Source: Dongge Notes

Author: Li Chengdong

The 121st Dongge Dinner (Beijing Edition) returns to its essence—confronting the real challenges and survival paths of corporate globalization.

Topics ranged from China’s stringent tax audits and cutthroat e-commerce competition to the vast opportunities in Southeast Asia, Latin America, and Africa. Discussions delved into how AI empowers traditional industries, the overt and covert rules of brand globalization, and high-level resource strategies.

No armchair theorizing here—only hard-won lessons from the trenches, sober trend analysis, and the unfiltered consensus of entrepreneurs seeking breakthroughs.

Below are distilled highlights from the dialogue, with anonymized data and unvarnished perspectives.

Domestic Market: Growth Peaks, Margins Razor-Thin

China’s consumer and B2B markets have entered a late-stage phase of low growth and hyper-competition, with traditional channels squeezed and companies facing growth pressures and compliance risks.

Sluggish Consumption: Real estate downturns drag home furnishing and building materials sectors; mass-market brands stagnate, with only niche segments like pet care, outdoor gear, collectibles, and smart hardware showing growth.

B2B Pressures: SOE procurement faces "crackdowns," extending payment cycles and compressing project margins to single digits. Relationship-driven deals now demand higher entry barriers but offer better stability than private-sector projects.

Platform Costs Soar: E-commerce fees rise across domestic platforms, eroding merchant profits. High customer acquisition costs and return rates make pure online businesses increasingly unviable.

Regulatory Crunch: Tax audits intensify, closing loopholes like offsite payroll and outsourced customer service. Compliance costs surge.

Globalization as Imperative—But Markets Vary Wildly

Going global isn’t about "one market" but "countless disparate markets." Country selection is step one, requiring precise alignment with product, resources, and capabilities.

North America (US/Canada): Highest purchasing power and order values, ideal for premium brands. But compliance hurdles (e.g., FDA) and supply chain challenges (especially for meat/dairy) loom large.

Southeast Asia: Demographic dividends and e-commerce growth, yet low order values and cash reliance demand hyper-localization (including partnerships with power brokers). Logistics and warehousing opportunities exist but face complex last-mile dynamics.

Latin America (Brazil): Higher GDP per capita than SEA with untapped demand, but customs, tax regimes, and local licensing create steep barriers. Warehouse leasing costs are prohibitive.

Africa: Not a monolith—stable nations offer massive supply-demand gaps in infrastructure, retail chains, and FMCG. High margins and low competition prevail, though success hinges on political connections ("top-down approaches").

Europe/Japan: Mature markets with strong purchasing power but high brand barriers. Chinese brand acceptance varies, with growth potential lagging North America.

Markets to Avoid: India (policy risks, capital controls), Myanmar, Afghanistan, and other politically volatile regions.

Southeast Asia’s Localization Gauntlet: Three Make-or-Break Hurdles

In SEA, "knowing how to do business" trumps "having a good product." Localization isn’t about hiring translators—it’s assimilating into an alien commercial ecosystem.

Hurdle 1: Guanxi · Don’t Let "Fellow Countrymen" Dig Your Grave

• Biggest trap: Over-trusting ethnic Chinese partners in JVs. Once they control local networks, you may end up "buying back your own company."
• Golden rule: Retain majority control in core operations. Use professional intermediaries for local equity stakes, with ironclad contracts—no handshake deals.
• Tightrope act: Navigate customs "norms" while maintaining compliance red lines.

Hurdle 2: Cash Flow · Your Money Might Never Arrive

• COD 黑洞: Cash-on-delivery dominance creates employee pilferage risks.
• No payment guarantees: Even government projects default—discard illusions about local credit systems.

Hurdle 3: Management · Your Team Could Be a Time Bomb

• Cultural gaps cripple efficiency; "Chinese-style management" fails spectacularly.
• Visa whistleblowing: Employees routinely report visa issues to immigration, halting operations.
• Endgame: Promote local executives to lead, with HQ providing strategic support. Isolate risks via separate subsidiaries for complex operations like logistics.

Africa’s Truth: Fortunes Await—But 99% Won’t Dare

In Africa, grassroots entrepreneurship is a bloodbath. Real wealth lies in "top-down" resource and licensing plays, where business is about "allocation" not "competition"—mining rights, government contracts, and concessions are divvied up within elite circles.

Success hinges not on product quality but on which family, politician, or military faction you’re tied to. Kickbacks of 30-40% of revenue are standard, yet still yield monopoly profits unmatched elsewhere.

High-Potential Sectors

Infrastructure & Retail: Chinese-built projects drive equipment demand; trusted appliance/furniture chains (8-12 month ROI typical) meet demand for "genuine goods."

FMCG & Systems: Vast potential in food processing; selling China’s mature management/government software (e.g., customs/tax systems) as "solutions" aligns with African nations emulating China’s development model.

