Chinese Cloud Providers Aggressively Expanding Internationally, Bringing Industry-Specific Capabilities to Enterprises

By Yih-Khai Wong | 3Q 2024 | IN-7534

Registered users can unlock up to five pieces of premium content each month.

Log in or register to unlock this Insight.

The ongoing U.S.-China trade war has significantly impacted China's semiconductor industry, with restricted access to advanced chips forcing Huawei to develop its own Artificial Intelligence (AI) chip aimed at the Chinese market and designed to compete against market leader NVIDIA's offerings. The trade war has also pushed Chinese cloud providers such as Alibaba Cloud, Tencent Cloud, and Huawei Cloud to develop their own hardware and software stack further. Increasingly, these Chinese cloud providers are looking to expand internationally after years of local Chinese cloud market dominance.

Alibaba Cloud will be launching its first cloud region in Mexico and establishing additional data centers in Malaysia, Thailand, South Korea, and the Philippines. These data centers will be AI-focused and will be part of Alibaba Cloud's high-performance computing resources specifically designed for AI and Machine Learning (ML) tasks. Tencent Cloud has also been expanding strategically internationally, focusing on regions with strong economic ties with China and supporting customers in gaming, social media, and digital entertainment looking to expand beyond the Chinese market. Huawei Cloud's "Two 100s" plan is aimed at supporting Chinese enterprises in expanding their presence in Europe. The plan is aimed at helping 100 Chinese brands and 100 software partners to establish a strong presence in the European region and, subsequently, expand globally.

While Chinese cloud hyperscalers have set their targets on international expansion, it remains to be seen if this will significantly impact the overall worldwide footprint of Western cloud hyperscalers such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. However, an area where Chinese cloud providers hold an advantage over Western cloud hyperscalers is in the gaming industry and captive digital ecosystems. Tencent Cloud, for example, is looking to deepen its roots in South Korea and Japan, countries with strong gaming and digital media history. Gaming and digital media enterprises will be able to leverage Tencent Cloud's experience in supporting the competitive Chinese gaming market and replicate this success in their market, as well as access to years of experience supporting and innovating the WeChat platform, a super app developed by Tencent. A partnership with Tencent Cloud could potentially make it easier for international gaming publishers to have a significant presence in the lucrative Chinese market. This is a compelling advantage that Chinese cloud providers hold over other Western cloud hyperscalers.

The international expansion of Chinese cloud hyperscalers can also impact the pricing strategy of Western cloud hyperscalers. A proven strategy for Chinese cloud providers is to provide a significantly cheaper pricing strategy compared to Western cloud hyperscalers. This strategy is especially true in regions such as Southeast Asia and Africa, where price competitiveness is almost always the number one factor in choosing a public cloud provider. Huawei recently won a US$3 million cloud computing contract from Nigeria's United Bank for Africa, which chose Huawei for its cost-effective and scalable cloud storage capabilities. If the Chinese cloud hyperscalers can articulate the value and innovation that comes with a cost-effective cloud platform, this will go a long way in enticing more enterprises to use and leverage Chinese cloud platforms.

For Chinese cloud providers to thrive and wrestle market share from the dominant Western cloud hyperscalers, below are some recommendations that will help cement their position internationally:

• Focus on Specific Solution Strengths and Industries: Chinese cloud providers will need to leverage and replicate their strengths in specific cloud solutions. For example, Alibaba Cloud has built a strong reputation for providing e-commerce-related cloud platform solutions and should leverage this messaging in onboarding new international customers. Huawei has a strong history and presence internationally in enterprise networking and telecommunications, areas Huawei Cloud can take advantage of and focus on. Tencent Cloud should leverage its history in the gaming industry in providing gaming-related cloud solutions.
• Cloud Localization Support: In regions such asSoutheast Asia and the Middle East, localization support will be crucial for enterprises. While the Western cloud hyperscalers do provide limited localization support, Chinese cloud providers can gain a significant advantage by providing customer support and documentation language localization, customization of retail e-commerce solutions according to local cultural festivals, and multilingual AI services that support multiple languages and region-specific dialects.
• Multi-Cloud Messaging: As part of their go-to-market messaging, Chinese cloud providers can be an alternative option to Western cloud hyperscalers, as part of an enterprise's multi-cloud strategy. For enterprises that operate in industries with a high degree of data privacy regulations that cannot be satisfied by a Chinese cloud provider, the data can be stored in a Western cloud hyperscaler platform. For solutions that do not require strict data regulations, enterprises can develop new innovative solutions and leverage cloud solutions such as AI, analytics, and microservices applications on the Chinese cloud platform.

The expansion of Chinese cloud providers is still in its early stages. However, if the Chinese cloud providers can articulate and deliver cutting-edge innovation on top of a cost-effective cloud consumption model, this can be a cause for concern for the Western cloud hyperscalers, especially in fast-growing regions such as Southeast Asia, the Middle East, and Africa where enterprises are looking to deploy cloud solutions as part of their digital transformation journey.