China's AI companies are venturing abroad: what does it mean for the world?

This article is the second of a two-part piece that aims to give readers a deeper understanding of the Chinese AI space, its players, and the implications of the China-US AI ecosystem split. You can find the first part, “How is China’s AI scene rising to the occasion in the midst of the global AI ecosystem split?” here. 

The rise of the world’s factory of AI apps

China, known for its prowess in manufacturing consumer products, is now witnessing a new trend - the rapid expansion of its tech companies, both big and small, into the global market. This acceleration is particularly evident in generative AI, marking a significant shift in the international AI landscape.

Here is a definitive table of 25 Chinese-developed AI apps that have entered the global market outside of China:

Per my last post, we categorise them into three camps: tech giants such as Baidu and ByteDance, AI specialists such as Moonshot, and indie developers. 

1. Bytedance leads the pack with apps like gauthmath, which attracts 200m monthly users. 

Gauthmatch is an AI learning assistance software launched by ByteDance for overseas use. It allows users to upload test questions by taking photos, and AI will automatically identify and answer the questions' content. In addition to AI question recognition, Gauth has also launched online tutoring services, where users can experience AI explanations, AI coaching, and AI virtual partner conversations.

According to SimilarWeb data, Gauth's daily active users once exceeded 2 million, second only to the popular learning product Duolingo. 

2. This is followed by the AI specialist camp, e.g. minimax, who are already generating revenue overseas with apps like Talkie 

Talkie is an AI virtual character chat software. Users can chat with official or player-created characters or create virtual characters, which can be customised from image to personality, from appearance to voice and background story.

Talkie was developed by SUBSUP, a company registered in Singapore by MiniMax. It adopts a subscription membership system. Since its launch in June last year, it has been downloaded more than 18 million times (including mainland China) and generated more than 10 million RMB in revenue. In May, Talkie's revenue on Google Play exceeded USD 200K. 

That said, I do question their LTV (lifetime value). Given that these apps are heavily copied, the stickiness and LTV generation of these B2C applications, especially in the AI companion space, are low. 

Talkie monthly visits peaked at around 7.6M but quickly tapered off to 1.2M the following month - a 640% decrease.   

While B2C applications are more accessible to implement and easier to take to market, a few stark realities make it difficult to maintain growth and achieve profitability. 

1. Low defensibility and high replicability, meaning that competitors often pop up quickly  

2. B2C customers are fickle, understanding that the market is theirs to explore - preferring to test multiple options before converting into paying customers 

Even so, going overseas still means they would have a shot at the rest of the world. 

Motivations for International Expansion and hurdles that they are facing. 

Since I took the CDO role at Huawei in 2020, I have witnessed waves of startups visiting us to expand their business outside of China. The survey below was conducted in April 2024 and shows the top reasons for expanding business overseas in a group of 24 China startups between series A and series D.    

It gives away essential messages validated by many more founders and VCs I have spoken to over the years. 

1. There is the perception that the overseas market has better or more opportunities among Chinese startups, and

2. The competition in China is too intense and creates “involution” domestically in China.     

In essence, I see severe homogenisation of solutions in the market given that Chinese startups tend to copy for success, e.g. see what works and copy it to improve it. In China, this is called “Nei Juan” 内卷, the Chinese world for “involution”, and it creates a competitive market with pricing limitations due to consistent undercutting from competitors. As a result, the profit margin of most of the solutions or products in China is much lower compared with overseas markets. Therefore, overseas expansion is a very logical choice based on the following reasons: 

• Economic slowdown and market saturation in China

• Intense domestic competition leading to "involution"

• Regulatory constraints in the home market

• Desire to diversify revenue sources and reach new customer bases

The survey results below show that it is a path with hurdles, especially for B2B startups.  

With over 70% of China's AI Startups in the exploratory and preparation phase of their journey, many don’t have a clear playbook on how to expand their business outside of China and often go to their friends or early adopters for advice. Most of their journey is hindered by whether they can find a local partner or, better, with a local client at the back of a week-long overseas tour, which is not systematically effective. 

So what? 

Why should I care if I am a startup or an enterprise, and how is it relevant to me as an entrepreneur or a business executive?

To Startups outside of China: 

As a startup, you should care if you are outside of China, given that you will see the intensification of competition heading your way. They are already here. 

Thinkany, the China version of Perplexity, an AI search engine, has been attracting 600K monthly visits since its launch in March 2024., with users coming from countries such as Japan, Egypt, Russia, and Pakistan.

It stands out with unique features such as creating a mindmap to rationalise the results and giving a timeline view. 

ThinkAny was developed by Ex-Tencent engineer, Ai Dou Bi who is now an indie developer and more details can be found on his personal blog.  

And this is not a case of its own but a rising group of hundreds and thousands. I attended an AI seminar in Shenzhen, China at the end of June 2024; it gave me a new perspective on how Chinese startups are plugged into today's global AI economy. These are not just hundreds of individuals but a growing community of Indie AI developers; many are tracking USD 100K ARR - 3M ARR. with a team of 4 ~ 20 FTE, self-founded and making decent growth in selling SaaS AI tools/apps

They were either laid off or decided to become independent developers and aim for overseas markets by creating SaaS-based or consumer-driven products. They are well trained by tech giants, e.g., Baidu, Tencent, Huawei, and have experience building Apps used by millions. Most know about growth-hacking techniques, e.g., SEO, to stimulate organic growth. China is no longer the world factory you know of, making the consumer products you use daily. It is now gearing up to be the world factory of AI apps with these indie developers. 

To Enterprise outside of China: 

For enterprises outside of China, this is more of an opportunity to grab. Chinese tech giants such as Huawei and Alicloud have been trying to expand their overseas business for over a decade. However, the overall number of Chinese tech companies competing at the international level is still low compared with those from the US and EU. China AI companies are coming out in waves, with startups piggybacking on the giants, and they are taking a different approach. 

A Partner-first and service-led approach - given the need for international business acumen, the Chinese B2B companies will first prefer to find a local partner or anchor client. In nature, Chinese companies are very well-versed in providing customized service with great flexibility and service level, at competitive price points. This means you can find a cheaper or better alternative to your existing partner or supplier.

To wrap up, 

• China is quickly transforming into a major force in the AI industry. Companies and indie developers are expanding internationally, reshaping the AI landscape. This means intensified competition for non-Chinese startups but also new opportunities for partnerships and innovation.

• Key takeaway for overseas startups: Prepare for increased competition from Chinese AI companies. They bring rapid development and scaling experience but are hindered by a lack of international experience; this creates the opportunity to collaborate and forge strong partnerships.

• Key takeaway for overseas enterprises: Chinese AI companies offer different partnership opportunities—benefit from competitive pricing, tailored services, and a partner-first approach. Collaboration with them is not only to access cutting-edge AI solutions but more for their service capabilities.  

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