Since the beginning of 2023, some multinational companies have begun to feel that the business environment in overseas markets is undergoing drastic changes - frequent regional political and military conflicts have further deteriorated the business environment in some already unstable countries and regions; Local protectionism and ever-changing rules also make the road to overseas expansion challenging.
At the same time as this surging trend of going overseas and scale expansion, there are some mistakes in the judgment of enterprises on the global situation.
Judging from a series of major risk compliance events that occurred last year, many brands are facing sudden overseas risks that are even completely beyond the scope of original expectations:
In 2023, TikTok CEO Zhou Shouzi faced a major question in Washington, which is seen as the biggest crisis in the company's history in the North American market. To this day, the aftermath of the incident continues. In October of the same year, TikTok Shop was shut down in Indonesia. Although more than two months later, TikTok merged with Tokopedia, a local e-commerce company owned by Indonesian Goto, and successfully returned to the Indonesian market, it remains to be seen whether it can truly achieve a comprehensive "turnaround".
In addition, in June 2023, India officially notified that it had previously seized the Xiaomi 555100 million rupees (about 48 yuan.)200 million yuan) and the possibility of confiscation of these funds, which is the largest seizure operation. Xiaomi has been operating in India for 9 years and has a cumulative profit of 94 percent for its Indian company600 million rupees, or about 800 million yuan. However, the confiscated funds this time are equivalent to 6 times the total profit of Xiaomi India over the years.
In addition, Chinese mobile phone manufacturers such as Huawei, vivo, and OPPO will all encounter varying degrees of "targeting" problems in India in 2023. Specifically, the Enforcement Directorate of India (ED) arrested a number of Vivo India executives, including the interim CEO and CFO of Vivo India, on the grounds of an "anti-money laundering investigation", which took place on December 13, 2023.
Factors such as global instability, political risks, regional** protectionism, overseas legal norms, and localization may have an impact on the choice of overseas markets and the intensity of investment. These seemingly fortuitous risk events all seemed to erupt overnight.
Although the "crimes" of many of the above incidents are debatable, they expose one problem: compliance is becoming the lifeline of large enterprises going global. Corporate compliance is not a new topic. The modern corporate compliance system originated in the United States. In the 30s of the last century, the Great Depression triggered global economic and social upheaval and set off a series of chain reactions. As a result, the United States realized that strengthening effective supervision of financial institutions was critical to systemic stability, resulting in a corporate compliance regime.
The U.S. Foreign Corrupt Practices Act (FCPA) was officially enacted on December 6, 1977, as the world's first systemic compliance law. However, it was after the Enron and Arthur Andersen incident in 2001 that the deep concern about corporate compliance was really triggered. Since then, corporate compliance has gradually become a widely used incentive and punishment tool by law enforcement agencies in the United States.
Prior to 2018, the compliance of Chinese companies was mainly focused on high-risk financial industries such as banking, insurance and **. However, the "ZTE incident" in 2018 marked the beginning of the era of compliance for Chinese enterprises, so 2018 is also known as the first year of compliance for Chinese enterprises. Under this concept of "big compliance", the whole industry has begun to build a comprehensive compliance system.
In recent years, with the continuous growth of Chinese enterprises overseas, the past stage of reckless development has passed, and at the same time, due to the impact of changes in the global political landscape in 2023 on the direction of business policies, Chinese enterprises have entered the countdown stage of overseas compliance.
If we break down the risk of going overseas according to different markets, we will find that there are significant differences between the risk points of emerging overseas markets and mature markets in Europe and the United States. In the emerging overseas market, most of them are "gamed" with foreign new formats based on the support of local businesses based on first-class policies.
The e-commerce market in Southeast Asia has faced the impact of foreign merchants and enterprises in recent years, especially in the past two years. An e-commerce seller in the region said that behind the events since last year is the general resistance of local companies to alien species. It is expected that in the Southeast Asian market in the future, China's overseas goods may face more access barriers and guidelines such as customs, logistics, and factory establishment.
In Southeast Asia, merchants are often at a disadvantage, especially as they grow in size and influence, making it easier to feel the dilemma. Starting in 2023, many local compliance ecosystems in Southeast Asia have undergone significant changes, the most significant of which is the adjustment of the "enforcement scale in the local market".
Due to the limited local market size and weak economic foundation of Southeast Asian countries, they are vulnerable to the impact of new foreign business models. The influence of foreign enterprises on the local industry will inevitably touch the local interest pattern. However, many brands do not fully consider this in the early stage of going global. The rapid growth of TikTok e-commerce live streaming in Indonesia, the subsequent ban, and a series of twists and turns such as the joint venture with Tokopedia are typical examples in this context.
In Thailand, both local *** and ordinary people are unfamiliar and confused about the new business model of live streaming. The local industry is slow to develop and people are more conservative, so they are hostile to this "non-traditional" business model from China.
In addition, the failure of Luckin Coffee's lawsuit in Thailand has also raised the alarm of Chinese brands in Southeast Asia, where there is a clear gap between the influence of Chinese overseas brands and local brands in the local market.
