Chinese companies look to US and Asia as domestic growth slows


BEIJING — Some Chinese consumer brands are seeking growth abroad, in markets such as the US and Southeast Asia.

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

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

More importantly, he said Miniso’s gross profit margin for direct-operated stores in the United States is well above 50%.

“If we can get a foothold here and create a good business, we generally won’t have a problem in the US,” Ye said in Mandarin, according to a CNBC translation. His goal is to become the first “$10 and under” retailer worldwide.

Miniso stores started popping up in mainland China almost 10 years ago, with overseas expansion starting in 2015 in Singapore. In March, the company said 37% of its 5,113 stores were abroad.

Faster growth outside of China

Like many other companies, Miniso saw sales decline during the pandemic. More than two-thirds of the turnover still comes from China. But in recent months, the data has shown a relatively rapid rebound, internationally versus domestically, as a result of the fluctuating effects of the pandemic.

In the nine months ended March 31, the company said, sales in China grew 11% year-on-year to 5.91 billion yuan, versus 48% growth abroad to 1.86 billion yuan.

Retail sales in China have lagged since the pandemic began in 2020. A slump in the housing market has not helped. According to surveys by the People’s Bank of China, the propensity of locals to save rather than spend or invest has risen to its highest point in 20 years.

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

He pointed out that for products such as air conditioners, penetration among rural households was 73.8% in 2020 – and even higher at 149.6% in urban areas. China Renaissance expects that penetration rate 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 period of time,” Chen said. “For these air conditioners, home appliance companies, where they can get more revenue, it’s abroad.”

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

miniso

According to the International Energy Agency, air conditioners in Southeast Asia have a penetration rate of 15% in households.

Home appliance companies Midea, Hisense and Haier Smart Home have pushed into markets outside of China in recent years. Haier even acquired the appliance unit from General Electric in 2016 for $5.4 billion. Hisense’s goal is for overseas markets to generate half of its total revenue by 2025.

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

“Definitely if [Chinese companies] want to enter overseas markets, [they] have to build their brand, have to fight with existing competitors,” Chen said. “The cost will not be low. Initially they would not be profitable. But they invest.”

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

Similarly, Miniso’s Ye said its strategy in the US is to combine the company’s supply chain network in China with the work of New York designers — so 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 had to find its own factories, Ye claimed.

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

June extensions

Other Chinese companies have continued to expand overseas despite Covid travel restrictions.

Ant Group, the fintech affiliate of Alibaba, announced in June that it has launched a digital wholesale bank in Singapore following approval from the Monetary Authority of Singapore.

Also in June, Hong Kong-listed toy company Pop Mart tested American waters by opening its first temporary location near Los Angeles. The company sells collectible toy figure sets – in unmarked boxes. That means a customer might get a new toy to add to a collection, or the same toy the customer has already purchased.

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

Localization Challenges

It remains to be seen whether the recent overseas growth for those Chinese companies will continue.

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

Highly successful companies such as short video company TikTok, owned by Beijing-based ByteDance, are under pressure from the US government over data security concerns.

Read more about China from CNBC Pro

Not to mention the inherent challenge of becoming an efficient international organization. A CNBC report on Chinese tech companies found that business culture at home — with lots of Mandarin and long hours — often made its way abroad and discouraged local workers from staying.

But whether it’s electric cars or home appliances, conversations with many Chinese companies reveal a deep-seated but vague ambition unaffected by the pandemic: to become a global company.

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

Share is Love^^