and when working with Euro-American companies.

It is challenging to reach a level of understanding of the Euro-American market that would be comparable or superior to local entrepreneurs on their home turf. Products with a strong Chinese influence, such as Cheetah, did not reach their large size in Europe or America. In the next few years, music or social media products might emerge.

Here is what I felt about Euro-America. If a Chinese company wishes to deploy here, they need to start relatively shallow, but spread across multiple countries and multiple domains. They need to divide tens of countries in Europe and America into a grid, much like how Source Code Capital divides the industry into a grid of vertical and horizontal segments. It is difficult to understand all of these segments fully. When we developed bike-sharing in Germany, we found a local team. Through them, we were able to deploy the project in a localized manner. For a group of foreigners, it is difficult to survive in this environment.

Similarly, it is difficult to survive overseas. When we worked on localized products, we leverage the support of locals as much as we can, match everyone’s ability to what they are good at. Overseas is such a broad concept, and it is not possible to be comprehensive. Notably, the locals in Europe and America are relatively mature and have a firm understanding of the local situation in their field. We need to fully utilize the power of these locals.

Rui Chen, BluePay: Southeast Asia has a different situation as compared to America and Europe. They are a market of growth. There is a clear trend of growth in the next few years according to the age of the demographics, the ownership of smartphones, and the perception of local and international giants about this market and industry. Now there is a very clear consensus about the market itself.

This market is now one of the more fiercely competitive regional markets abroad. Chinese giants and local giants from the traditional industry are developing into giants in the new economy. The competitive environment is similar to a decade ago in China, when Chinese internet giants started up. In fact, at this moment, neither foreigners nor locals emerged into victory. This is the current state of the Southeast Asia market. Undoubtedly, there is an immense opportunity in the next three to five years. This is how I see the market.

3. How to localize

Di Yuan, Source Code Capital: From the perspective of similarities, 80% of requirements for internet product and services are identical. The other 20% is different, and they are the key to winning. Of course, one of the big aspects of this 20% is localization. For my next question, I would like to ask our panelists, “How did we solve the problem of business localization in the last few years? What are some of the insights for executing localization in a deep and thorough manner?” Please share with everyone from the dimensions of the product, operational deployment, and services.

Kai Xia, Zenjoy: Localization is a domain that we are building up in. Right now, domestically and abroad, I think there are several challenges to localization. On the one hand, the product itself will have different demands based on the demographic profile. For example, core users of Facebook in the U.S. are older, and the older they are, the more heavily they use Facebook and its games. In China, things are different.

In foreign markets, the highest grossing games tend to depend on the contribution from older users rather than the youngsters. Just think about the primary contributors in China for games like the “Arena of Valor.” In this way, the user demographic is different between domestic and foreign markets. There are also differences in the promotion and operations phase. In China, we operate through WeChat and other infrastructure. While abroad, whether we are working on promotions, customer acquisition, or operational support for our users, we would rely on Instagram. There are different challenges abroad. In some locales like Russia, we use other social media like VK. In Korea, there is Kakao Talk. Therefore, the foreign operations are very fragmented.

Deployment overseas is something that requires a little patience. Doing business abroad feels very different from domestic businesses. Being domestic is a broad concept while being foreign is a segregated concept. Unlike in China, what works in Beijing would work in Shanghai or Nanjing in a matter of time, since there is only a slight difference in the demographics.

However, being abroad is very different. I think Chinese companies can only be patient with their work. I see a long-term and time-consuming process, with tremendous potential, and the combined market could be many times larger in size compared to China. However, if you split the market individually, they are relatively small.

Rui Chen, BluePay: Let us take a look at localization. We were a Southeast Asia company since the beginning. The core team since our founding was an international team, a combination of Chinese and locals. Our management team was the same way. Thus we must be localized because we were a local company from the beginning. When we look at the local market from this angle, we can only say that we applied the Chinese know-how and expertise to build our research and development team. This is a bit different from other companies that went abroad.

