Where are enterprises headed under the "localization" overseas expansion model?

Whether it is investment or enterprises going global, iterating towards "localization" has become the hottest global trend in 2024.

This means that in the process of exploring the market, not only the migration and diffusion ability of global brands matter. The understanding of the going-global model and the local market infrastructure, policies, and regulations by enterprises is becoming increasingly important.

Especially in the long-standing going-global paths such as B2B foreign trade and cross-border e-commerce, the blue ocean window period of an emerging market often only lasts for five to ten years. The earlier an enterprise achieves a high-quality landing, the greater the possibility of rapid growth.

In 2024, high-quality emerging markets for going global often present three characteristics:

First, it has a huge population consumption dividend and is in the stage of new economic transformation; or it is in a trade hinterland that connects several major markets in terms of geopolitics.

Second, the penetration rate or growth rate of the Internet and e-commerce is high, and digital services are continuously being implemented.

Third, the openness and globalization degree of policies and regulations are relatively friendly, without excessive barriers to going global. Especially in the transaction payment collection aspect, there is a certain infrastructure support, and trade funds can be "secured".

Combining the above three requirements, Latin America, the Middle East, and Africa, these three markets that are moving from "traditional" to the future, undoubtedly become the must-win places for going global and digging for gold this year.

And in these markets to achieve local landing, running through and optimizing the transaction chain is the first step. The key to winning in going global often lies in minimizing trade risks and capital losses, and activating the supply chain with sufficient and stable cash flow. However, due to the imperfect payment environment in emerging markets, the pain points are also very obvious.

Take local settlement as an example. The small currency payment collection in emerging markets has always been a core problem. Local banks have a complicated and inefficient process when handling international transactions; if the local currency is exchanged for US dollars before conducting transactions, it will face a long link and capital loss, pushing enterprises into a dilemma.

Thus, before a cross-border enterprise lands in an emerging market, whether there is a group of mature and stable cross-border service providers to "send" the underlying service facilities such as payment, transaction, and logistics to the new hot land is still an important factor in determining the market threshold.

01

In the New Year, Betting Heavily on Mexico

In 2024, it is not an exaggeration to describe Mexico's position in the global supply chain as "suddenly emerging".

The impact of geopolitics on foreign trade is long-term, and those regions that choose trade openness in the game often become the most direct beneficiaries.

The Mexican market, which was once far from the global supply chain and had a scarcity of e-commerce supply in the past few years, has become the core "transfer station" for China to go global to North America under the convenience of zero tariffs under the USMCA this year. It is also regarded as one of the few manufacturing countries that is rapidly rising.

Even without considering Mexico's role as a bridge in the North American hinterland, just looking at its local potential, as the second largest economy in Latin America, Mexico has a population of 130 million, with huge market potential and a developed manufacturing industry. It has always been the "backyard" of the US industry. In 2023, Mexico, which is known for its "street vending economy", has an e-commerce scale of about 33 billion US dollars, with a year-on-year growth rate of 24.6%, becoming one of the fastest-growing emerging markets in global e-commerce.

In March this year, Amazon's cloud service AWS also built a data center cluster in Mexico with an investment of more than 5 billion US dollars. Tesla, Volkswagen, BYD and other vehicle companies targeting the North American market have also announced or are considering the "nearshoring outsourcing" supply chain strategy in Mexico. It is evident that Mexico will become an important local production site under political games.

According to data from the research institution Statista, the compound growth rate of Mexico's retail e-commerce from 2023 to 2027 can still remain at 13.67%. Therefore, for foreign trade enterprises and cross-border e-commerce, Mexico will also gradually become an irreplaceable consumer market from the emerging market that will be "seized" this year.

Compound Annual Growth Rate of Retail E-commerce Sales in Various Countries from 2023 to 2027 (%) Data Source: Statista Digital Market Insights

However, the Mexican market also has its own bottlenecks and pain points. First, the basic understanding of the Latin American market by going-global enterprises represented by Chinese enterprises is relatively shallow, and the awareness and speed of building a local team need to keep up. Second, the going-global infrastructure and services are also in the initial stage:

"The cost of receiving US dollars in Mexico is really too high. Local buyers also want to trade directly in pesos, but currently the most common way is still to conduct US dollar settlement by opening an account in Hong Kong, China or Singapore."

Sellers going global to Latin America said that among the many challenges faced in the Mexican market, the "not local enough" trade payment collection problem is the top priority. It is very troublesome for overseas companies to open a bank account locally, and the transfer service efficiency provided by local banks is not high. And there are very few payment institutions in the market that can directly support the receipt of Mexican pesos.

