Beijing Xunzhong Communication Technology Co., a cloud communications services provider, is seeking a Hong Kong IPO, highlighting a shift in strategy amidst a challenging market environment. The company’s decision to list in Hong Kong comes after a period of declining revenue and customer base in China’s highly competitive cloud services market.
Xunzhong’s prospectus revealed that it will be using the IPO proceeds to expand its operations in Southeast Asia, primarily through acquisitions. This move mirrors the strategies of its larger rivals, including Alibaba Cloud, Huawei Cloud, and Baidu AI Cloud, who have already established a significant presence in the region. Southeast Asia has become a focal point for Chinese tech companies seeking international growth, with companies like Alibaba and Huawei heavily investing in the region’s burgeoning $13 billion cloud market.
The move towards Southeast Asia can be partly attributed to the intense competition and cost pressures faced by Chinese cloud providers in their domestic market. Alibaba Cloud initiated significant price cuts in April 2023, which were followed by similar measures from Tencent Cloud and China Telecom. The fierce competition has contributed to a decline in Xunzhong’s revenue, with the company’s customer base shrinking from 3,515 in 2021 to 2,437 by the end of 2023.
Despite the challenges, Xunzhong remains optimistic about its prospects in Southeast Asia. The company projects strong growth in the region’s CPaaS and contact center markets, aiming to acquire businesses with over 100 employees and annual revenue exceeding HK$50 million ($6.4 million). While Xunzhong’s expansion into Southeast Asia might offer a glimmer of hope for investors concerned about its shrinking Chinese operations, its ability to compete effectively in a market already dominated by global giants like Alibaba Cloud and Huawei Cloud remains to be seen.
Xunzhong’s IPO application highlights the evolving landscape of China’s cloud computing market, where companies are increasingly seeking opportunities for growth beyond their domestic boundaries. As the market continues to consolidate, smaller players like Xunzhong will need to find new avenues to remain competitive and capitalize on emerging opportunities in regions like Southeast Asia.
