Chinese Companies Strike It Big in the Middle East: A Perfect Time for Expansion

Image Source: Visual China

In recent years, as Arab countries like Saudi Arabia, the UAE and Qatar are trying to diversify their economies away from the oil and gas industry and seek digital transformation, industries such as e-commerce, logistics, social media, and fintech have been growing rapidly, and the upgrading of traditional industries have also been accelerating. This presents a new market with great potentials for Chinese companies with accumulated experience in digital technologies.  

However, the newcomers have to remove cultural and language barriers and comply with local policies.  How can Chinese companies overcome the obstacles and take their good business practices to the Middle East?

Go to the Middle East!

Many people say that globalization is dead, but when it comes to the Middle East, it is a completely different picture, a representative of a Chinese enterprise to the Middle East region told TMTPost.

“After the pandemic, Chinese investment in the Middle East is growing rapidly. We have investors from China every week or even every day, and Middle Eastern governments and businesses are also very eager to meet Chinese investors,” said the representative.

Walking on the streets of Saudi Arabia or the UAE, people often see the names of Chinese companies on the construction signs of the towering buildings. Many of the locals’ favorite video games, as well as their most commonly used social media and tool apps, also come from China.

Located in a critical position connecting Asia and Europe, with 60% of the world’s total oil reserves, the Middle East has long been a hot spot of diplomatic and economic concern in the world. The rich resource reserves not only bring huge wealth to Middle Eastern countries but also lays the foundation for the rapid development of technology.

Take the six rich countries in the Gulf – Saudi Arabia, the UAE, Kuwait, Oman, Qatar, and Bahrain – as an example. Although the population of the member countries does not exceed 60 million, the smartphone coverage rate is very high, and the internet penetration rate is far higher than that of China. Due to the strong willingness of Middle Eastern users to pay for services, and relative homogeneity in terms of religion and language, many mobile internet companies have taken root and sprouted.

In the Middle East region, eight out of ten countries’ national vision strategies have clear digital government and digital development visions. Under the continuous promotion of Bahrain’s 2030 economic vision, policies such as “cloud priority” have been introduced, attempting to make Bahrain a regional and even world-class data center. Saudi Arabia also supports digital transformation in its 2030 vision. Huawei Cloud, Tencent Cloud and Alibaba Cloud have reached cooperation with local telecommunications service providers. Qatar, under the 2030 national vision, has heavily invested in e-government projects and the ICT industry, further feeding the cloud infrastructure market. In its economic revivalplan, the UAE has stated that the government will encourage long-term investment in the digital economy, focusing on the development of cutting-edge technologies such as 5G, artificial intelligence, biotechnology, and the green economy, to promote economic transformation and upgrading.

The advantages brought by the Middle Eastern countries’ wealth allow technology to quickly take root in the region. Decision-makers are more willing to embrace advanced technology. Take the recently sweeping pre-training large-scale models of artificial intelligence as an example. Saudi Arabia has worked with Huawei Cloud to develop large natural language models very early on and is currently considering launching an Arabic version of the model.

It can be said that in the tide of digitalization, the Middle East is not willing to miss any nodes.

“Middle Eastern countries are more concerned about the development of digital technology than ever before,” analysts say. Many Middle Eastern countries have small land borders and populations, but from the perspective of digitalization, as long as there is enough funding and the correct business model, the scale of the digital economy will not be lower than that of the oil economy. Middle Eastern leaders have realized this, so their spending on IT has been rapidly increasing in recent years.

Although the Middle East is advancing rapidly in terms of digitalization, it still faces challenges such as cybersecurity, the digital divide, and the shortage of local talents. The road to digital transformation is still long, but with the region’s rich resources and strong willingness to develop, the Middle East is bound to attract multinational companies to its vast market.

With Opportunities Come the Challenges

Under the promotion of digitalization in various Middle Eastern countries, the demand for cloud computing in the local market has been increasing year by year. The research institution MarketsandMarkets predicts that the scale of the cloud computing market in the Middle East is expected to grow from US$14.2 billion in 2021 to US$31.4 billion in 2026, with a compound annual growth rate (CAGR) of 17.2% and enormous growth potential.

