China Insights | Blog | China Trade War – Should You Be Worried? Maybe Not

China Trade War – Should You Be Worried? Maybe Not

ADG China

Written by ADG China


trade war 1

Over the last few years, we have witnessed an increase in the numbers of Chinese technology companies going abroad. Until recently – with the China trade war – it appeared that it might be China’s time on the world stage as their innovation, speed and business models were spreading globally and they were finally starting to win meaningful market share abroad. Wherever they went they were generally facing welcoming markets and customers. Considering the size of China’s economy and the relatively few  global Chinese brands companies it seemed reasonable to mostly ignore or even welcome their global expansion. And for years it seemed most countries did.

Here at ADG we watched first hand as China’s tech companies seemingly became creative and innovative over the course of several years. But what really set them apart has been their speed and aggressive pricing models which have been fueled by seemingly limitless capital with little concern for ROI. Combined with a world desperately wanting a piece of the China miracle it put China at the pinnacle and provided  them a meaningful competitive advantage when customers wanted to buy something with 90% of the quality at 50% of the cost. 

By the end of 2017 it looked like China was ready to leap frog the world in a number of fields allowing them to gain market share in areas like SaaS, fintech, and to a lesser extent IoT.  Western companies began to face a choice of either lose deals to China or win by giving away their products away for free or at a loss. This was especially prevalent in the software world where  Western companies were starting to sell more and more to Chinese companies going global. Here they were competing directly with local Chinese competitors even when the end markets were outside of China. More and more they had to compete directly against the “China Model” also know as the platform model. (The China model is where a company raises hundreds of millions of dollars or more to buy-up the market in hopes of reaching  critical mass where they can monetize by selling data or through advertising.)

Roll in 2018, Donald Trump and protectionism,  the China trade war, GDPR and a world that has been shaken and woken up. Whether for competitive, national security  or political reasons there has been a noticeable change in the attitude towards China’s global expansion. The world has started to push back on China as the China trade war with the US illustrates. Whether for legitimate national security interests or not, governments increasingly have the support of their people behind them and they are pushing back against China. They are starting to demand equal access to China’s market while at the same time limiting where China can play in their own countries. The message has been delivered by foreign governments in the USA and Europe and for now it looks like the global trend towards a more isolationist environment is creating a new paradigm for technology partners globally. The world is developing into a handful of semi-protected markets including Russia, India, the EU, the USA and China. It is becoming clear. If you want access outside of your home markets, whether you are a Chinese company, American company or anyone else,  you’d better find local partners. The awareness of this new environment is becoming very clear to Chinese companies who have all watched ZTE became the latest victim in global politically game.  

And China has no choice as its desire to go abroad is not slowing down.  China’s companies are desperate to mitigate domestic China risks by expanding globally. Now is the time to get in early  with China’s leading technology companies and turn the threat into an opportunity.

And it is not only about cross-border partnerships, the environment for selling to China’s technology companies is also improving as a result of several underlying factors:

  1. The endless money supply is not as endless as previous years.  Industries are quickly consolidating and it is becoming difficult for anyone but the top tier companies to find capital.
  2. China’s products have dramatically improved and they are now laser focused on user experience which is putting  an end to spam and cheap advertisement
  3. Selling data, the key monetization tool for many of China’s leading software companies is still ok inside of China but thanks to GDPR and the problems of Facebook and others, this is no longer possible for products selling to Europe or the USA.

What this all means is that licensing fees and margins are starting to recover. It also means that the Chinese companies need partners in markets all over the world.  

Now may be the best ever to engage with China and form that global partnership before your competitor does.

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