2016-08-30

China & Its Internet Are Different, Why U.S. Companies Can't Compete

How China Is Changing Your Internet | The New York Times:

The power of WeChat: China's "SuperApp" owned by China's largest tech company, Tencent, dominates the internet landscape in China. In China, a sheltered internet has given rise to this new breed of app, and American companies are taking notice. What was once known as the land of cheap rip-offs may now offer a glimpse at the future. Video above published August 9, 2016. Read the full story here (excerpt below)--Chinese tech firms forced to choose their market--China or the World:

"... not easy to tell Musical.ly is Chinese--and that’s deliberate. To find success in America, its parent company has ignored China, its home market and a country with 700 million internet users. The reason is simple, says Alex Zhu, co-founder of Shanghai-based Musical.ly: China’s internet is fundamentally different from the one used in much of the rest of the world. “It’s still very difficult to get into China,” said Mr. Zhu ...“It’s a closed environment, and you have to be quite different to compete in that market.” Two decades after Beijing began walling off its homegrown internet from the rest of the planet, the digital world has split between China and everybody else. That has prevented American technology companies like Facebook and Uber, which recently agreed to sell its China operations, from independently being able to tap the Chinese market. For China’s web companies, the divide may have even more significant implications ... Alibaba, Baidu and Tencent have grown to be some of the world’s largest internet companies, but they rely almost entirely on domestic businesses. Their ventures abroad have been mostly desultory, and prognostications that they will challenge American giants internationally have not materialized."--NYTimes.com.

Principal domains of companies noted:
  • Alibaba: alibaba.com; alibabagroup.com
  • Baidu: baidu.com
  • Tencent: tencent.com
  • WeChat: WeChat.com
Because social media services such as Facebook, Twitter, Instagram and Snapchat are inaccessible in China, there exists a whole Chinese ecosystem of social networking and messaging platforms that are immensely popular there, but hardly known anywhere else in the world. Platforms such as QQ, WeChat and Qzone have hundreds of millions of users and, just like Facebook owns Instagram and WhatsApp, they’re all owned by the same company. Their parent company Tencent recently became China’s largest tech company, after surpassing its rival Alibaba in terms of market capitalization. The chart below compares Tencent and Facebook in terms of financial and operating metrics. From an investor's point of view, both companies have been doing great over the past 12 months: Tencent's stock price soared 45 percent since August 2015, Facebook's is up by 30 percent.

Infographic: How China's Biggest Tech Company Compares to Facebook | Statista
source: Statista

Uber Joins Other U.S. Firms Stymied by China:

Uber Technologies is the latest U.S. internet-based company to fail to achieve its ambition to dominate China, the world's largest ride-hailing market. Published by WSJ.com on August 2, 2016.

Here's Why American Tech Companies Keep Failing in China:

Uber found out what many other U.S. tech companies realized long ago: China is an alluring trap. Most American web companies including Google, Facebook and Amazon are either banned from China or have flopped there. And their odds of success are only getting slimmer. Bloomberg Gadfly's Shira Ovide explains why it might be time for U.S. web companies to permanently give up on China. Published by Bloomberg.com on August 10, 2016.

See also:
  • The Humbling of American Tech Giants in China | Bloomberg.com"All the kowtowing and meeting the leadership maybe won’t matter so much if Facebook won’t agree to allow some level of censorship, or allow the Chinese government access to data on the site, in exchange for market access," Kapron said. LinkedIn Corp. operates in China, but only by agreeing to abide by content restrictions. "Otherwise, he’s just hitting his head against the wall."
  • China ‘whisperers’ who get the big deals done in Silicon Valley | WashingtonPost.com"Negotiating a joint venture is one of trickiest aspects of working with Chinese investors. In the last three years, Chinese regulations and practices have made it more complicated for U.S. companies to do business there, Chang says. For that reason, startups usually enter the market in the form of a partnership. Today, these partnerships are often based in the Cayman Islands because China doesn’t allow foreign ownership of companies. In negotiations, for example, Chinese partners often insist that the data of Chinese citizens cannot be stored on U.S. servers and that legal disputes must be settled in Chinese or Hong Kong courts. Previously, arbitration in Santa Clara County was a sticking point for U.S. companies; now that battle has largely been lost, she says."
  • Xi’s China: Smothering dissent - FT.com

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