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Tencent Takes Another Step Towards Global Growth

By Billy Duberstein - May 17, 2018 at 1:11PM

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Tencent aims for westward expansion in the U.K.

Chinese internet giant Tencent (TCEHY -0.24%) is one of the "big two," dominant internet companies of China, along with Alibaba (BABA 2.04%). These two institutions have become such sprawling conglomerates in recent years, buying up much of the overall retail landscape in China, that I believe the Chinese economy can almost be seen as a duopoly, with the spoils being divided between the two.

That's led to impressive gains, with each stock up triple digits over the past three years:

TCEHY 3 Year Total Returns (Daily) Chart

TCEHY 3 Year Total Returns (Daily) data by YCharts

While each company still has impressive growth prospects in China, where they're largely protected by the Chinese government, some doubt whether Tencent and Alibaba can effectively grow overseas, especially in the West. Both companies have made substantial investments in foreign companies, but it's still unclear how far they'll be able to expand their core platforms outside of China and East Asia.

That may be beginning to change, however, with Tencent recently announcing a landmark cultural agreement with the U.K. Department of International Trade.

a young woman in sunglasses makes a surprised expression at her smartphone.

Can Tencent's new U.K. agreement enable growth in the West? Image source: Getty Images.

The 411 on the MOU

Tencent and Britain's Memorandum of Understanding, announced the week of May 7, cements their collaboration in areas of "Culture," including gaming, video, fashion, and travel. The agreement is mostly focused on bringing British content to China via Tencent's internet platforms, most notably WeChat, which recently passed one billion users.

Tencent and the BBC have already collaborated on a TV show you might have seen – Blue Planet 2, which Tencent helped co-finance, and which has been seen by over 220 million people worldwide. This new agreement will greatly expand Tencent's relationships with the British creative community, forging partnerships with the BBC, British Fashion Council, Visit Britain, and scientific publisher Springer Nature. Tencent Vice President Seng Yee Lau said in a statement, "This is a land bubbling with ideas, its traditions offer appealing cultural content. It is a land of opportunities." 

Most of the early announcements were geared toward British content producers gaining direct exposure to China. Examples include a Tencent-hosted online fashion show sponsored by the British Fashion Council and featuring British designers, as well as a three-year co-production deal between Tencent's Penguin Pictures and the BBC. Still, there's also the more intriguing possibility (at least from an investor perspective) of Tencent exporting its products and services to Britain and other Western countries.

For instance, according to Reuters, Tencent will create British characters and music for its mobile racing game, "QQ Speed," with the aim of capturing British audiences. Tencent also plans to work with Oxford University to develop more e-sports projects going forward (I didn't think the words "Oxford University" and "e-sports" would go together, but I stand corrected!). 

Expanding the pie

This deal alone won't make Tencent a huge force in Britain or the West, but it may in fact be a significant step in that direction. The cooperation and deepening relationships between Tencent and countries outside east Asia could potentially make westerners more comfortable using local-language versions of Tencent's apps. 

Only time will tell if Tencent can become a significant player outside of China, but with Tencent's skilled management at the helm, it wouldn't surprise me to see the company find more unique ways to grow internationally over the next decade.

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Tencent Holdings Limited Stock Quote
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TCEHY
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