Since the beginning of this year, the trend of "cloud going global" has continued to accelerate, with cloud service giants such as Alibaba Cloud, Tencent Cloud, and Huawei Cloud intensifying their efforts to seek a larger overseas presence. In their view, going global represents one of the most certain opportunities at present and a defining moment for Chinese enterprises.

Looking back, Chinese cloud factories have been venturing overseas for a decade, spanning three distinct phases. This overseas "journey" over the past decade has instilled confidence, anticipation, and hope in Chinese cloud service providers regarding their global market endeavors.

However, just like currents, rapids, and reefs, the overseas market, in addition to opportunities, also harbors triple risks stemming from geopolitical, cultural, and competitive factors. How can these dangers be navigated to uncover treasures?

Why is "cloud going global" so popular?

Today, going global has become one of the hottest topics in China's cloud computing industry. Leading domestic cloud service providers have started from Asia Pacific and expanded their footprints globally, competing with international cloud service giants. Going global has become a necessary choice and a crucial strategy for them.

Alibaba Cloud, Tencent Cloud, and Huawei Cloud, as three representative players, have been cultivating the overseas market for years, having embarked on their global journeys as early as 2014.

Each of these giants excels in different business areas. Alibaba Cloud focuses on e-commerce, logistics, and retail, while Tencent Cloud specializes in gaming, live streaming, and audio-visual services. Huawei Cloud boasts advantages in serving government and enterprise customers.

Over the past decade, these three giants' expansion into overseas markets can be broadly divided into three phases: "going global strategy planning," "establishing overseas operations," and "providing localized services."

Phase 1 (Going Global Strategy Planning): From 2014 to 2018, they began formulating internationalization strategies, announcing global expansion plans, and laying the groundwork for overseas operations.

Phase 2 (Establishing Overseas Operations): From 2018 to 2022, they accompanied domestic enterprises in their overseas endeavors, attempted to establish a local presence, continuously improved their overseas deployment capabilities, accumulated overseas supplier resources, and expanded customer and business channels.

Phase 3 (Providing Localized Services): Since 2022, they have provided comprehensive support to domestic enterprises venturing overseas while initiating the construction of localized ecosystems in overseas markets.

According to data from the China Academy of Information and Communications Technology, China's cloud computing exports reached 25.7 billion yuan in 2022, with a market growth rate of 42.8%, and it is expected to maintain high growth rates in the future. Industry experts believe that as domestic cloud service providers accelerate their global expansion, new changes will emerge in the global cloud service market landscape.

In the early stages of going global, domestic cloud service providers expanded overseas due to policy and industrial system factors.

Firstly, in the 1990s, the government introduced the "going out" strategy, encouraging domestic enterprises to explore international markets and invest overseas to compensate for domestic market and resource deficiencies.

In 2013, the government proposed the "Belt and Road" initiative, aimed at strengthening economic cooperation and regional integration among countries along the route. This strategy accelerated the global expansion of domestic technology industries and domestic enterprises' overseas endeavors.

Secondly, after years of development, China's industrial system has gradually improved. Leveraging technologies such as cloud computing, big data, and AI, various industries have achieved technological innovation and industrial upgrading. While meeting domestic market demands, enterprises' capabilities have spilled over into rapidly growing overseas markets, gradually forming a new overseas business combination of "capacity + brand + technical services + business model."

Since 2018, as Alibaba Cloud, Tencent Cloud, and Huawei Cloud accelerated their overseas operations, "cloud going global" gained new momentum.

Firstly, based on the industry distribution of overseas endeavors in recent years, manufacturing, retail, and IT services have emerged as the "pioneers," mutually driving each other's growth.

Domestic home appliances, automobiles, consumer electronics, and other products have reached various parts of the world through cross-border e-commerce platforms. The digitalization and intelligentization infrastructure and software technology services required by manufacturing and retail enterprises venturing overseas have driven the demand for cloud services.