In December 2023, a Thai-registered cottage Luckin Coffee claimed 10 billion baht (about 2 billion yuan) from China's Luckin Coffee for infringement.
Founded in 2020, the brand image of this copycat Luckin Coffee is almost identical to that of China's Luckin: the dark blue background, the fawn logo and the luckin logo are enough to make it difficult to distinguish the authenticity. Although China Luckin registered its trademark in China in 2017, it has only been registered in China.
It is against this background that Royal Thai 50R Group successfully won the lawsuit, subject to the rules and procedures of Thai law. Clearly, the negligence of Chinese companies in trademark protection led to this failure.
The success of Chinese companies is mainly due to the Chinese market, which has a high degree of linguistic, cultural, customary and cognitive integration, making it a unique and unified market. Lou He, a lawyer at DHH Law Firm in Shanghai, pointed out that when entering the Southeast Asian market, the first task for companies to avoid the arrogant attitude of over-applying the "Chinese experience" and achieve brand localization.
From the perspective of the timeline of globalization, since the 80s of the last century, Japanese and South Korean manufacturing enterprise brands have successfully entered the Southeast Asian market. For example, in the Indonesian two-wheeled motorcycle market, Honda and Yamaha have a very high brand image and local trust, and their market share even exceeds that of Chinese brands, and they have many years of deep political and business relations in the local market.
Despite this, the catalytic role of mobile Internet in the brand's overseas expansion is the only difference at present. However, the local business models of these Japanese and Korean companies in Southeast Asia are also worth learning from for current Chinese companies.
For consumer goods going overseas in mature markets in Europe and the United States, especially brand merchants going overseas, the compliance details they face are more complex than those of simple first-class sellers. In the mature consumer goods markets of Europe and the United States, the granularity of compliance is becoming more and more nuanced.
Compliance is a major risk when entering the European and US markets. Mr. Li, a Temu seller who has been operating cross-border e-commerce business in Wuxi for four years, told Xiaguang Agency, "At present, the competition between cross-border e-commerce in Europe and the United States is becoming increasingly fierce, and the demand for qualifications is also getting higher and higher. "Taking basic products such as cosmetics and electronic products as an example, sellers who do not have the corresponding qualifications cannot participate in the competition.
The North American e-commerce market has some special regulatory requirements for Chinese sellers. The most representative is California Proposition 65.
The Act stipulates that if a product contains more than 900 toxic chemicals, it must be labeled with a corresponding warning. As a result, almost all everyday foreign trade goods, including clothes, bags, and electronics, need to be labeled with clear and unambiguous warnings.
Many North American sellers operating in the California market have been sued, and even their funds have been frozen and their stores have been closed because they have not done a good job of relevant certification and failed to put warning labels on the regulations in accordance with the regulations. This seems to be just a labeling issue, but in fact, it is a strict test for overseas merchants in terms of detail compliance.
The development of cross-border e-commerce platforms in the North American market is also constantly adjusting to meet market demand: according to a report by Mr. Li, a seller at Temu, since June and July 2023, many products have not been able to be listed due to the increased certification requirements for intellectual property rights and appearance patents on the Temu platform, which has also led to the elimination of some small sellers facing the European and American markets.
Looking back on the past, we can see that the early sellers were free to do what they wanted, and now the rules for it are gradually tightening:
During 2015-2016, a value-added tax (VAT) number was not required to sell on Amazon, but it must be provided from 2018 onwards; In 2018, when selling goods with a VAT tax number, the platform does not automatically capture the data to pay taxes in real time, but the customer declares it independently, but from 2022 onwards, it must realize real-time tax deduction - the platform will directly capture the data and automatically execute the tax deduction. Riz, CEO of Chenhai Group in China, revealed to Xiaguang Agency.
Chenhai Group focuses on providing comprehensive compliance services for Chinese overseas brands, covering tax, intellectual property, overseas industry and commerce, product certification, finance and taxation and other aspects. Through a specific case of tax compliance for Amazon sellers, RIZ illustrated the changing trend of compliance requirements in the field of cross-border e-commerce in Europe and the United States in recent years. He pointed out that from 2015 to 2016, compliance mainly revolved around knowledge information, including the compliance of stores, products and services; In 2018, the focus shifted to services and tools; In 2022, it will be further transformed into a solution. It is expected that by 2024, localization will be at the core of compliance.
For Chinese enterprises going overseas, the software tools that can support overseas e-commerce registration and declaration at the beginning are practical enough. These tools help sellers with their VAT filings in the UK and EPR registration in Germany. However, with the advent of the era of "Chinese enterprises going global", the problem has become more and more complicated.
From the very beginning, we need to make a specific situation judgment about a certain market segment. Then, we need to determine the type of company that is suitable for filing tax savings, and understand which routines can get more favorable policies. We also need to be clear about what criteria must be met, and what can be done to cater to local market sentiment preferences. In addition, overseas recruitment and professional deployment of labor have also become part of overseas localization compliance. For example, if you open an offline brand store and establish a distribution system in North America, you need to comply with the local concept of origin, tax compliance and social responsibility, and you need to provide after-sales service, etc. Therefore, sellers need to be qualified for after-sales service in each state where they store in order to directly meet the needs of consumers.