The Middle East is becoming a hotbed for global cloud computing companies. Not only are international companies such as AWS, Microsoft, Oracle, and Google deploying their services in the region, but Chinese cloud computing companies such as Huawei Cloud, Alibaba Cloud, and Tencent Cloud have also entered the Middle Eastern market one after another. Some have established cloud computing data centers in the Middle East, while others have frequently cooperated with Middle Eastern operators to get closer to local customers and expand market share. Alibaba Cloud focuses on exporting its successful cases of e-commerce and payments from China, while Tencent Cloud prefers game and content providers, and Huawei Cloud has more experience in serving government and enterprise customers and providing cloud service infrastructure.

Huawei Cloud is one of the earliest Chinese cloud computing companies to start operation in the Middle East and has already exported mature cases in several countries in the region. In 2019, Huawei cooperated with Ankabut, the largest ICT service provider in the education industry in the UAE, to establish an education cloud in the country and the entire Middle East. Huawei’s cloud data center solution is more friendly in terms of cost and construction threshold, and Ankabut’s service scope is now among the top in the entire Middle East and North Africa region.

As the digitalization demand in the Middle East deepens, enterprises are no longer satisfied with using the infrastructure services of the cloud to obtain elastic computing resources but have increasingly strong demand for technologies such as AI, cloud-native application development and big data.

“In contrast to the Chinese cloud service market, most of the customers paying for cloud services in the Middle East market are government and corporate clients. These customers traditionally used solutions from leading multinational companies, mainly based on virtualization technology. But in recent years, they have accelerated their transition to cloud and are looking for more agile and lower-cost SaaS solutions. This is precisely the opportunity for Chinese companies,” said Dai Boyao, President of Huawei Cloud Middle East and Central Asia Cloud Business Unit, in an interview with TMTPost.

Huawei Cloud’s cloud-native solutions have also been widely used by customers in the Middle East. For example, based on Huawei’s cloud-native database, the Qatari e-commerce platform Ebdaadt has modernized the Mzad Qatar application, resulting in a 50% surge in website loading speed, a 23% increase in monthly subscriptions, and a significant hike in commercial revenue.

“In the cloud service industry, all Middle Eastern customers want is good technology, low cost, and excellent service, which is precisely the strength of Chinese companies,” Dai  mentioned. In the past, many multinational giants’ solutions often adopt a globally unified technical system, making it difficult to customize for local special processes and enterprise transformation needs. In contrast, Chinese cloud computing service providers are very “agile” in terms of cost, experience, and business models, and are more willing to share technology and invest in localized services, which has become a unique competitive advantage for Chinese companies going global.

Moreover, as newcomers to the cloud industry, Chinese cloud companies have gone through the path of adopting mature systems from Western companies to self-developed systems, and have also made a lot of digital transformation planning and internal process IT governance work. Such experience is very valuable for Middle Eastern enterprises trying to achieve digital transformation.

There is almost no one who would deny that now is a good time for Chinese companies to go to the Middle East for the mass market. But to truly seize this opportunity, companies need to meet the challenges.

Among them, compliance is the primary concern for companies going global.

Regarding the compliance of data circulation, since many governments prohibit hosting data overseas, enterprises that develop and operate applications locally need to cooperate with local data centers. In addition, the issue of data sovereignty has not formed international consensus. Privacy laws in various countries are different while enterprises often need to comply with several different regulatory systems. This poses greater risks of violations. For example, Amazon was fined a record-high US$888 million by the EU for violating data privacy, and Google was also fined €50 million by French regulatory authorities for data privacy issues.

In the Middle East, countries such as Saudi Arabia and the UAE have been trying to boost manufacturing during their economic diversification and have unveiled a series of preferential policies to attract foreign investment. However, the data and privacy compliance requirements involved in manufacturing are much more complicated than those in the internet, which requires Chinese companies to be familiar with local policies and regulations. This has become the first hurdle for many companies to enter the Middle Eastern market.