Secondly, after years of intense competition in the domestic cloud service market, demand has begun to plateau, and cloud service providers' revenue growth has declined sharply in recent years.

In contrast, the revenue growth of international cloud service giants has continued to soar. Therefore, there is a need to explore new incremental markets and profit margins to generate new revenue streams.

Going global offers cloud service providers more than just revenue. According to the aforementioned industry experts, going global holds triple significance.

Firstly, to become a true cloud service giant, an internationalized technical architecture must be established. The overseas expansion of domestic cloud services is more importantly about competing with international cloud giants, delving deeper into technological trends and industry directions, strengthening their capabilities while also bringing fresh perspectives to the domestic market.

Secondly, as domestic cloud service providers execute their overseas strategies, with the continuous expansion of overseas investment and the localization of technical services and teams, they can better penetrate overseas markets, obtain necessary resources, expand sales channels, and enhance their brand image in overseas markets.

Thirdly, by providing digital and intelligent services to more countries, cloud service providers can help overseas publics break Inherent impression and prejudices about China, such as being a "world factory" or a producer of "cheap trinkets," and promote a new image of China in the world. Furthermore, it enables people in more countries to benefit from the development dividends brought about by China's technology industry.

Triple Risks in Overseas Market Expansion

However, the road to success is often fraught with obstacles. In the early stages of "cloud going global," these cloud service giants encountered "geopolitical risks."

Before 2018, domestic cloud service providers formulated an overseas expansion plan of "Europe and the United States first, followed by Southeast Asia." The European and American markets are relatively developed, with high customer willingness to pay and stringent requirements for cloud services. Gaining recognition in these regions would not only hone their business acumen but also facilitate expansion into developing markets.

However, in 2018, the European Union introduced the General Data Protection Regulation (GDPR), which has since led to substantial fines almost every year, with Microsoft and Amazon receiving related complaints and penalties. This affected domestic cloud service providers' willingness and plans to expand into Europe and the United States.

Under the regulation, sensitive businesses cannot use public clouds and require local, private deployments. This means that domestic cloud service providers face significant restrictions and difficulties in conducting business and gaining customer trust in these regions.

Another significant obstacle in the European and American markets stems from political factors. Whether it's TikTok being asked to stop using Alibaba Cloud's services in the United States or European countries' skepticism towards domestic cloud service providers, these incidents reflect the complex political implications in the global digital economy.

As a result, the Southeast Asian market has become the preferred destination for domestic cloud factories.

The Southeast Asian market boasts numerous advantages. With a large population and rapid economic development, it holds immense potential. Moreover, compared to European and American markets, Southeast Asia is geographically closer, socially stable, and heavily influenced by the Chinese community, sharing many similarities with the domestic market in terms of consumption habits.

More importantly, the rise of the internet industry and the digital transformation of local enterprises have generated substantial demand for cloud services.

However, "cultural risks" soon emerged.

Cloud service providers face a complex environment in Southeast Asia, where different countries have distinct languages, cultures, customs, and even numerous ethnic groups within the same country. Unfamiliar territories may harbor hidden risks from political, legal, and social aspects.

Talent recruitment and cross-cultural communication are typical examples. In Southeast Asia, the traditional finance and telecommunications industries have absorbed a significant portion of local talent. For a long time, the IT industry has struggled to attract local talent, leading to a shortage of professionals required for cloud going global, including professional consultants, technology developers, data analysts, and business operators.

For domestic cloud service providers, a crucial prerequisite for establishing a local presence is the localization of their operations and teams. However, finding and retaining suitable professionals remains a significant challenge.

The workplace culture in Southeast Asia also differs markedly from that in China. Industry insiders have told the author that locals place more emphasis on the company environment and work atmosphere, seeking a relaxed work pace. "The 'involution' culture prevalent in Chinese workplaces, such as the '996' work schedule, is unimaginable in Southeast Asia. This cultural and work-related Integration and Communication is destined to be a long-term and resource-intensive process."

