Internationalisation in the tech industry is set to gather pace in 2023, driven by demographic and economic factors. As China’s growth slows, its companies will look to expand into western markets, and vice versa. This is not just speculation; we are already witnessing the early signs of this trend and we believe it will have a substantial impact on mobile apps.
The Demographic Drivers
In March, India overtook China as the world’s most populous country. However, it’s not just the sheer numbers that matter; the structure of the population is crucial as well. China’s demographic pyramid, coupled with lower retirement ages, presents a potential crisis, which might push companies to seek growth opportunities abroad.
The Japanese tech industry may also follow suit, spurred by their country’s population decline. Japan lost 644,000 people in 2022 alone, and this trend is projected to continue, with the population forecasted to shrink to 88 million by 2065, a 30% decline in 45 years. As a result, the need for overseas expansion will be increasingly critical.
The Economic Rationale
The economic factors further reinforce the argument for internationalisation and its impact on apps: China’s slower than expected growth rate of 2.2% in 2022 due to Covid lockdowns. Thus, as domestic economic growth slows, companies will be incentivised to explore foreign markets to avoid stagnation.
For many Chinese companies, this is uncharted territory, but they do have role models to look up to. Bytedance’s TikTok has shown how a Chinese company can conquer the West. Its monumental success could well be a blueprint for other Chinese tech firms looking to expand internationally.
Western Companies: The Flip Side of the Coin
Western companies, too, are not immune to these challenges. As they face similar demographic and economic pressures, we can expect to see them making moves to enter Asian markets.
Furthermore, western companies and governments may intensify their efforts to pressurise Chinese officials to open up their markets. A successful expansion of Chinese businesses abroad might compel officials to reciprocate, thus allowing Western companies to gain a stronger foothold in China.
Understated Success Stories
While we may not see another TikTok-like success that steals the PR spotlight, we should not underestimate the smaller triumphs. In the quiet corners of the tech industry, many companies are making inroads into foreign markets. These could be game developers, crypto projects, or other tech-based ventures that are quietly succeeding on each other’s turf.
The Challenges of Launching Apps in China
While the tech industry is geared up for an era of internationalisation, launching apps in the Chinese market poses unique challenges. One of these hurdles is the highly fragmented app store market in China.
Unlike in the West, where Google’s Play Store and Apple’s App Store dominate, China has a plethora of Android app stores vying for users’ attention. Giants like Tencent, Baidu, and Huawei each operate their own stores, and the Google Play Store holds a negligible market share. This fragmentation means that to reach a broad user base, apps need to be listed on multiple platforms, which can increase operational complexity and cost.
Another significant barrier for foreign companies trying to launch apps in China is the country’s stringent licensing requirements. Chinese authorities require companies to obtain licenses before their apps can be approved on app stores or before they can engage in advertising activities. The licensing process can be cumbersome and time-consuming, especially for foreign companies unfamiliar with the local regulatory environment.
Moreover, the licenses are not just a one-time requirement; they need to be maintained and renewed, adding to the ongoing operational expenses. This can deter smaller companies or start-ups with limited resources from attempting to enter the Chinese market.
Notwithstanding these challenges, the potential rewards of succeeding in the Chinese market are enormous, given its vast user base and increasing digital consumption. As such, while the road to launching apps in China may be fraught with challenges, for many tech companies, it’s a journey worth undertaking. It will, however, require meticulous planning, a thorough understanding of the regulatory landscape, and a willingness to adapt to a unique digital ecosystem.
The Challenges Ahead
However, this path is not without its challenges. The political tensions between China and the US might make it difficult for Chinese companies to establish themselves in the West. To overcome this, they’ll need to invest in lobbying efforts and strive to appear less connected to the Chinese government.
We believe the tech industry is on the cusp of a transformative period of internationalisation in the next years, driven by a confluence of demographic and economic factors. This shift may lead to a more globalised tech landscape, where East meets West, and vice versa. However, this journey will not be without its hurdles, and it will be fascinating to watch how these trends play out.