As China’s tourists go global, its firms follow

This month, 6.5 million Chinese will travel abroad for the Lunar 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 Co., 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 Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. 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.
For one thing, there’s a lot of them. Since 2012, China has been the world’s biggest source of outbound travelers, with 135 million of them going abroad in 2016, spending a staggering $261 billion. Another advantage is that these tourists are accustomed to Chinese technology. In 2016, Chinese made about $9 trillion in mobile payments via apps like Alibaba’s Alipay and Tencent’s WeChat Pay; the two companies control about 92 percent 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.
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 to these travelers. In 2015, Marriott International Inc. rolled out Alipay at its resorts and hotels, while Caesar’s Entertainment Corp. 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 4 million US 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 Inc., 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 percent 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. Local customers 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 signaling 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