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Tencent aims to blend internet and industry in bid for new growth

Push to expand beyond consumer services comes as gaming segment faces headwinds

Tencent is keen to tap new businesses as games, its biggest revenue earner, struggles.

TOKYO -- Chinese internet giant Tencent Holdings is ramping up efforts to forge ties with traditional industries as it looks diversify beyond its core gaming business.

Tencent is struggling to grow its online gaming segment, which is the company's largest segment, accounting for more than 30% of revenue, due to regulation and a maturing local market.

The move also comes as the company is looking for an edge in its ongoing battle against compatriot Alibaba Group Holding, its rival in everything from ride-hailing to online advertising and streaming media. Tencent, which also operates WeChat, is keen to move beyond consumer services and tap demand for internet of things and other industrial applications.

To that end, the company is expanding its networking program for entrepreneurs -- dubbed Qingteng Club -- to include executives from more traditional companies such as home appliance manufacturers and alcohol makers.

Expanding membership in the club, which was created to foster entrepreneurs and future unicorns, underscores Tencent's desire to move into the industrial realm.

Tencent is also using the club to build connections overseas. The Qingteng Club recently visited Japan on a weeklong tour, during which 30 Chinese executives from companies including appliance maker Gree Electric met with peers at Hitachi, Seven & i Holdings, Sony and others.

"Our vision is to bring traditional industries into Qingteng Club and further integrate various members there," Elaine Wang, vice general manager of Tencent Open Platform, said in an interview in Tokyo. "We believe that science and technology will gradually be used in traditional fields."

Wang said the company and Qingteng Club members are trying to understand how traditional businesses and contemporary technologies can merge, by visiting Japanese companies that have survived for centuries. "Chinese companies are only decades old," she pointed out.

Members of the club include established companies such as Luzhou Laojiao Group, one of the oldest liquor makers in China, and 3Nod Group, a major audio components maker.

Last September, Tencent itself agreed to partner with Hitachi in applying internet of things technologies to manufacturing, logistics and infrastructure. The same month it announced it would restructure the organization to put more focus on cloud computing and smart industries.

Tencent's shift comes amid a slowdown in China, which is expected to spur greater demand for high-tech upgrades among the country's industrial sector.

Factories are grappling with severe overcapacity, and companies increasingly looking to technology to boost productivity and increase automation. Coby Chiu, Tencent's corporate vice president, pointed out that the company's services are already being used in high-tech manufacturing, such as for inspections of precision parts for aircraft.

"As 5G spreads in the future, we have various infrastructure to help connect hardware with the internet," he said at a recent event in Tokyo.

Tencent is locked in a cutthroat competition for continued growth with e-commerce behemoth Alibaba, whose "new retail" strategy combines its distribution capabilities with brick-and-mortar supermarkets.

Compared with Alibaba's style of building its own businesses, Tencent sees itself as an "orchestrator" that creates a network of companies across different sectors that grow by sharing data and know-how, said Violet Chung, Hong Kong-based partner at McKinsey & Co. Tencent has invested in 700 companies including Meituan, e-commerce startup Pinduoduo and ride-hailing giant Didi Chuxing.

Wang was ambiguous about Tencent's capacity for investing beyond technology. Of the 288 "students" of Tencent's Qingteng University, which provides advanced education for CEOs of current and potential unicorns, the company invests in only 40% of them.

Meanwhile, the relationship-building efforts are set to continue. Wang said Tencent and its Qingteng Club plan to visit the U.S., the Middle East and Israel later this year, and is also looking to build communities for Japanese businesses to learn from China.

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