<Editor's Pick>Copying from China-a group of people are bringing Chinese business models to the US

Chinese people know American Chinese market more than American companies. Therefore, such enterprises have chosen to cut into the smaller Chinese American market at the beginning and expand. However, it remains to be seen whether such a starting point will enable the company to successfully achieve scale expansion.

The food delivery platform is not uncommon in the United States. The most common mode was contracted and deliveried by restaurant owners. However, many small and medium-sized merchants do not have the ability to delivery, which has become a hindrance to market expansion. In China, Meituan and Ele.me adopted the “takeaway + delivery” model, which brought inspiration to the United States. Emerging take-out platforms such as Uber Eats and Doordash have begun to build their own distribution systems and are gradually eroding the market share of traditional take-out platforms such as GrubHub.

At the beginning of the birth of the mobile Internet, it is still common for Chinese Internet companies to replicate the American business model. Didi and Uber are a typical example. The "latecomer" made a successfully counterattack in China, and the sharing economy began to be emulated by the United States.

China with a large netizen scale is an excellent business model test site.

Around 2014, North American entrepreneurs began to learn from the Chinese business model, and one of them was Fantuan Delivery, a take-out platform mainly about Chinese food. In the past four years, this product, which is much similar to Meituan, has grown into the largest and most widely covered Chinese food delivery platform in North America.

This copy of the business model is not just in the field of takeaway.

More and more overseas Chinese entrepreneurs have begun to be concerned about Silicon Valley capital by localizing the Chinese model, trying to rewrite Copy to China into a story of Copy from China.

Bring Chinese business models to North America

2014 is a very competitive year for the Chinese food delivery market. Baidu, Alibaba and other giants have entered the game. University students and white-collar workers in the office buildings witnessed the battle of cash burning: According to the IT Times Weekly, Meiituan spent 600 million yuan in three months; Ele.me founder Zhang Xuhao also publicly stated that the monthly subsidy cost is about 100 million yuan.

The huge subsidies brought considerable market growth: in the fourth quarter of that year, the order size of China's Internet catering and food-delivery market reached 109 million yuan, a year-on-year increase of 140.9%.

It was also during this year that inspired student Wu Leping founded the take-out platform “Fantuan Delivery” in Vancouver.

Before the establishment of “Fantuan Delivery”, the local delivery platform such as GrubHub in the United States has already made a great start, and Chinese entrepreneurs want to make traditional food delivery is very difficult. Fantuan is aim at a small market segment: Chinese food, Asian food delivery. At present, Fantuan covers more than 2,500 merchants, and the number of registered users is close to 300,000.

According to the catering website Eater's data, Chinese food is at the forefront of the most popular take-away categories in North America.

However, Wu Leping observed that American Asian restaurants, especially Chinese restaurants, are not highly rated on local take-out platforms. On the one hand, there are a large number of translation biases. On the other hand, due to the differences in communication thresholds and checkout methods, many authentic Chinese family-style restaurants are reluctant to cooperate with local food delivery platforms, while Chinese restaurants run by locals are not the favored by Chinese.

Wu Leping feels that his Chinese identity is an advantage in the process of communicating with Chinese merchants.

Fantuan is mainly aimed at the Chinese market including international students and tourists. This part of the user has already developed a consumption habit of order food online in China. Wu Leping also referred to the form of Meituan when it first designed the software page and ordering process, making it easier for users to accept the mode of the Fantuan. Therefore, Fantuan did not spend too much on educating users. The particularity of the US Chinese food market also determined that this is a market that does not require cash burning for subsidies.

Wu Leping's goal is to turn Fantuan into “Best Asian Food Delivery” and expand the target users to locals. At the beginning of this year, Fantuan also launched a review business in Vancouver, and has accumulated more than 20,000 comments. Through the number of users in the food delivery business, Fantuan wants to become the US version of "Meituan" and to serve as a life service platform covering the Chinese community.

According to official data, as of the end of 2017, the number of Chinese Americans was close to 5 million, and in Canada there were nearly 2 million Chinese. Fantuan found a business opportunity on "eating". Tripalink, who moved the Ziroom model to in North America, found the business opportunity on living.

Tripalink founder Li Donghao found that many universities in the United States do not provide accommodation, and Chinese students are at risk of renting out.

Considering the high unit price of American renters, Tripalink mainly serves Chinese and international students. Currently, the project covers 6 cities and serves more than 3,000 tenants with an occupancy rate of 100%.

