ToJoy is a company with a very dynamic national and international expansion. Could you give a brief account of its history?
ToJoy is China’s biggest business accelerator and given the size of its market, I would venture to say it is one of the biggest accelerators in the world. Our group’s success is based on a unique business model: we conduct more than 200 annual pitches throughout China, where between 500 and 2,000 investors meet to review investment projects. Once they show interest in the projects, ToJoy selects the best candidates and turns them into business operators. We have been operating in China for 29 years with a network of over 700,000 investors, and a couple of years ago the company made the decision to broaden its horizons by opening operations in other regions of the world. We arrived in Mexico in 2019 with the purpose of supporting Mexican companies, brands, and products to position themselves in the Chinese market. Likewise, we support Chinese companies interested in venturing into Mexican territory.
What would you highlight in ToJoy’s internationalization strategy and its dynamic expansion around the globe?
ToJoy’s philosophy is reflected in its motto “from ants to elephants.” During these 29 years, it has successfully created a platform that guides SMEs into becoming large companies, or like we call them at ToJoy, “elephants.” Practically three decades of continuous improvement that makes us the biggest business platform of its kind in China. ToJoy constantly seeks to expand its horizons. That’s why Lu Junqing, Chairman of our Board of Directors, opted for the international expansion of the group with two main objectives: to help local and national Chinese companies go global, and bring innovative business models with proven success abroad to China, to capitalize and develop them. It seems simple, but these tasks need great effort on both sides of the equation.
On one hand, Chinese companies have significantly grown in recent years, but they are still very local companies, with few staff members with an international profile and reluctant to start businesses in other regions. On the other hand, despite the great potential of the Chinese economy, there aren’t many Mexican or foreign companies with the drive, knowledge, and capital necessary to try their luck in China. Thus, the alliance with ToJoy is decisive for the arrival of foreign companies to China. We are the local partner with capital that guides companies in this very complicated market.
In some countries, ToJoy has a commercial representation, and operations in others. What motivated its entry into Mexico and why the bigger bet to establish itself as an operations center?
China is already one of Mexico’s main trade partners, not only with imports, but also with exports. We’re still far from China being our first trade partner, as is the case of many South American countries, but the relationship and participation of Chinese companies in Mexico has grown steadily. More importantly, the sectors where we begin to see a greater presence of Chinese companies are increasingly strategic and relevant. Huawei, ZTE, Bank of China, and ToJoy are proof of it. We are the first Chinese fund of its kind in Mexico, but others, perhaps smaller or innovative, will surely come. The “economic center of gravity” has returned to Asia and what we are seeing, for now, is just the tip of the iceberg. Additionally, Mexico is the second largest economy in Latin America, with a population exceeding 120 million and a privileged geographic location. ToJoy thought that the characteristics of the Mexican market are ideal to open an office with operations to globalize Chinese companies in the territory, as well as to accelerate Mexican SMEs ready to internationalize in China. We are its only office in this region, and we review and present projects from all over Latin America, not just Mexico.
What services and support does ToJoy offer to foster the arrival and stay of foreign companies in the different markets?
The ToJoy model is one of a kind because it allows an SME to conquer the Chinese market with only basic knowledge, experience, and capital. The SME must have a profitable and successful business model, leave the rest to ToJoy. Also, and although it seems hard to believe, Mexican SMEs do not pay anything during the process. Commissions are only charged when the company finds a capital partner for the project in China.
Similarly, we bring to Mexico and Latin America Chinese companies with unique differentiators that are looking for investors interested in being operating partners, franchisees or distributors of their brands; i.e. an inverse model of the one we do for China. We seek to position successful Chinese companies in this region, with business models proven over several years in their country. We have a portfolio of more than 400 Chinese companies ready to go international, from various sectors and with high technological sophistication.
Finally, we promote the distribution and positioning of Mexican products in different regions of China. Using our 700,000 members as our first contact, we can find clients for Mexican products, much faster than with the traditional process of attending a trade show and at a lower cost. Again, Mexican companies pay nothing until they export their first product. ToJoy takes care of the rest. Once the importer or distributor is found in China, it will operate with its own equipment, financial resources and commercial networks to help the Mexican company position its product.
Mexico has a significant number of startups. How does ToJoy contribute to their innovation process?
Our interaction really begins when the company is mature and ready to go abroad. We spent a lot of time with incubators in Mexico, and several of the Mexican cases that are showing up in China were supported at the time by Mexican incubators. Receiving resources from an incubator helps Mexican emerging companies formalize their processes, make their financial statements transparent, and incorporate corporate governance. All of the above makes it easier for us to present that particular company in China. Our platform offers a large number of support services to companies interested in going international. These services are customized and include business intelligence, management consulting, branding, marketing, resource management, capital management, exit strategies, and many more.
ToJoy is a business accelerator leader in China. What do you make of developing this type of companies in Mexico?
We see a large number of emerging companies in Mexico and although this figure is trendy, its survival rate is still very low, lower than that observed in other countries. This is due to several factors, including a lack of capital and advice required to scale a business. There are many great ideas, the challenge is to translate them into a profitable business model. ToJoy’s biggest differentiator is the support it has in China, with more than six thousand employees and a large network of contacts at a global level. We provide companies with successful business models—to establish themselves in China—that take into account the demand of the Chinese market, its regulations, and cultural peculiarities.
