Eliza Wong
The Global Expansion Trap
Chinese companies flooding international markets face a dangerous paradox. As Gree Vice President Zhu Lei recently proclaimed at a business summit: ‘The relentless drive to undercut rivals at all costs creates a vortex of internal involution. You can’t kill competitors this way – you’ll only kill yourself.’ This stark warning reveals how self-destructive competition is undermining Chinese businesses abroad.
Recent data exposes the severity: Chinese exports grew 7.6% year-on-year while profit margins simultaneously contracted by 4.2% across major industries. This profitless growth directly results from companies accepting razor-thin margins to crowd out rivals in target markets. Zhu Lei’s comments highlight an urgent need to rethink international strategies before more businesses collapse under their own competitive pressure.
Understanding the Involution Phenomenon
Internal involution describes a dangerous cycle where companies exhaust resources in mutually destructive competition rather than expanding markets or creating value. When firms concentrate in oversaturated spaces, diminishing returns become inevitable.
The Anatomy of Self-Destruction
– Profit-eroding pricing wars that shrink industry margins
– Commoditization of products through endless imitation
– Talent poaching that increases costs without growing expertise
– Regulatory crackdowns triggered by price-dumping patterns
In overseas markets, cultural and logistical barriers amplify these effects. When 10 Chinese e-bike manufacturers compete solely on price in Germany, German producers actually gain advantage through quality differentiation while Chinese firms bleed out. European Union anti-dumping cases against Chinese steel exporters demonstrate how involution becomes self-sabotage.
Zhu Lei’s Critical Warning
Speaking at July’s Global Expansion Forum, Gree’s executive pinpointed why involution fails: ‘Companies obsessed with outlasting competitors through endurance contests forget they’re running on their own lifeblood. When your strategy is simply to survive longer than others while selling below cost, you’ve traded business for slow suicide.’
Gree’s Painful Lessons
Gree itself fell into this trap during early U.S. market efforts. By mirroring Chinese competitors’ discount-focused approach, they:
– Temporarily captured market share at 37% gross margin (versus 52% domestically)
– Triggered a U.S. Department of Commerce anti-dumping investigation in 2023
– Damaged brand positioning with middle-class consumers associating products with ‘cheap’
Zhu emphasized that only shifting to innovation-led differentiation reversed this decline. Today, Gree commands premium pricing for its ultra-quiet home air conditioners developed through exclusive sound-dampening technology.
When Cutthroat Competition Backfires
Internal involution inevitably triggers predictable failure patterns:
The Resource Depletion Spiral
Sustainable Alternatives to InvolutionBreaking free requires fundamentally rethinking competition:
Value-Creation Frameworks
– Premiumization through technology: Haier’s wine refrigerators incorporating humidity control and scent-neutralizing tech command €950+ pricing
– Ecosystem solutions: Xiaomi bundles appliances with smart home controllers and maintenance packages
– Cultural localization: Midea developed rice cookers specifically for Middle Eastern diets and voltage standards
Cooperation Over Competition
Emerging models include:
– Cross-company overseas service alliances
– Shared distribution networks reducing entry costs
– Standard-setting coalitions improving industry reputation
– Collective lobbying addressing regulatory barriers
Intelligent Differentiation
Digital transforms how companies compete non-destructively:
– AI demand sensing for premium niche targeting
– Subscription models (e.g., appliance-as-service)
– Blockchain verification for quality reassurance
– Micro-factories enabling cost-efficient limited editions
Mapping Sustainable Global Strategies
Practical steps for avoiding involution traps:
Realistic Market Evaluation
Develop expansion dashboards weighing:
– True market size and saturation levels
– Existing competitors’ bonus features and weaknesses
– Regulatory cost multipliers
– Cultural adoption barriers
Establish strict performance guardrails like minimum 40% gross margins before entering new markets.
Innovation-Centric Organization
Create organizational structures that prevent commoditization:
– Dedicate 20-30% of overseas revenue to local R&D
– Decentralize product teams with country-level autonomy
– Performance metrics weighted toward premium adoption
– Diversified supplier baskets preventing singular dependencies
Analysis of healthy expanders shows firms spending under 18% of revenue on R&D faced involution within 3 years versus counterparts investing 25%+.
Partner-Led Growth Frameworks
Consortium models are essential:
– Local market specialist partnerships handling regulations and customs
– Complementary product alliances creating bundled offerings
– B2B service cooperatives sharing service infrastructure
For technology roadmaps, global firms increasingly leverage platforms like ISO Global Standards to align efforts.
Building Future-Ready Enterprises
The post-involution corporation develops distinct capabilities:
Displaying Value Leadership
Beyond price tags, focus communication on:
– Lifetime ownership cost savings
– Endorsements from local trade authorities
– Premium retail placement strategies like brand galleries
Companies like Nio automobiles avoid price discourse entirely with battery-swap stations eliminating ‘range anxiety’ as their core differentiator.
Industry-Wide Stewardship
Adopting Smarter GrowthZhu Lei’s warning provides painful clarity: Survival isn’t victory. Companies continuing destructive competition won’t defeat rivals, they’ll become casualties. The transition to value-creation demands courage and investment.
Immediate action required: Conduct a strategic audit of your overseas positions this month. Are you competing on durable advantages or temporary endurance? Identify at least one premium segment where you can redefine standards rather than fighting on price.
Education is critical. Have executives spend eight hours quarterly researching innovative global players embracing synergies. Realign incentives from market share targets to sustainable margin goals. Your business doesn’t need deep pockets – it needs the wisdom to avoid bleeding out in unwinnable battles.
