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AsainFin -- In recent years, the term "Global South" has been appearing with increasing frequency.

"Global South" is not merely a geographical or economic concept. The international community habitually refers to developed countries as the "North," which includes countries in Europe, North America, and developed regions of Asia, as well as Australia and New Zealand in the Southern Hemisphere. Developing countries are referred to as the "South," which includes countries in Africa, Latin America, the Caribbean, and developing countries in Asia.

Over the past two decades, the economies of the "Global South" have developed rapidly, profoundly reshaping the global economic landscape.

In 1980, the share of "Global South" countries in the global economy was only 33%. By 2010, this proportion had risen to 45%. According to the Organization for Economic Co-operation and Development, this share is projected to rise to 57% by 2060.

With the support of a new wave of technological and industrial revolutions, the status of "Global South" countries in global trade, international investment, foreign exchange reserves, and financial strength has rapidly increased, making them the fastest-growing economic entities. This also highly overlaps with the "emerging markets" frequently mentioned by many Chinese overseas enterprises.

Therefore, in a broader context, "Global South" represents emerging market countries and developing countries. Popular overseas destinations such as the Middle East, Latin America, Southeast Asia, and Africa are all included, offering vast opportunities for Chinese enterprises to seek growth.

In recent years, Chinese companies, from automobiles to apparel, have been expanding into the "Global South" market at an unprecedented speed. Since 2016, Chinese listed companies have seen their sales in "Global South" countries surpass those in developed countries for eight consecutive years.

For example, the electronics manufacturer Transsion holds a significant share of the African smartphone market; medical equipment producer Mindray has become a leading supplier of patient monitoring systems in Latin America; and Chinese electric vehicle and wind turbine manufacturers are rapidly expanding in developing countries.

According to The Economist, Chinese companies have targeted the massive demand of 5 billion consumers in the "Global South" market and are gradually weakening the market dominance of established Western multinational companies.

Chinese companies have the advantage of leveraging their past development experience in China to explore the "Global South" market. However, this group of countries encompasses a wide range of values, cultural traditions, development levels, and diverse interests.

In response, AsianFin had an exclusive conversation with Xu Ying, Executive Chairman and Chief Investment Officer of Weishi and co-founder of the Super Bridge Council. To seize the development opportunities in the "Global South," overseas enterprises need to learn to listen to market demands and adjust their inherent path dependencies, tackling both thought and action.

Leapfrogging Physical Infrastructure to the Internet Era

If there is one word to describe the "Global South" market, it is "complex."

The most obvious advantage of the "Global South" market is its unprecedentedly vast market scale brought by its population size.

Compared to developed regions such as Europe, Japan, and South Korea, where population growth is very slow or even negative, "Global South" countries not only have a large population base but also a very considerable population growth rate.

The population of "Global South" countries accounts for 70% of the global population, exceeding 6.3 billion people. According to Worldometer data, both China and India have populations of approximately 1.43 billion, once the two most populous countries in the world, accounting for 17.7% and 17.8% of the world's total population, respectively. In 2023, Africa's total population reached 1.46 billion, surpassing China and India, becoming the fastest-growing region in the world with an annual growth rate of about 2.4%.

According to OECD forecasts, by 2050, India's GDP will surpass that of the United States, and by 2060, the combined GDP of China, India, and Indonesia will reach $116.7 trillion, accounting for 49% of the global GDP, three times the size of the U.S. economy. The next decade will belong to the "Global South."

However, the sheer number of countries included and the complexity of each country's and region's environment make it difficult to generalize. Unlike developed countries, which have relatively unified economic and political systems developed on the basis of traditional capitalism, the "Global South" features more diverse religions, cultures, political, and social systems.

For example, in terms of political systems, Brazil, Mexico, and Indonesia have presidential republics, India and South Africa have parliamentary republics, while Cuba and Vietnam have systems based on people's congresses.

With politics intertwined with multiple factors, different countries have chosen different development paths and focal points. Countries like China and India have attracted significant foreign investment through economic reforms, promoting the development of manufacturing and service industries. Some African countries focus more on resource development to boost economic growth.‌

"The opportunities and challenges in the development of the 'Global South' market stem from its complex and diverse landscape. It requires more adaptation to multi-layered economies and localized business models," said Xu Ying, Executive Chairman and Chief Investment Officer of Visi, and co-founder of the Super Bridge Council, in an interview with AsianFin.

In Xu Ying's view, another key term for the "Global South" market is "leapfrogging development."

"Global South" countries have a strong desire for industrialization but have not yet entered a large-scale industrialization phase, still primarily focusing on agriculture and extraction in the primary industry. Although their level of industrialization is low, they have entered a leapfrogging development stage through the digital economy.

For instance, countries like Morocco, Nigeria, and Egypt in Africa do not have well-developed physical infrastructure such as roads, bridges, and airports, but they are rapidly catching up in digital infrastructure construction.

After visiting major cities in Africa, Xu Ying's previous perceptions of Africa were overturned. In the past, Africa and the Middle East Gulf regions frequently experienced coups, disasters, and famines, but in Nigeria, Egypt, and Morocco, Xu was amazed by their changes and development potential.