Compared to local long-term rental apartments, Tripalink's biggest difference is to emphasize the concept of “Co-living”, creating a common activity area on the ground floor of each apartment building with different functional areas for residents to socialize, entertain and cook and learning. This way of living also attracts local students. Li Donghao said that among the current Tripalink households, the proportion of non-Chinese is 35%.

The localization of business models

The foreign concept in the United States will inevitably be unsuitable, which requires the founders to localize the business model, and Fantuan founder Wu Leping has encountered such problems.

The mode of food delivery between China and the United States is different. China's population distribution is more concentrated, the delivery distance is short, the rider is equipped with an electric bicycle, and foreign countries need car delivery to be delivered in the same time. Therefore, Fantuan employs drivers who own private cars and motorcycles.

The investment on riders is the cost core of the food delivery platform in the heavy asset model. Meituan’s financial report shows that the commission of the Meituan to subsidize the rider in 2018 reached 30.5 billion yuan. Under the self-built distribution system, if the it use car to delivery, the driver also needs to bear the fueling fee, which will undoubtedly increase the labor cost again.

Wu Leping found a possibility of breakout: North America has always had a tipping system, and the rider can usually get a tip of about 15% of the total takeaway price. The tip accounted for nearly 50% of the income. “This means that Fantuan does not need to give the driver a subsidy comparable to the Chinese level, and can guarantee their income level.” Wu Leping told the Jiemian journalist.

In addition, the unit price of American takeaway customers is generally high, while Asian American users are higher. In contrast to Meituan and Ele.me, public data shows that the average customer price of the two largest take-out platforms in China has more than 40 yuan, while Fantuan's average customer price is about 40 dollars (about 270 yuan).

On the premise that the rider's cost is relatively low, Fantuan achieved profitability in less than a year after its founding, and the gross profit margin is about twice as high as that of the Chinese platforms.

Takeaways are an important source of income for many American restaurants. According to the research report, in 2017, the proportion of American restaurants’ takeaway + food delivery reached 24.4%, almost double that of China. Wu Leping also noticed that many American food and beverage outlets pay more attention to the take-away market. Therefore, Fantuan has set a higher rebate for American restaurants than China. Currently, restaurant rebates are the largest source of income for Fantuan.

Investors who are waiting for opportunity

Most of the founders of Copy from China, and even the investors behind them, have a Chinese background, and these people do understand the similarities and differences between China and the United States.

In the same direction and volume of projects, the amount of financing that whites get in Silicon Valley is almost several times that of Chinese entrepreneurs. Even a listed company such as Zoom has a small amount of financing.

People from different cultural backgrounds need higher costs to communicate, so unless they are purely technical companies, it is not easy for Chinese entrepreneurs to survive in Silicon Valley. The best way is to get listed as soon as possible and get money in the secondary market. As the number of Chinese VCs has increased, these entrepreneurs have found more ways.

Centregold Capital in Silicon Valley is a venture capital firm focused on and investing in companies Copy From China. Chen Jie, an institutional management partner and Chinese investor, is active in both China and the United States. In his view, the emergence of the Copy From China trend in the United States and the rise of the Chinese VC are complementary.

As for why there are a number of companies that replicate the Chinese model, Chen Jie believes that the reason lies in the developed and unique consumption environment of China's mobile Internet.

He believes that China's population base is large and young people's lifestyles are getting closer to the United States. Even in second- and third-tier cities, they can quickly find target groups to test a new business model. However, the US cities are relatively fragmented and the cost of testing business models is higher. Therefore, copying the successful business model in China to the United States is a more cost-effective option for some founders.

For this reason, the majority of companies in the Copy from China model are in the consumer sector. In his view, there are many opportunities worthy of attention under Copy from China, such as in the field of logistics, mobile payments with QR code, and sharing power bank…

In judging whether such companies can be invested, the operating experience of different business models in China also provides a reference standard for investors. For companies that replicate the Chinese models, investors generally see whether this model has been successfully operated in China. There are three factors behind this: Value Proposition, Scalability, and Unit Economy.

“The cost control of this kind of operation-oriented company is very important, and the Chinese have great advantages in this regard.” Chen Jie told Jiemian.

Chinese people know more about the Chinese market than American companies. Therefore, such companies have chosen to cut into the smaller Chinese market at the beginning and expand. For example, Fantuan's goal is to develop from serving Chinese to serving Asian food delivery.

Photo from: vcg.com

This is an article from Jiemian.com, translated by Xu Yin.