As China’s tourists go global, its companies follow

This month, 6.5 million Chinese will travel abroad for the Chinese New Year holiday.

They’ll bring luggage, smartphones and a desire to use the same technological conveniences they’ve grown accustomed to at home. For China’s tech companies, that’s a potent combination -- one that may help them finally compete in overseas markets.

Just as foreign companies often fail in China, Chinese companies have tended to struggle abroad.

Examples are widespread, from the soft-drink maker Jianlibao, which failed to tailor its product to foreign audiences, to Li Ning, a sporting-goods company that splurged on celebrity endorsements but couldn’t keep its shelves stocked.

Among the highest-profile failures have been China’s big tech companies, including Baidu, Alibaba and Tencent.

One mistake these companies have all made is to rely on business models finely tuned to China’s unusual marketplace.

Smartphone-based mobile payments are hugely popular in China, for instance, but largely redundant in Europe and North America, where credit and debit cards are ubiquitous.

Chinese tourists may offer these companies an opportunity to reverse that trend.

For one thing, there’s a lot of them.

Since 2012, China has been the world’s biggest source of outbound travellers, with 135 million of them going abroad in 2016, spending a staggering US$261 billion (S$344.4 billion).

Another advantage is that these tourists are accustomed to Chinese technology. In 2016, Chinese made about US$9 trillion in mobile payments via apps like Alibaba’s Alipay and Tencent’s WeChat Pay; the two companies control about 92 per cent of the domestic mobile-payments market.

This combination of spending power and technology dependence offers a unique and low-cost way for Chinese companies to experiment in foreign markets.

Payments offer the most obvious opportunity. Although Chinese tourists could of course use cash and credit cards overseas, it’s a lot more convenient to use home-based payment systems connected to their bank accounts. That’s why WeChat Pay and Alipay have spent the past few years forming partnerships with companies catering tothese travellers.

In 2015, Marriott International rolled out Alipay at its resorts and hotels, while Caesar’s Entertainment last year became the first casino operator on the Las Vegas Strip to accept WeChat Pay.

Meanwhile, Alipay reached an agreement that allows its users to shop at more than four million United States merchants. It has similar arrangements in at least 35 countries.

WeChat Pay is fulfilling similar ambitions. For both companies, Chinese tourists offer the opportunity to go international without having to compete against international brands.

But payments are probably just the start.

Tujia.com, a rival to Airbnb, is expanding in Japan by targeting properties owned by Chinese investors.

Didi Chuxing, China’s ride-hailing giant, has bought stakes in seven similar companies worldwide, giving Chinese tourists a chance to hail taxis in more than 1,000 foreign cities.

Currently, only 5 per cent of Chinese have passports. As that number grows, China’s tech companies will have more opportunities to cater to them.

In doing so, they’ll start acquiring the know-how needed to expand more aggressively into foreign markets.

For example, Chinese sharing-economy companies are quickly learning the ins-and-outs of local regulations, as well as the preferences of foreign drivers and homeowners.

Payment companies are developing relationships with all-important merchants. Local customers, meanwhile, are becoming acclimated to Chinese technologies and brands.

Some companies are laying the groundwork for a more ambitious transition.

Last month, WeChat Pay said that expatriates in China -- and local users in Hong Kong, Taiwan and Macau -- can now connect international credit cards to their accounts. Previously, the service could only be used by Chinese with mainland bank accounts.

The symbolism wasn’t subtle: WeChat is handing overseas users the ability to make e-payments at tens of millions of merchants around the world, and signalling its own ambitions to finally go global.

Foreign tech companies should pay close attention to this transition - because it’ll probably happen fast.

China’s tourists aren’t just bringing their fattened wallets with them when they go abroad.

Increasingly, they’re bringing the competition. BLOOMBERG

ABOUT THE AUTHOR:

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”