In Egypt, Xu even saw pharmacies using drones for delivery. "Chinese companies expanding overseas pay a lot of attention to Southeast Asia and South America but overlook Africa's determination and speed in embracing digitalization," Xu Ying stated.

In an article previously published by AsianFin titled "A New Market Space for Africa's 1.4 Billion People | Africa Industry Watch," it was mentioned that Huawei is building 70% of Africa's 4G network, and digital infrastructure is rapidly supporting Africa's e-commerce and digital entertainment consumption. More detailed information will not be repeated here, but interested readers can click on the article link to view it.

The retail formats in the United States, such as Walmart and Costco, developed after the extensive construction of highways in urban and rural areas, eventually entering the e-commerce era. In China, e-commerce companies were nurtured alongside the large-scale construction of transportation infrastructure and the rapid development of the internet. Meanwhile, Africa has directly leaped into the e-commerce era thanks to the development of digital and internet technologies, even before its physical infrastructure matured.

"This will give rise to a series of new business models centered around digital infrastructure. Chinese companies can adapt to local conditions and seize the demands of leapfrog development, providing high-quality and cost-effective services and products, potentially achieving better profits than domestically," said Xu Ying. However, different countries and regions will experience different business model leaps, requiring entrepreneurs to conduct on-site investigations and pay attention.

The "Global South" countries have a more pronounced characteristic of "independent development" in their growth.

Xu Ying stated, "The very realistic situation is that after the rise of 'Global South' countries, there is a strong demand for self-identity and the right to self-development. This self-assertion and choice of self-development paths, even in the selection of partners in specific business activities, will exhibit these characteristics. This self-awareness is relatively objective and less confrontational towards Chinese enterprises, providing an opportunity for their development."

China and the U.S.  Have Taken Two Paths in Industry and Capital Investment

The "Global South" has already become an important engine for global economic growth. According to IMF forecasts, the economic growth rate of the South will maintain around 4% by 2029, approximately three times that of Northern countries.

Capital is most sensitive to business opportunities.

In 2022, FDI inflows to developed economies fell by nearly 40%, while developing economies attracted FDI against the trend, accounting for 71.2% of the global total inflow. In 2023, against the backdrop of a 10% decline in global FDI, inflows to developed economies fell by 15%, while FDI inflows to developing economies only decreased by 7%.

As the two major economies among the current "Global North" and "Global South" countries, China and the United States have distinctly different investment approaches towards the "Global South."

Developed economies, primarily led by the United States, are investing in the "Global South" through primary market investments, similar to how they pursued Chinese tech companies in the past.

Take Africa as an example, well-known venture capital VCs in various countries often have LPs from Europe, America, or Japan. For instance, active foreign VCs in Egypt include Endure Capital, which has offices in the US, UAE, and Egypt; Arzan VC from Kuwait; BECO Capital from the UAE; and the fund 500 Falcons under the international incubator 500 Startups.

According to research data from Feicheng Innovation, current foreign venture capital has invested in 37 Egyptian startups, accounting for 30% of the investment portfolio in North East Africa.

Xu Ying said that Western venture capital has a strong investment capability in Latin America, India, and Africa. "They invested in the most adventurous young people on these lands very early on. Relatively speaking, China's outbound investment scale in the primary market is relatively small. Chinese companies going global are more focused on physical business directions."

The differences in economic systems and industrial structures determine that the mode of Chinese companies going global will inevitably differ from that of Europe and America. Currently, Chinese companies going global mainly focus on infrastructure construction, technology equipment, product service capabilities, and trade. The West cultivates and influences local enterprises through financial output.

"However, there is no distinction between good and bad when it comes to financial capital and industrial capital output. Chinese national capital is also involved in the India National Infrastructure Investment Fund, participating in emerging industries such as early-stage charging stations and smart parking meters," Xu emphasized.

She mentioned that regardless of the form of investment, there will be a game with the local area, and different business paths will have different game results. In exchanges with European, American capital, and 'Global South' countries, the most important thing is to learn to listen, understand local characteristics, difficulties, and demands, and use one's capabilities to provide suitable products and services. Whether it's investment or industrial operations, there are development opportunities.

Innovating Local Business Models With "Close Combat"

Precisely based on the characteristics of the "Global South" countries, which include diversity, heterogeneity, complexity, and stability, Chinese companies are more adept at actual operations compared to European and American companies.

From relatively primitive production and trade methods such as assembly processing and raw material supply, Chinese companies have evolved into deeply mature production supply chains, with some industries advancing alongside European and American companies, deeply understanding the "Global South" market.

In contrast, European and American companies, having entered the competitive landscape of high-end profit industries too early, are unable to provide more practical solutions to the markets of "Global South" countries, which are currently in a primary development state. What the "Global South" countries need most now are localized and suitable business models.