The natural breakthrough point lies in promoting foreign trade transactions towards localization, which also meets the development needs of local financial institutions in Mexico. Because enabling cross-border enterprises to improve their viability based on the local currency can make Mexico, as the world's third-largest inclusive financial market, have a greater capital scale effect.

Therefore, since 2023, BBVA Mexico Bank, the largest financial institution in Mexico, has reached a cooperation with global payment service providers including Sunrate to open a local collection account for going-global enterprises for free, which can receive peso payments remitted from the buyer's own local bank account. At the same time, for enterprises, it not only ensures the timeliness of collection and withdrawal, but also does not require additional currency conversion.

Whether it is cross-border e-commerce, B2B trade, or payment acquiring institutions and other diversified scenarios, the brand of the local bank combined with the mature system of the global payment service provider can significantly enhance the trust of the transaction for both buyers and sellers and solve the differentiated collection needs. Therefore, since its launch, this solution has also become the preferred payment and collection solution for foreign trade enterprises to explore the Mexican market.

02

The United Arab Emirates, Still a Golden Destination

The Middle East, regarded as the "future new economic powerhouse", is the second must-choose path for emerging markets going global in 2024.

Whether it is NIO establishing a technology research and development center in the United Arab Emirates, or the in-depth cooperation between Abu Dhabi AI group G42 and giants such as Microsoft, it is not difficult to find that this year, the technology wave in the Middle East is continuing.

When going global to the Middle East, the two countries that cannot be bypassed are Saudi Arabia and the United Arab Emirates. Among them, Saudi Arabia has just entered the economic transformation period of "getting rid of oil dependence". In contrast, the United Arab Emirates, as the enduring desert "pearl" of the Middle East market, with its perfect infrastructure, unique geography, trade openness, and long-term tax exemption and other advantages, has become one of the main global trade hubs with a population base of about 10 million and a per capita GDP of $50,600.

In addition, the openness of the United Arab Emirates is also second to none in the Middle East market: it has 46 economic free trade zones, and Dubai, as the foreign trade gateway in the Gulf region, has also attracted thousands of foreign enterprises. From the perspective of the industrial chain ecology, the reason why Dubai can become the first stop for many enterprises to go global is mainly due to the relatively small difficulties it presents in many aspects such as operational risks, industrial resources, and local costs.

Going global to the United Arab Emirates has never been an unpopular destination. However, in 2024, while most emerging markets are still working to improve the penetration rate of the Internet and e-commerce, the United Arab Emirates, which is striving for economic diversification competition, is already drawing the blueprint of "going global upgrade".

For example, in the characteristic China-Arab Industrial Park, Chinese enterprises going global to Abu Dhabi are vigorously developing new economic pillar industries such as intelligent manufacturing, digital innovation infrastructure, biomedicine, and fine chemicals. Dubai is building a metaverse capital through Web3, new energy, and cross-border e-commerce.

From the "small commodity" foreign trade that has been flowing to Dubai on a large scale in the past decade to the trend of high-potential industrial giants targeting the United Arab Emirates for going global this year, the rise of the new going-global track has also brought new challenges. Mainly from two aspects:

First, the competition for economic dominance in the Middle East region has intensified, making the United Arab Emirates pay more attention to diversified trade. The increase in B2B enterprises and emerging tracks entering the game has also made higher demands on local services such as transactions, supply chains, and teams.

Second, from the perspective of the going-global model, the United Arab Emirates has always been a market with extremely high requirements for localization, and local deployment is particularly crucial in all walks of life. However, for tracks such as AI, new energy, and intelligent manufacturing with high unit prices and slow capital turnover, it is not easy to carry out local business exhibitions flexibly and efficiently.

Take the construction of a local team as an example. In the United Arab Emirates, local talent relationship networks and local resources are essential. However, under the challenges of cultural differences and the scarcity of high-quality talents, recruiting and managing local talents requires mature experience and an understanding of labor laws to balance the flexibility of cross-border business needs.

Another example is in the local payment sector. Although the payment system in the United Arab Emirates is already relatively complete, settlement in US dollars is still the mainstream for both parties in the trade. However, the practical problem is that under the strict and opaque bank foreign exchange payment review mechanism in the local area, the procedures for US dollar remittances are complicated and the processing process is long. At the same time, since it is not the local currency for both buyers and sellers, it also adds two exchange costs, further exacerbating the survival uncertainty of the emerging going-global track.