Also, when we look at the local environment for localization and the difference in user requirements, one of the consensuses we discussed last night would be apparent in Southeast Asia. The user requirement will be 80% similar and 20% different from China.

Specifically, in Southeast Asia, user lifestyles, living density, the trajectory of their daily lives, purchasing habits, purchasing preferences, entertainment habits, cell-phone usage habits, and even the cultural and communication habits in interpersonal interactions are all the more comparable to Chinese users than to users in the U.S.

There is another point. From the perspective of payments, the prevalence of credit cards and bank cards in Southeast Asia is similar to China. There are strong reasons to believe that in the next two to three years, mobile payments retail format will consume this market much like China’s. The dominant retail format in the mainstream market will be based on online and offline mobile payment using QR codes.

Ning Chen, RozBuzz: Our approach is somewhat representative of Chinese teams that developed markets abroad. I think there are three phases to selecting and building the team. In the first phase, we must use Chinese talent, since the foundation is a seamless communication channel. What problem does the first phase address? In my opinion, it is a problem of survival. You are in a foreign land you have never been to before, and may not even be accustomed to the food there. You do not even know how to register a company. This is not a position to make a break-through. The first wave of people you send are not business personnel, but people who can take care of necessary logistics.

The second phase is for the business personnel to go and take care of the building and launching of the business. The challenge here is to organize a team and hire highly competent locals.

The third phase is all about combining the advantage of the two regional teams and deliver results that are greater than the sum of the parts. If there are only Chinese staff who stays abroad, then strictly speaking, this is just another Chinese company. If there are only locals and there is no Chinese staff, then it is merely a capital investment, and we are not maximizing returns.

4. Future Opportunities

Di Yuan, Source Code Capital: Overseas venturing is an immense blue ocean, during the process, it is possible to encounter sharks in its openness, and it is possible to have difficult struggles given its depth. Therefore, Chinese enterprises moving to expand overseas are embarking on a very long journey, but worthy of digging deeper for long-term value. At the same time, there are many challenges, and we should all be prudent in running our businesses abroad. For the last question of this panel discussion, let us remember that our topic today is, “Set sail and launch abroad, for there is so much you can do.” While sticking to this topic, please share your outlooks about Chinese companies who will be expanding overseas in the next three to five years.

Kai Xia, Zenjoy: There are two types of Chinese companies going overseas. One type dives deep in a field and thoroughly penetrate a key country. The other kind of companies is more breadth-oriented and may not be deep.

Start-ups that lack resources have no choice. For us, both of these types can work. In the upcoming process of going overseas, two kinds of companies will emerge. It will be more often for us to connect more opportunities with a broad approach. Domestic and foreign businesses are similar to how high, and how low air pressure regions work in meteorology. It is like the wind. There are some regions with high pressure and some with low pressure, and so wind forms between these regions. We leverage the flow of the wind to generate electricity. I think this is a future trend we can likely grasp.

Ning Chen, RozBuzz: There were forty years since China reformed and opened up to the outside world. The first thirty years was primarily driven by the domestic market, and we achieved considerable progress. In the last decade, we can see many Chinese businesses expanding abroad. The global market brought new developments, and this trend will continue for many decades into the future. It is apparent if you look at Chinese manufacturing companies such as Haier or Hisense, and other home appliance companies. They took the step earlier, and now foreign revenue makes up more than half of their total revenue. In the future, Chinese internet companies must expand overseas to continue their progress. This is an opportunity for our generation of Internet entrepreneurs.

Rui Chen, BluePay: I will still focus on Southeast Asia. I have a great prediction for the next five years of the Southeast Asia market. Between 10 to 20 companies will emerge with valuations between USD $5-10 billion. The industry situation will be similar, but not entirely, to the Chinese industry situation today. Within this industry, a significant market position and market share will go to Chinese founding teams, and those with favorable capital and technology support.