Take the rapidly developing tea beverage industry in Southeast Asia as an example. In 2018, Mixue Bingcheng opened its first directly-operated store in Vietnam and then quickly expanded to Indonesia, Thailand, Myanmar, and other places. By the end of 2023, Mixue Bingcheng's profits in Vietnam even surpassed those of Starbucks. Tea beverage brands such as Bawang Chaji, Auntie Shanghai, Heytea, and Yihe Tang have also been expanding into the Southeast Asian market.

However, for tea beverage companies, Southeast Asia is not an ideal place. Southeast Asian countries still face issues such as mismatched bridge and road networks or interruptions in water and electricity supply, making it a major challenge to ensure production supply.

According to a report by the "Nikkei Asian Review," in the context of imperfect infrastructure, the main raw materials for Mixue Bingcheng's products are produced on a large scale in China. A manager of a store in Thailand stated that the tea leaves and creamer used to make milk tea are produced by Mixue Bingcheng's subsidiary in Henan Province and exported to Southeast Asia. The scale advantage makes Mixue Bingcheng's operating costs in Southeast Asia lower than those of local companies.

It is understood that compared to the local brand "ToCoToCo," the prices of Mixue Bingcheng's beverages are actually 30% to 50% cheaper. This requires a flexible and efficient supply chain support capability, coordinating shipping cycles, production cycles, and store sales rhythms.

Additionally, due to the backward production levels in Southeast Asia, many cups, tableware, decoration materials, and industrial production raw materials also come from China.

This has also driven the pace of Chinese logistics companies going overseas. In the process of building an overseas supply chain structure, Chinese companies need to bring their own logistics equipment, such as shelves and forklifts, which significantly increases costs but is offset by the low local labor costs.

In this tea beverage expansion, the key to success is an adaptive strategy, including cost-effective products, the establishment of local warehouses, and localized flavors and marketing designs. To solve water and power outages, most tea beverage stores are even equipped with generators, UPS power supplies, and water storage tanks.

Xu Ying stated that in a diverse environment, compared to European and American companies, Chinese companies are adept at quickly iterating through "close combat" and "ground warfare," developing solutions and business models suitable for the local area.

Compared to European and American companies, the advantages and opportunities for Chinese companies in the "Global South" market also lie here. Some industries in European and American companies are very advanced in technology, but in large-scale full-chain capability competition, Chinese companies are stronger.

Currently, China's imports from Southern countries are mainly primary products, including: oil and natural gas (Middle East, Africa, and South American countries), mineral products (South America, Africa), agricultural products (South America, ASEAN, South Asia), seafood (ASEAN, South Asia), textile raw materials (South Asia), metals and metal products (South America).

China primarily exports industrial manufactured goods to Southern countries, including: electronic products, machinery and equipment, textiles and clothing, automobiles and auto parts, chemical products, and metal products. By acquiring locally advantageous raw materials for processing and then feeding back into the local market, Chinese enterprises form a complementary and win-win trade relationship with the "Global South."

"China's large downstream market has tested many business models, and taking the full-chain technical capabilities and industry insights abroad will accelerate the pace of commercialization," Xu Ying summarized.

Conclusion: "Blindly Venturing Abroad is Inadvisable"

In recent decades, the economies of "Global South" countries have developed rapidly, especially in countries like India, Brazil, Indonesia, and Vietnam. More and more Chinese enterprises are focusing on these markets.

By the end of 2022, China's FDI stock in Southern countries reached $2.46 trillion, accounting for nearly 90% of the total. Among the enterprises China has established overseas, there are over 27,000 in Asia (59.2%), nearly 3,700 in Latin America (7.9%), and over 3,000 in Africa (7.1%). In 2022, Chinese enterprises completed 118 overseas mergers and acquisitions in countries involved in the Belt and Road Initiative, with a total acquisition amount of $5.52 billion. The target countries for acquisitions exceeding $300 million were mostly Southern countries, including Argentina, Zimbabwe, Kazakhstan, and Indonesia.

Looking back, companies that have formed mature businesses and brands overseas often cultivate these markets over a decade.

Hisense has operated in Japan for nearly 14 years, eventually ranking fifth in market share. Transsion has cultivated the African market for over 18 years, surpassing Samsung to become the "King of African Phones." Huawei's journey abroad has spanned over 20 years, establishing it as a globally recognized brand.

Xu believes that venturing abroad must be led by the top leader. From strategic understanding to organizational restructuring, and even business model transformation, it requires very firm and clear leadership to drive the process.

Secondly, before venturing abroad, it is crucial to deeply consider the factors that contributed to success in China's specific environment. In the past, the development of Chinese enterprises, especially in manufacturing, was inseparable from strong government policy support. However, in overseas markets, especially in "Global South" countries, government forms vary—some are proactive governments, some are weak, and some are non-existent. Some common practices may not apply after venturing abroad.

Finally, there must be a firm commitment to adapt the business model to suit local conditions. A mindset of long-term investment and long-term local development is essential.

"Enterprises need to let go of their path dependency in thinking models and conduct in-depth overseas research," Xu Ying stated. "For enterprises, the cost of trial and error is not just monetary; the most important factors are strategy and time windows in competition." (Author | Yang Xiujuan, Editor | Wang Lu)