ToJoy has also developed a service to support Mexican companies that export products. What does this service consist of and what advantages does it represent for companies?
China is still an unknown market for the vast majority of Mexican SMEs. For companies seeking internationalization, opening in a market such as the Chinese entails great challenges and difficulties related to language and cultural customs, among others. That’s why ToJoy represents a great opportunity for those seeking an ally in China. The process is very simple and ToJoy guides companies every step of the way. First, we select a product or a Mexican brand, then we present it to the ToJoy offices in China. If it is accepted, we proceed to the signing of the service agreement, then we begin with the promotion of the product. We then look for and select the ideal investor or distributor within our platform and outside it. Once found, the commercial agreement is signed. Finally, we start with the distribution, taking into account that during the entire process ToJoy does not charge anything in advance to Mexican companies; it does so until the process is complete and the product reaches China.
JUN GE, GLOBAL CEO OF TOJOY
What are the prospects for ToJoy in Mexico for the following few years?
Twenty-twenty has undoubtedly been a year of many challenges derived from the economic contraction associated with the COVID-19 pandemic. However, it has also been a year of great learning and opportunities to think “outside the box.” For example, at ToJoy we carry out over 300 face-to-face events a year in China, where between 1,000 and 6,000 people attend. The pandemic canceled any possibility of carrying them out in the conventional way, so we took on the task of innovating and organizing them virtually. The response was very satisfactory, gathering up to 30 thousand remote attendees in several of these events. This is a practice that we will continue to apply in the future and we will also use it for Mexican companies.
We opened our offices in Santa Fe, Mexico, in October 2019. Our CEO, Jun Ge, spoke of the business potential in Mexico and how surprised he was at its progress. This is a young country with constant consumption, which pushes the economy in a sustained manner, very different from the rest of Latin America.
One year after this event, we have a solid portfolio of projects in our three business lines. Despite COVID19 and the fact that our brand was completely unknown in Mexico, we have achieved our goals. We see in the future a growing interest from Mexican companies to enter the Chinese market and we are fully confident in increasing our operation as our first success stories spread in the country. China is eager to invest in Mexican companies and products, which represents an excellent alternative to diversify markets and, in the immediate future, to recover from the negative impacts of COVID-19. We will intensify the search for Mexican companies and products, structure attractive projects with them, and promote them among our investor base. In the coming years, we intend to increase the number of projects, while we continue to advise Chinese companies seeking to establish themselves in Mexico.
Global value chains are being reconfigured as a result of the trade war between China and the United States and the economic aftermath of the COVID-19 pandemic. What is the scope of this process and what is its expected impact on the dynamics of international trade?
In reality, global value chains have already been undergoing changes in recent times, this is what we know as reshoring; in particular, due to technological advances (automation), the public policies applied by some countries —such as the United States—, and the uncertainty generated by phenomena such as the trade war and Brexit. Either way, the COVID-19 pandemic has posed new challenges for global production networks. This year, due to the measures applied by countries to contain the spread of the virus, such as quarantines, the supply of raw materials, intermediate inputs, and final products faced countless difficulties.
In the first quarter of 2020, some sectors of global supply networks came to a standstill due to the temporary (and in some cases permanent) closure of factories, along with border closures and disruption of international transport, leading to a major contraction in world trade. It’s worth remembering that value chains were affected from the first moment the outbreak began in Wuhan, since this important Chinese city is one of the largest manufacturing production centers, especially in the automotive, electronics, and pharmaceutical sectors. The high trade dependence of many countries on China is evident, not only in supply chains, but also in terms of final consumer goods.
The decrease in the level of activity in China in 2020, associated with the presence of COVID-19, will have a negative impact on the dynamics of the world economy and will aggravate the delicate situation that some countries have been facing due to the lack of employment and the increase of poverty. In the case of developed economies, discussions focus on the vulnerability of their value chains to the widespread presence of supplies from China in their operations and the need to expand supply options for sensitive goods. Regarding this, it is clear that the COVID19 pandemic evidenced weaknesses in the supply chains of goods and services, which not only has to do with economic and commercial aspects, but also with growing geopolitical interests.
What opportunities and challenges are emerging for the Mexican economy in this peculiar international situation?
The impact of COVID-19 on the trajectory of the US economy has not yet been quantified and the evolution of the pandemic in that country is still very uncertain. This has a negative impact on the performance of the Mexican economy, given our dependence on the export platform. That, coupled with the aforementioned slowdown, results in a complicated outlook for our country. China, for its part, has managed to control the pandemic to a great extent and has benefited from the export of medical equipment. In this last quarter, its growth was 4%, much higher than the average of the main economies. In Mexico, there is a huge opportunity to increase our exports to China, since they will return to normal in a short time.
Once the pandemic is contained in the neighboring country, there are grounds to be optimistic and think that the USMCA will allow us to attract investors seeking to escape the effects of the trade war between the United States and China. Mexico could experience a sudden increase in Chinese manufacturing companies settling here. US firms with operations in Asia are already looking at the option of coming to our country.
In addition to its geographical location and its salary level (26% lower than the average for the Chinese manufacturing industry), Mexico has other decisive attributes to attract foreign companies to its territory. For the moment, the biggest challenge is the recovery of economic activity, in an adverse social and economic environment derived from, among others, the impacts of COVID-19.