(Yicai) Dec. 10 -- Chinese companies should move beyond traditional export models and invest in overseas localized operations to reduce risks and enhance their ability to cope with mounting geopolitical tensions, according to a strategy professor at global business school Insead.

Chinese firms should formulate new strategies to adapt to a rapidly changing landscape and improve their global competitiveness, Chen Guoli said at the 2024 Dishui Lake Emerging Finance Annual Conference in Shanghai's Lingang Special Area on Dec. 6.

Chen also released the Chinese version of Seeing the Unseen, Behind Chinese Tech Giants' Global Venturing at the Dishui Lake Emerging Finance Conference. Co-written by Chen and Li Jianggan, the book tells the successful stories of Chinese tech companies across the world, such as Alibaba Group Holding and TikTok's owner ByteDance.

"The world is big, and there are so many countries," Chen told Yicai. "The external environment can fluctuate and be subject to constant changes."

The key to Chinese companies' success abroad lies in leveraging core competencies and adapting to the demands of overseas markets rather than simply exporting products at competitive prices, Chen explained.

Shifting From Export to Collaborative Globalization

"It's very important for Chinese businesses to move beyond product export and enter the next stage of globalization," Chen noted. "They need to establish a global presence and branding, taking advantage of the differences in each country to achieve economies of scale and economies of scope."

Chinese firms have always been successful in exporting cheap products by leveraging the country's massive production capacity and efficient supply chain. However, Chen believes that low-price competition is not sustainable in the long term.

Countries are introducing more and more protectionist policies to shield their industries from foreign competitors. For example, Chinese exports of photovoltaic and textile products and electric vehicles face significant barriers, such as high tariffs.

Analysts believe that this protectionism trend will further increase with Donald Trump's second election as president of the United States.

To avoid the "push-back" and ensure success, Chinese companies should localize operations, Chen pointed out. "If firms build plants in overseas markets, adapt to the local conditions, localize their supply chains, and provide jobs to locals, they are less likely to be pushed back," he explained.

Chen called for a shift toward collaborative globalization. "Many companies can cooperate and learn from each other, creating a win-win situation rather than focusing merely on competition," he noted, adding that this will not only benefit Chinese firms but also their international partners and local communities.

Venturing Overseas

Despite the challenges, Chinese companies already occupy an advantageous position in the global market, particularly because they embrace more sustainable and localized strategies.

According to Chen, there are four key drivers for Chinese firms' global expansion efforts: demand, supply, competition, and policies.

Demand-driven motivation involves tapping into large and fast-growing consumer markets abroad, such as Africa or Southeast Asia. Supply-side advantages, such as lower labor costs in some countries, help companies improve production efficiency and margins. Competitive pressure often forces companies to go global. Policies, such as government initiatives like China's Belt and Road Initiative, can incentivize firms to expand overseas to align with broader national strategies.

Chinese companies' overseas revenues soared 12.8 percent to CNY3.83 trillion (USD529.2 billion) in the first half of this year from a year earlier, versus a 2.9 percent growth last year, according to data from the China Association for Public Companies. Overseas revenues accounted for nearly 11 percent of the total in the first half, up from 9.6 percent in 2023.

China's cross-border e-commerce trade reached CNY1.22 trillion in the six months ended June 30, according to statistics from the General Administration of Customs.

"Definitely, there are opportunities overseas," Chen said, highlighting the importance of adopting a comprehensive strategy, which he called ‘POP-Leadership’ or People, Organization, Product, and Leadership strategy.

According to Chen, successful globalization requires more than just entering new markets. Companies must build the right organizational capabilities, adapt products to local needs, and cultivate leaders who can navigate the complexities of global markets.

Editor: Futura Costaglione