In this regard, a cross-border seller who is still hesitating whether to enter the Middle East said: "The payment collection problem is an important concern for us to enter the United Arab Emirates. Because it is very difficult for non-local companies to open a local bank account in the United Arab Emirates. Even if they really plan to register a company to open an account, the entire process is very lengthy and cumbersome."

Therefore, in the United Arab Emirates market, the important thing for a payment solution is not only to "be able to receive payments", but also to achieve cost reduction and efficiency increase. In the past two years, service providers such as Sunrate have also launched local collection services that directly receive dirhams in the local currency. Through cooperation with top international banks, enterprises can open a collection account at zero cost, conduct the entire process online, and receive 1V1 exclusive support. The original currency entry can reduce the comprehensive cost, and the arrival time is also optimized to T + 0, with faster capital recovery, providing a new solution for the long-term transaction needs of enterprises.

03

Africa, the "Miracle" of the Endogenous Market

The African market is no longer a secondary choice to "avoid competition" this year.

With 33 African countries being granted a zero-tariff policy by China at the 2024 Forum on China-Africa Cooperation Summit, coupled with a strong 360 billion yuan financial support, the favorable policy indicates that within the next three to five years, the African market, which was once difficult to open due to trade barriers and regulatory risks, will soon become a real blue ocean.

Before this, at least in the navigation map of most Chinese enterprises, following the national strategy to go global to Africa was a "second-best" choice. Although China has maintained the position of Africa's largest trading partner for the past fifteen years, and the trade volume between China and Africa reached 282.1 billion US dollars last year, except for the medical and health industry that was the first to enter the African market, the market acceptance of many tracks in Africa still needs to be cultivated for a long time.

However, as a huge endogenous market with 54 countries and 1.4 billion people and a continuously high population growth rate, the trade value of the African market cannot be ignored.

According to predictions, in 2025, the African market size will reach 3.5 trillion US dollars, and the total scale of the African B2B e-commerce market will reach 1.1 trillion US dollars. The growth points mainly come from two aspects:

First, the strategic support given by China and other countries means that the digital infrastructure such as mobile Internet in the African region will continue to improve, and it is expected to enable a qualitative increase in the e-commerce penetration rate in the African region in the short term.

Second, in the most important transaction channels, the problem that the African market relies on traditional channels and offline actual delivery is also being solved step by step by third-party global suppliers.

Therefore, in 2024, Chinese stationery, second-hand clothing and other categories are shining in the African continent. And platforms such as Jumia and Egatee, which have already kicked off the B2C and B2B e-commerce in Africa, also have an impressive GMV performance.

In 2024, going global to Africa is basically laying out the future of traffic dividends, but the difficulty of localization and onlineization is much greater than in other mature trading markets. From the almost impossible construction of a local team to the widely criticized customs clearance policy, to the "offline-oriented" consumption habit, the going-global business process is still plagued by problems, making enterprises hesitate.

Among them, the most obvious contradiction is that it is a "huge problem" to safely and efficiently recover the payment in Africa.

"It is particularly unstable. The exchange rate fluctuation of the naira against the US dollar is too large. Last week, the naira directly dropped by 8.9% against the US dollar, resulting in a significant loss..." Enterprises and sellers doing foreign trade in Africa generally believe that the characteristics of the African market are "slow payment collection, but the profit margin is considerable".

This is because the African market is mainly dominated by offline transactions, and there are not many service providers that support the collection of local currency. Foreign exchange control is also relatively strict. For example, in Nigeria, both buyers and sellers usually choose to trade in US dollars, but there are often problems of insufficient quotas and exchange rate fluctuations, which may cause losses to both parties at any time. Therefore, to solve the local transaction pain points in Africa, we can only start from the entry of the original currency.

Currently, a group of cross-border trade service providers that already have mature experience in the mainstream market are also focusing on building the payment environment in the African market. As long as the basic pain points in transactions in high-growth potential markets can be solved and losses for both buyers and sellers can be reduced, the return will be beyond imagination.

Last year, with the joint efforts of Sunrate and African licensed institutions/banks, a local collection service that supports the entry of the naira in the original currency has been launched in the Nigerian region. Through a direct connection to the local clearing network, the buyer's settlement payment can arrive in as fast as 5 minutes; at the same time, enterprises no longer have to be troubled by hidden fees. African small currency transactions can be as transparent and convenient as mainstream currencies, with clear