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The Fast Company Executive Board is a private, fee-based network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.

Why tech companies should consider expanding into China

Considering the strong spending power of the still-expanding middle class population of China, it seems wise  for businesses that have avoided China so far to start looking in that direction.

Why tech companies should consider expanding into China
[Alexei Sysoev/AdobeStock] [Sergiy Serdyuk/AdobeStock]

China has been a much-discussed topic in international public discourse since it adopted economic reforms and established trade agreements in the late 1970s. The World Bank once stated that China has engendered “the fastest sustained expansion by a major economy in history.” After 40 years, China remains an economic powerhouse. It’s currently the second-largest economy in the world and is predicted to overtake the U.S. economy by 2030.

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Below are two additional reasons why international companies, and particularly tech companies, should look toward the Chinese market:

GROWING MARKET OF CUSTOMERS

China is a rapidly growing market of consumers with large spending power. More than one-third of the world’s middle class resides in China. Let me repeat: that’s one-third of the global middle class.

I see it with my own eyes at our facility in China. Many of the employees there had the foresight to buy apartments in Dongguan five to eight years ago, and they now reap the benefits of their early investment as property prices shoot up. In 2020 alone, property prices in Dongguan shot up 29% and 2021 witnessed a mass influx of high-tech firms to the Greater Bay Area city.

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With disposable income, the spending power of the middle class—which makes up more than half of the Chinese population—is massive. Back in 2013, Goldman Sachs predicted that China would have large consumer demand in seven categories, one of which was luxury. By 2019, China accounted for 11% of global luxury sales. Even when the COVID-19 pandemic delivered a blow to the global economy, Chinese demand for luxury goods did not weaken—in fact, it exploded. In 2020, China accounted for 20% of global luxury sales, and it saw a 150% increase in digital luxury sales.

RAPID ACCEPTANCE OF TECHNOLOGY IN SOCIETY

The rise in digital luxury sales may have revealed the rise in internet connectivity in China. But this connectivity is simply the tip of the iceberg of the rapid digitalization of China, particularly in the sense of rapid acceptance of technology in Chinese society.

During the eight months I spent in China last year, I was blown away by the automation of simply everything around me. From checkout terminals in supermarkets to virtual wallets that can be used to order and pay for almost everything, the prevalent use of technology in Chinese society is apparent. Even people selling vegetables from a cart on the side of the street accept digital payment. China’s digital prowess was also on display during the recent Opening Ceremony of the 2022 Beijing Winter Olympics. Sixty percent of the ceremony involved advanced technologies such as 5G, IoT, and AI.

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What does this mean for businesses? In a country where technological advancements are accepted so willingly in society, and where there is a strong culture of technological innovation, businesses in the tech or innovation industries, and even in associated industries, could benefit hugely from supporting the speedy development of technology in China, which is then closely followed by societal acceptance and utilization.

TAKEAWAYS

The time I spent in China last year was enlightening. I came to the quick realization that China is a very large and strong market with a huge population willing to spend and a culture that is very welcoming of and receptive to new technologies.

With China’s large market size and strong entrepreneurial spirit, new entrants must be prepared for plenty of competition and unpredictable rates of change and development. One way to get started—and the method I chose—is to learn the language that China’s 1.40 billion people speak natively. It’s a great way to better understand how to take on this large, ever-changing market.

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CEO of Season Group, a vertically integrated Electronics Manufacturing Services (EMS) provider, and SG Wireless, a full-stack IoT provider. 

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