DDN Business Insider | Go global in changing environment: How can Chinese enterprises fit in overseas local markets?
Editor's note: As pressure continues to mount from the United States, Chinese technology companies now face numerous challenges in expanding into the U.S. market. The outcome of the 2024 U.S. presidential election is also expected to have far-reaching effects on Sino-U.S. economic relations. In this complex and changing international environment, how should Chinese companies react to it, and how can they find new opportunities in adversity?【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. As pressure continues to mount from the United States, Chinese technology companies now face numerous challenges in expanding into the U.S. market. The outcome of the 2024 U.S. presidential election is also expected to have far-reaching effects on Sino-U.S. economic relations. In this complex and changing international environment, how should Chinese companies react to it, and how can they find new opportunities in adversity? Today, we have invited Mr. Cai Jianwen, Vice President of Sinocare, to share his observations and thoughts as entrepreneurs going global. Hello, Mr. Cai.
【Anchor】In recent years, the U.S. economy has experienced significant changes, including fluctuations in real GDP growth rates and inflation data. Mr. Cai, how do you view these economic phenomena? Particularly regarding the substantial rise in housing prices and employment conditions, what impacts will these changes bring on people's livelihoods and businesses?
Overall, the U.S. economy is currently transitioning from a period of rapid growth to a phase of more moderate growth..
Speaking from my own experience in the U.S., especially during 2021 and 2022, it felt like the economy was overheated. Previously, we had always thought that housing prices were a topic of interest primarily for the Chinese people. However, in the past two years, it also become a hot topic amongst Americans. For example, in Fort Lauderdale, a small city near Miami, housing prices have increased by around 40% to 60%, compared to pre-pandemic levels, and the trend is still ongoing. This phenomenon resembles the trends I observed in Stockholm in 2024 and Munich in 2016; the rise in housing prices has become a global trend.
During the pandemic, inflation was indeed very severe. For instance, the price of gasoline (Grade 87) surged from $2.90 per gallon in August 2021 to a peak of $3.70 per gallon in 2023. This year, prices are expected to fall back to around $3.30 per gallon. The prices of eggs and beef also increased by over 40%.
Regarding recruitment during the pandemic, it was especially challenging in the U.S. We have a medical manufacturing company in Indianapolis where our finance department had nine people, and during the pandemic, three of them resigned. After switching jobs, they received salary increases of about 30%, on average. Therefore, recruitment was a considerable challenge at that time. However, this year, as the economy begun to stabilize, recruitment challenges in the talent markets have eased.
【Anchor】The impact of the U.S. election results on Sino-U.S. trade relations cannot be ignored, especially for companies that manufacture in China and export to the U.S. Mr. Cai, what main uncertainties do you think these companies face? The restructuring of the global supply chain has become an inevitable trend. How should companies respond to this challenge?
For Chinese companies that manufacture and sell locally in the U.S., the U.S. election may have little effect. However, for Chinese companies that manufacture in China and export to the U.S., the uncertainties are far greater. This is because Trump has pledged to impose significant tariffs on companies with Chinese backgrounds. From Trump and Harris's campaign promises, as well as last year's Republican primary debates, it has become a consensus amongst the U.S. government and political circles to decouple from China. The U.S. government is likely to impose higher tariffs on Chinese products while providing certain tax incentives in the U.S. market. These policies will promote the success of the entire global supply chain. For instance, some medical device companies, such as Insulet and Descan, have already established factories in Malaysia to circumvent the tariff impacts of U.S. government policies. Additionally, Walmart is also actively responding to these uncertainties by offering a 5% price increase to Chinese suppliers who are willing to move production out of China.
Chinese companies are also taking measures to respond. For example, some Chinese companies are establishing factories in Mexico to leverage the tariff advantages of the USMCA (United States-Mexico-Canada Agreement) and to quickly respond to the demands of the North American market. In this context, companies looking to expand overseas need to incorporate geopolitical influences into their global supply chain and market planning to flexibly address various challenges.
Moreover, I suggest that Chinese companies consider going abroad to adopt an integrated model. Instead of focusing on single-product exports, they should expedite overseas market layouts and the localization of production by implementing integrated strategies based on production locations. This includes complying with local market regulations and establishing local decision-making teams to enhance local production capabilities. By doing so, Chinese companies can achieve greater success.
【Anchor】In recent years, Chinese companies have accelerated their efforts to go global, increasingly positioning themselves in international markets. Some have chosen to establish production bases in Southeast Asia and other regions to reduce costs, with the healthcare sector becoming a significant focus for these expansions. As population aging begins to trend, Chinese companies' foray into the U.S. healthcare market is particularly noteworthy. Mr. Cai, how do you think Chinese companies should balance innovation and cost control while responding to policy changes in the U.S. healthcare market?
The U.S. is the largest healthcare market globally, with healthcare spending accounting for 17.6% of U.S. GDP in 2023. The aging trend in the U.S. is also particularly pronounced, with the proportion of the population aged 65 and older reaching 17% in 2023 and is projected to rise to 21% by 2030 as the baby boomers enter old ages. This growth will lead to increased demands for healthcare services, especially with rising pressures on Medicare and Medicaid expenditures. The Centers for Medicare & Medicaid Services will inevitably seek for lower-cost alternatives, and this will present significant opportunities for Chinese companies that have already encountered similar trends in China's aging market. Therefore, when exploring the U.S. healthcare market, Chinese companies need to find a balance between innovation and cost control while being keenly aware of changes in healthcare policies.
【Anchor】Regarding how Chinese companies "going out" have adapted to local cultures, previous DDN interviews showed that companies often start from the details and integrate local cultural elements into their existing management models. For example, the Hong Kong company Champion Lee's factory in Vietnam adapts to local customs in its management, following the Vietnamese culture to manage Vietnamese employees, which has helped the business to scale up significantly. Similarly, the factory of Mainland Headwear Holdings Ltd. in Bangladesh built closer relationships with its employees by assisting with local infrastructure development and improving the quality of life for residents.
【Anchor】Of course, for Chinese companies "going out", it is necessary to address how to balance innovation with adapting to local cultures and legal frameworks. Mr. Cai, when Chinese companies enter the U.S. market, what preparations should they make to effectively respond to market and policy changes?
For Chinese companies, including those from Hong Kong, expanding into the U.S. market, my first piece of advice is to focus on innovation. Take our industry's GLP-1 simplified drug as an example. GLP-1 was initially approved by the FDA in 2005 for treating malignant diabetes. Novo Nordisk developed the GLP-1 drug and got approval in 2017 for the same purpose, and in 2021, the company launched the product under the Wegovy brand for weight loss. Since then, GLP-1 has become a market hotspot, and Novo Nordisk has become one of the largest companies in Europe by market value. This is the power of innovation.
We should also discuss the importance of understanding the local culture in the U.S. Companies need to deeply understand local legal frameworks and market characteristics. While we Chinese may enjoy Hollywood blockbusters and eat burgers, our understanding of deeper aspects of the American culture is still limited. Therefore, when entering the U.S. market, Chinese companies need to respect the local culture, deeply understand the American market, and actively create job opportunities for locals. As mentioned in the book "Common Sense on Mutual Funds", companies should focus on long-term outcomes like gardeners, patiently waiting for their investments to grow naturally in the garden.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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