"A common mistake made by domestic cloud service providers is assuming they can replicate their domestic success in the Southeast Asian market. However, facts have proven this approach unfeasible," said an industry analyst. Misconceptions about the local cultural environment determine the difficulty of market expansion.

Furthermore, "competitive risks" cannot be overlooked. Statistics show that Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) hold a combined market share of up to 70% in Southeast Asia and are intensifying their presence.

This year, Microsoft announced that it would invest $1.7 billion in Indonesia's cloud and AI infrastructure over the next four years and an additional $2.2 billion to support Malaysia's digital transformation. AWS plans to increase its investment in Singapore to SGD 23.5 billion over the next four years. Google, meanwhile, will invest $2 billion in Malaysia to establish its first data center and Google Cloud region.

Currently, most of the customers of domestic cloud service providers in Southeast Asia are Chinese enterprises venturing overseas. Local enterprises' recognition of domestic cloud services remains to be improved.

Taking Southeast Asia as an example, several industry insiders, in their conversations with the author, believe that the risks and challenges faced by domestic cloud service providers in their overseas expansion, both present and future, primarily stem from:

Firstly, fierce competition. Domestic cloud service providers must compete with AWS, Microsoft Azure, and GCP, which hold a significant share of the global market. In contrast, domestic cloud factories suffer from low brand recognition, weak brand influence, fewer ecosystem partners, and room for technological innovation improvement.

Secondly, understanding and insight. Although domestic cloud service providers have expanded significantly in overseas markets, they still lack experience in different countries, making it difficult to quickly establish a local presence. Localization in areas such as cultural integration and team building remains low, making "acclimatization" challenging.

Thirdly, talent recruitment. In overseas markets, especially developing countries, high-end talent with cross-language communication skills, local cultural understanding, and technical abilities is scarce. Cloud service providers often need to invest significant effort and time in finding the right talent, significantly increasing various costs for the enterprise.

Therefore, to succeed in overseas markets, cloud service providers must leverage their strengths and mitigate weaknesses:

Firstly, they must fully understand and comply with the laws and requirements of each country, integrating risk management into daily operations. By closely collaborating with local governments and regulatory agencies and establishing professional compliance teams, they can build high-quality compliance systems to promptly avoid compliance and security risks.

Secondly, they should identify their areas of expertise and scenarios, constructing a differentiated competition system in terms of products, services, and pricing. By providing overseas customers with "butler-style services" superior to those of international cloud service providers, they can establish customer trust, enhance their reputation, and compensate for shortcomings in brand recognition and influence.

Thirdly, they should prioritize industry-academia-research collaboration, intensify cooperation with foreign universities and academic institutions, establish robust talent development mechanisms, and create a series of cross-national communication, exchange, and training platforms to attract more overseas talent.

Conclusion

Today, the "Belt and Road" initiative has embraced a new vision and entered a stage of high-quality development. Against this backdrop, domestic enterprises, including cloud service providers, need to further enhance China's significance in the global industrial and value chains, where going global plays a crucial role.

Unlike exports, going global tests an enterprise's overseas operational capabilities, brand-building abilities, and value delivery capacities. As geopolitical turmoil intensifies in different regions worldwide and the era of periodic "de-globalization" arrives, the term "going global" has been imbued with new meanings.

Taking cloud service providers as an example, facing the unpredictable overseas market, "going global" at this stage is not just a strategy but also a mindset.

It requires cloud service providers to truly demonstrate their commitment to establishing a local presence and long-term operations. They must also adopt a non-impulsive and unflappable approach, persevering in their efforts. Furthermore, they must gradually enhance their core competitiveness and resolve to create value for customers. Only in this way can they mitigate potential risks, unleash more Chinese cloud wisdom, and contribute more Chinese cloud power to the world.