Chinese takeout in Saudi Arabia? You bet

Shuli Ren, Bloomberg

“Going out” is a major consideration among big Chinese corporations. Pressed by shrinking profit margins at home, China Inc. is keen to expand businesses abroad. The question is whether their chosen destinations make economic sense, and if they can adapt to a culture that might be very different from the “996” work schedule at home.

The latest adventure comes from food delivery giant Meituan. It has started operations in Al-Kharj, a city in central Saudi Arabia, ahead of a widely-expected launch in the capital Riyadh. This is its first international foray outside greater China.

The company is joining a growing fleet of businesses that see a bright future in the Gulf kingdom. In recent months, Chinese firms won multibillion-dollar contracts to build solar plants and mixed-use development projects. In exchange for a $2 billion investment, PC maker Lenovo Group Ltd. is establishing regional headquarters there in a deal that is expected to create 15,000 jobs locally. And last but not least, Hong Kong’s flagship airline Cathay Pacific Airways Ltd. will start a new direct route to Riyadh in late October, pleasing Saudi officials who have been pitching the nascent tourism industry.

Nonetheless, Saudi Arabia is a curious first choice for an ambitious consumer tech brand with a formidable competitive track record that has recently won market share in a fierce three-way battle in Hong Kong. Why does Meituan want to go into a small market with only 35 million people?

Perhaps it is seduced by the investment thesis that Saudi Arabia is “like China two decades ago,” and that Crown Prince Mohammed bin Salman’s “Saudi Vision 2030” will bring about the same kind of economic opening that Beijing began in 1978.

For instance, Saudi Arabia’s demographics can be perfect for food delivery apps. Now that more women are working — labor participation rose to about one-third from 20% in 2017 — families may have more disposable income but less time to cook meals.

Meituan, whose shares have soared over 60% this year on solid sales growth and record high gross margins.

Perhaps because of its resounding success, some investors are worried the firm is “over-earning,” according to Bernstein Research’s analyst Robin Zhu.

In China, labor welfare — and whether consumer tech companies are a force of good — remains a touchy political issue. Meituan certainly seems eager to prove its social value. A new report from the company shows that its riders working in major cities are making more than the local population, portraying gig employment as an alternative for people in between full-time jobs. Last month, youth unemployment hit a new high.

No doubt, the Saudi market will present new challenges to Meituan. Deadly summer heat and regulations to motivate Saudis to work at the expense of non-locals are just a few examples. However, a few billion yuan of spending over the next few years will not dent Meituan’s balance sheet. It also gives the company a good global expansion story to tell.

Ironically, China Inc.’s foray into Saudi Arabia is simultaneously optimistic and nostalgic. Many of us growing up in China in the 1990s remember the thrill upon the arrival of KFC and big Hollywood blockbusters in movie theaters. As such, Chinese business executives can easily be persuaded by Saudi’s new investment thesis. They are simply reimagining China in Riyadh. [Abridged]

Courtesy Shuli Ren/Bloomberg