For the security and privacy protection of users' information, merchants need to build corresponding protection measures from the beginning, which is also a step that must be taken in the European and American markets.
In the era of depth of overseas market expansion, we must pay attention to compliance issues to ensure sustainable development in the future. Lawyer Lou He told Xiaguang that what people usually call overseas qualifications and licenses are just entry-level content in compliance requirements.
Looking back on history, whether it is Southeast Asian countries, South Asian India, East Asia, Japan and South Korea and other surrounding markets, the protectionist attitude towards their national brands has been unswerving. In Europe and the United States, due to the increasing emphasis on the concept and trend of cyber security and privacy protection, as well as the increasingly stringent compliance requirements, this has also become a major obstacle for Chinese brands to go global. Although the global overseas market is generally showing a trend of tightening compliance, a large number of consumer brand merchants are still actively entering the overseas market.
These two seemingly contradictory currents are not in fact in conflict. Seeking growth in overseas markets is itself an unstoppable trend of the times.
In some cases, certain markets may be of great significance to the strategic objectives of the business, and the business may decide to enter even if the environment is not ideal. For example, during the Russia-Ukraine war, there were still customers who considered whether to set up a subsidiary in Russia and maintain their business due to business needs. Gonex co-founder Yu Xiaohong told Xiaguang Agency.
Even now, there are still many social entrepreneurs who have flocked to India, which is known as the "graveyard of foreign companies", and it is only a matter of balance between risk and return - no one can refuse the ** of wealth.
In this series of "gradual localization" changes, Chinese overseas enterprises are shifting from "one-way expansion" to "integrating into overseas local ecology" in order to pursue greater profit margins. In fact, as overseas compliance risks become more and more "complex", this is also a measure that has to be taken after the development of Chinese products in the local area has reached a certain level, because the stage of making quick money in the reckless era has ended: "In the past, many merchants could set up shell companies overseas to open stores and operate, so they were 'eliminated' in the compliance review.
But you have to understand that even in China, when you open a new company in Shenzhen and Beijing, you need to verify the authenticity of the address, whether the employee's social security and taxation are complete, etc., and the logic is the same. Riz, CEO of Chenhai Group in China, explained to Xiaguangshe.
In fact, there are some steps that can be followed in order to ensure the compliance of enterprises going overseas.
First of all,Sort out internal and external compliance requirements and conduct a gap analysis. Specifically, we will assess the differences in the applicability of the target country's laws, platform rules, product quality, intellectual property rights, consumer protection, and customs regulatory rules to identify similarities and differences in compliance requirements.
Secondly,Based on the current status of the enterprise, identify business process risk scenarios and build a compliance risk framework. For example, e-commerce companies mainly focus on company establishment, registration and qualification acquisition, product listing, store operation, stocking and delivery, cross-border tax treatment, collection, regulatory data declaration, etc.
Again,When a company has a compliance problem, it needs to analyze the risk and develop a compliance rectification plan. Through reviewing the company's compliance documents and conducting departmental interviews, the company conducts compliance assessments, identifies risks and determines risk levels, and forms a compliance risk list and rectification plan.
With the wave of Chinese enterprises entering overseas markets, more and more professional overseas law firms and compliance teams have also begun to contact the overseas affairs of Chinese enterprises. China's compliant overseas enterprises have gradually established overseas resource barriers: "overseas professional team resources, overseas proprietary license qualifications, overseas tax payment obligations, overseas labor employment promotion, overseas policy and rule insights, overseas rights protection and defense guarantees, overseas social responsibility commitments and overseas strategic customer endorsements." Riz said that these eight aspects together constitute a resource barrier for overseas compliance service enterprises.
Whether it is a brand going overseas, a tool going overseas, or a service like ours going overseas, the ultimate goal is to create social value for the local area and promote local economic development, forming a win-win situation. Riz pointed out that this means placing resources, qualifications, tax obligations, and employment overseas, creating social value for the local community. The so-called ** advantage, traffic dividend or brand premium are just short-term business means to pursue profits.
Business methods such as first-class advantages, traffic dividends or brand premiums are only short-term profits, and cannot adapt to the long-term overseas compliance ecology and rapid changes in regulations. Only by truly promoting the prosperity of the local economy can we achieve long-term success in overseas markets.
Changes in the overseas environment of Chinese enterprises are the norm, and they need to flexibly adjust their strategies according to the changes in the overseas business, political and economic environment at any time. For example, Singapore's talent attraction policy has made the region rich in talent resources, so companies can quickly recruit the talent they need when they go overseas to Singapore without affecting the overall rhythm.
Once a company chooses a more global brand to expect in the future, and is determined to invest a lot of resources in the brand's overseas market development, whether it can quickly adapt to changes and respond will become an important consideration in the process of going global.
*: Kasumigasha.