In addition, technical support and localized operation are also critical to the overseas development of enterprises. Based on Huawei Cloud’s research, 45% of companies will prioritize seeking technical partners in the process of going global, followed by consulting services for policy, legal, and security compliance issues, as well as assistance in product promotion and marketing.

With these challenges, how can companies truly move forward steadily? Building a sound offshore ecosystem may be the key.

Seizing Business Opportunities with an Ecosystem

“When companies first arrive in the Middle East, they need to quickly understand and study the local market environment, draw customer profiles, know customer needs, business pain points, and investment budget, master the techniques suitable for localized marketing, and create a sound financial, tax, legal system, etc,” Dai said, who has worked in the Middle East for more than ten years and witnessed the development of Huawei Cloud in the region. The market experience of Chinese companies going overseas can be shared and replicated, he added. Experienced companies in the Middle East can provide support and guidance for other companies new to the market.

Moreover, opening up the market also requires ecosystem collaboration.

Compared with the globally unified technology product solutions of other international giants, Chinese companies are adept at providing localized services, and can offer customized digital transformation solutions for government and enterprise customers, which is undoubtedly a great advantage. However, customized needs often involve many aspects and cannot be solved independently by a single vendor.

“Large customer groups not only have cloud demand, but also upper-layer application demand. In the absence of mature products, they need customization and development. There are many excellent companies in China that can do these products and technologies,” said a local Saudi solution expert, adding that there are many Chinese software SaaS companies whose capabilities actually allow them to do a lot of things in the Saudi market if provided with a channel.

Dai also observed that there is an obvious difference between the Middle East and China’s cloud service markets: the market share taken by SaaS far exceeds IaaS+PaaS. In 2022, the total public cloud spending in the Middle East and North Africa reached US$5.8 billion, of which SaaS services had the highest expenditure, accounting for 41%. In comparison, China’s SaaS development is still not sufficient, but it is also because of this that Chinese SaaS companies can find largerbusiness opportunities here.

It is urgent to create a prosperous and open business ecosystem for companies going overseas.

With a deep understanding of local compliance policies and rich customer experience, Huawei has the ability to become a “bridge” for Chinese companies to settle in the Middle East. Having been rooted in the Middle East for 23 years, Huawei has undertaken many forward-looking digital projects and programs with its customers and partners in the region, starting from the first 3G project, the first FTTX project, to the large-scale commercialization of 5G in Saudi Arabia. This has resulted in a relatively mature localized delivery team and project management team, as well as close cooperation with local educational institutions to train over 150,000 ICT talents in the Middle East.

In 2022, Huawei launched the “Go Cloud, Go Global” ecological plan globally, providing a package of solutions for itspartners to share Huawei’s experience in compliance, human resources and other localized capabilities, as well as Huawei’s cloud products and solution capabilities. In the Middle East, “Go Cloud, Go Global” can help partners familiarize themselves with local investment policies, connect with government resources, and open up their business in the Middle East at a lower cost and threshold.

At the same time, based on its own experience and the pain points of its partners’ overseas expansion, Huawei has developed a set of global business boosting solutions, including compliance, application acceleration, intelligent localization and enterprise services. These services provide a global one-stop, consistent cloud experience for industries such as gaming, e-commerce, entertainment and social media, finance, etc., to help enterprises expand into global markets.

Today, faced with fierce domestic market competition and lackluster growth, many Chinese companies see going global for growth as a must. However, unlike Huawei’s going global solo more than 20 years ago, companies now don’t have to do it alone. Through the technological support and comprehensive solutions provided by Huawei as a platform, other Chinese companies can enter the Middle East with ease and grow together.

The Middle Eastern market is a hot market now. Competing in the Middle East is no longer just a technological contest, but also a rivalry of services and ecology. For Chinese companies that are about to enter the Middle East, strong local resource support is needed, and the overseas cloud ecosystem will play a key role in not only lowering the threshold for entering overseas markets but also building stronger competitiveness together.

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