How are the "New Three" going global?

Go global, or go out of business.

For Chinese enterprises, going global is not just a strategic choice; it has become a necessary path for survival.

Surveys indicate that nearly 90% of Chinese companies hold a positive attitude toward international expansion. Among them, 86% of specialized and sophisticated "little giant" SMEs have developed clear internationalization plans, while 39.4% of growth-stage enterprises have already implemented or drafted such plans.

In the past, going global primarily involved low-value-added goods and OEM models. Now, it has shifted toward high-value, high-margin categories. The "Old Three"—clothing, furniture, and home appliances—have been replaced by the "New Three": new energy vehicles, lithium batteries, and solar products. In 2023, the combined exports of these "New Three" products reached 1.06 trillion yuan, breaking the trillion-yuan mark for the first time with a 29.9% growth rate.

Many analysts believe that the international expansion of Chinese enterprises is a natural spillover after developing strong industrial capabilities and management expertise. Indeed, from exporting products, brands, and services to exporting technology and supply chain support, Chinese companies today are competing not just on price, but on value.

Today, we will discuss how the "New Three" are going global and look at successful cases in other industries.

01 Why go global?

As mentioned at the beginning, expanding global business by building factories overseas has become the best choice for companies to secure a "second growth" curve.

After officially joining the WTO, China embarked on a path of rapid industrialization. Currently, China's manufacturing value-added accounts for about 30% of the global total. According to UN Comtrade data, China was the second-largest exporter of vehicles and parts in 2023. Our lithium batteries, solar products, and new energy vehicles have become global leaders, and business models like Temu and Shein have also been successfully replicated overseas.

Whether looking at foreign investment data or export figures, driven by domestic market saturation, industrial upgrading, and changes in the global supply chain landscape, the international expansion of Chinese enterprises has become an undeniable trend.

Western Securities assumes that a company's international expansion curve begins at the budding stage and moves into growth and maturity as the business expands. Based on this life-cycle characterization, companies can be categorized into four quadrants: low-speed, growth, benchmark, and mature.

Overall, the surge in Chinese enterprises going global is underpinned by the fifth wave of international industrial relocation.

The previous four waves of industrial relocation contributed to the rise of the United States (late 19th century), the post-war recovery of Japan and Germany (1950s-1960s), the growth miracle of the "Four Asian Tigers" (1970s), and the establishment of China as the global manufacturing hub (starting in the early 1980s).

In this current wave of industrial relocation, China has shifted from being a recipient in the fourth wave to an exporter. In terms of industrial flow, this manifests as "outflow at both ends": low-end industries are moving to emerging economies with lower costs, while high-end industries are returning to developed economies in Europe and America.

02 The "New Three" go global

Looking at the industries currently laying out overseas supply chains:

• The lithium battery and solar industries are primarily choosing to go global due to domestic overcapacity and the need to circumvent trade barriers. In 2023, the lithium battery industry planned over 155.4 billion yuan in overseas investments, focusing on Europe and America, which accounts for 42% of total overseas investment.
• Six companies in the solar industry planned over 35 billion yuan in overseas projects in 2023, mainly for module production, concentrated in Southeast Asia and the United States.
• High profits from overseas sales of new energy vehicles are driving automakers to expand abroad. Leading companies have invested over 91.3 billion yuan overseas, concentrated in Southeast Asia and South America.
• The steel industry is accelerating its overseas layout due to domestic capacity controls, environmental pressures, and iron ore resource constraints, while the cement and home furnishing industries are expanding their supply chains to tap into overseas markets.

Overall, the collective move of manufacturing enterprises to go global is expected to create synergy, driving more Chinese companies to expand abroad, while the establishment of overseas factories and supply chains is expected to boost demand for overseas engineering construction.

Take the automotive industry, a common part of daily life, as an example. Over the past three years, China's passenger vehicle exports have grown rapidly, reaching 4.14 million units in 2023, a 63% year-on-year increase. This is significantly influenced by new demand from the Russian market. Export growth to countries like Mexico, Australia, the UK, Saudi Arabia, Thailand, and India has also been strong.

In 2023, China's exports of new energy vehicles and fuel vehicles were 1.203 million and 3.707 million units, respectively. New energy vehicle sales grew nearly threefold from just 310,000 in 2021, with their share increasing from 15% in 2021 to 25% in 2023.

Due to electrification progress and political-economic factors, the global market has adopted diverse tariff policies toward Chinese fuel and new energy vehicles. Asia, Africa, the Middle East, and Oceania have adopted tariff-friendly policies, while Europe, North America, and Brazil in South America face risks of further tariff increases.