Risks Beyond Markets

Dangers here are primal. Regime changes can expropriate assets overnight. Legal contracts may be worthless—local partners can seize control via force or networks, while forex controls trap profits. In East Africa, century-old Indian business dynasties dominate traditional sectors as formidable rivals.

Playbook

Reset Mindsets: Abandon China’s high-growth playbook. Here, "relationship dividends" and "scarcity premiums" replace "traffic 红利".

Founder Presence: CEOs must embed locally to build elite networks.

Business Design: Prioritize quick ROI, profit recycling, and avoiding heavy long-term bets. Depth in one country/vertical builds moats; spray-and-pray fails.

Reality Check: Africa rewards only those confronting raw human complexity and finding "leverage points." For most, it remains forbidden territory.

Category Breakthroughs: Riding the New Wave of Emotion, AI & Culture

Despite China’s slowdown, global structural trends remain clear across three vectors: "emotional value," "tech enablement," and "cultural export."

Emotional Consumption

Global brands now transcend price wars. Collectibles (e.g., Pop Mart topping Western IP searches), outdoor gear, and pet products—selling lifestyles and belonging—are cycle-proof winners with premium pricing and sticky users.

AI as Tool, Not Toy

Two proven use cases:

• Cultural upgrades: "AI + museums" via smart tours and educational services, targeting families and schools.
• Solving cross-border pain points: Real-time translation tools address the fundamental "language barrier" in business/travel, with clear monetization.

The key is solving specific, high-frequency/high-WTP problems—no tech for tech’s sake.

"Food as Medicine" & Cultural Exports

China’s strict health-claim regulations ironically create differentiation abroad:

• Leverage cultural IP: Tie herbal teas/wellness foods to globally recognized symbols like Wudang Mountain for premium positioning in herb-friendly markets.
• Target explicit needs: Address allergies, depression, or obesity with Eastern solutions.

The new globalization formula: Capture universal emotions, solve micro-pain points with tech, or premiumize cultural uniqueness—all culminating in indispensable brand equity.

Global Supply Chain Hurdles

Food exports face strict limits, especially meat/dairy, with complex cold-chain logistics. Localized supply chains are key, but procurement, production, and last-mile delivery pose challenges; some products require market-specific adaptations.

Export Restrictions

Meat, eggs, and dairy face heightened scrutiny post-melamine scandals. Processed foods clear easier than raw ingredients; even salt faces controls.

Supply Chain Pain Points

Cold chains (0-8°C) risk breaks at ports, warehouses, or delivery. Unpredictable customs and complex last-mile logistics compound issues. North American localization struggles with scaling procurement and distribution, while multi-category ops cause quality inconsistencies.

Market Fit

Domestic flavors often misfire abroad (e.g., Heytea’s freeze-dried adaptations). Health, sustainability, and eco-friendliness resonate strongly with global consumers.

Global Management Systems: When and How?

Scale dictates system adoption. Modern ERP + AI slashes compliance/control costs while boosting efficiency.

Timing: Startups (<20 staff) can rely on personal oversight and local agents. At ~¥200-300M revenue and 80-100+ staff, hierarchies emerge—requiring systems to mitigate agency risks.

Traditional ERP: SAP-style systems enforce airtight process controls and accrual-based finance. But high costs and long implementations deter many.

AI + ERP: AI’s core value lies in automating translations, documentation, and data tasks—freeing human capital for strategy.

China’s Gift Market: Corporate and Consumer Downsizing

Gifting undergoes structural shifts. Corporate budgets shrink amid cost-cutting, while consumers favor practical, value-for-money items over luxury gifts.

B2B gifting (construction, real estate, SOEs) plummets. Even high-fliers like Douyin scale back. Among consumers, staples like milk, lamb, and grains dominate; premium teas like Xiaoguancha fade. Nostalgic brands (Lulu, Want Want) retain niche appeal, reflecting a "substance over show" ethos.

Tea’s Paradox: Premiumization vs. Scale

Rock teas like Da Hong Pao command prestige but flounder at scale due to niche brewing expertise and reliance on personal sales networks.

Their charcoal-roasted "bold" flavors appeal to connoisseurs, yet preparation complexity limits mass adoption. Speculators hoarding tons for high-touch, low-frequency sales (¥3k-5k/transaction) found this model unsustainable without deep trust networks.

Conclusion

China’s 存量 market is a "death trap." Entrepreneurs must abandon Sinocentric thinking—globally, China is the outlier, not the norm.

This isn’t globalization’s endgame but the true start of systemic expansion for Chinese brands, capital, and models. The challenge isn’t saturation but shedding inertia to embrace a complex world.

The tide has turned. Boarding now decides the next two decades’ pecking order.