In response, automakers are building factories overseas to avoid uncertainty. SAIC and Geely have existing capacity and layouts significantly affected by high-tariff risks; Chery and BYD have strategic layouts and factories under construction; Great Wall and Changan have smaller overseas scales, mostly focusing on factory layouts in Asia.

Operating data shows that as overseas markets expand and new energy vehicle penetration increases, the brands and models going global are diversifying, though core sales are still concentrated in a few models. The increased competitiveness of Chinese automakers has boosted their overseas revenue share. Rising unit value has driven up gross margins, and after achieving scale, overseas gross margins are nearly 10% higher than domestic ones.

Supply chains are following automakers overseas, ensuring stable supply for domestic brands in foreign markets while also opening up global customers. Parts suppliers are achieving global layouts and market expansion through both M&A and independent factory construction.

From the perspective of automakers, overseas layouts require differentiated strategies, for example:

• SAIC has a first-mover advantage in exports; through a diversified layout, its exports saw significant volume in several Western European countries in 2023.
• Chery, Great Wall, and Geely have all benefited from the volume growth in the Russian market, with Chery showing the most significant increase. Great Wall's exports have also continued to grow in Australia, Thailand, Brazil, and Kazakhstan.
• BYD's overseas layout has expanded rapidly, with sales exploding in 2023.
• Changan's exports remain stable, primarily concentrated in Saudi Arabia.

Additionally, one can look at the history of the solar industry's international expansion. Before 2010, China's solar industry was characterized by "three dependencies": raw material imports, reliance on foreign core technology and equipment, and dependence on foreign terminal markets. After more than a decade of development, according to CPIA, China's new solar installations accounted for 55.6% of the global total in 2023. In 2022, China's global capacity shares for polysilicon, wafers, cells, and modules were 88%, 98%, 91%, and 91% respectively, and Chinese solar equipment now holds over 90% of the global market share.

The solar industry has evolved from "Made in China, Sold Overseas" to "Made in China, Sold Globally," and finally to "Made Globally, Sold Globally." Moving forward, the foundation for these companies is not just domestic demand, but global demand. Therefore, as long as the logic of global solar installation demand remains intact, the demand for Chinese solar equipment will not be significantly affected.

03 International expansion in other industries

Beyond the success of the "New Three," other industries have also performed exceptionally well.

For example, medical devices.

The global device market is primarily driven by the US (43.5%) and Europe (27.3%), which have a combined population of less than 1 billion. The Asia-Pacific market (led by China), along with Latin America, the Middle East, and Africa, accounts for about 30% of the market but has a population of over 7 billion.

Looking ahead, growth in developing countries is faster than in developed markets. For domestic medical device companies, going global allows them to attack developed markets while defending their position in developing ones—why not?

In terms of segments, low-value consumables and in-vitro diagnostic products are performing well due to lower technical barriers and broad market demand, while high-value consumables and medical equipment face higher technical and market entry barriers.

Take Mindray Medical, a leader in medical device exports, as an example. It has captured many high-end customers, selling 13.5 billion yuan worth of products across 190 countries and regions last year, with overseas revenue accounting for nearly 40%.

Specifically, the company's success stems from its clear internationalization strategy and the effective execution of M&A and localization initiatives.

• Through M&A, such as the acquisition of Datascope's patient monitoring business in the US, it not only gained key technologies but also expanded its overseas market, particularly its direct sales advantage in small and medium-sized hospitals, providing cross-selling opportunities for other products.
• By adhering to a localization strategy and establishing subsidiaries and R&D centers globally, the company has achieved business synergy and optimized the allocation of global resources.
• Its R&D innovation system has continuously achieved technological breakthroughs, such as innovations in ultrasound technology and blood cell analysis systems, significantly enhancing product competitiveness.

These strategic moves have collectively driven Mindray Medical's successful layout in the global medical device market, strengthening its market position and brand influence.

Currently, the company's core products, such as patient monitors and ultrasound machines, rank in the top three globally, and it has successfully entered many top-tier medical institutions worldwide, demonstrating its international competitiveness.

Other industries, such as construction, are actively participating in the manufacturing export wave by providing design, construction, general contracting, and operation services. Other companies in various sectors, such as Baili Pharmaceutical, Ganfeng Lithium, Svolt Energy, Insta360, and Digital China, are also making their mark.

These companies understand that the road to going global is long and difficult. It requires not only adapting to local conditions but truly integrating into the local market, investing in supply chains, and achieving win-win outcomes with local industries.

Going out is the destiny of Chinese enterprises, as well as a strategy to leverage global resources and enhance supply chain resilience.