China-based investment expert Edward Tse, CEO of Gao Feng, considers the fortunes of outside tech companies entering China
Clearly, China’s regulatory regime regarding the internet, in particular social media, is far more restrictive than that of the US and many other western countries in general.
The “Great Firewall” has proven itself repeatedly to be a thorn in the side of foreign companies, and not all have been able to overcome this hurdle.
Most have tried, but with varying degrees of success.
Some companies decided they didn’t want to play in such a context, like Google, and withdrew their operations. Some wanted to play but got blocked, like Facebook, yet continue to lobby the government for access. Some were allowed to play but couldn’t quite get their act together (for whatever reason), like Amazon, Viadeo and perhaps even Airbnb.
There was also Yihaodian, which was Walmart’s online business, but eventually Walmart sold it to JD.com in exchange for some of JD’s shares.
But there are some who seem to “get it”, like LinkedIn and Evernote (at least for now). And, for both Apple and Samsung, China has become one of their most important markets, even though both are having different challenges.
The notion that lower-quality clones sprung up because of foreign tech companies being blocked is only partially right.
One could argue that the major Chinese social websites of Baidu, Ren Ren, Sina Weibo and Youku Toudu are clones of Google, Facebook, Twitter and YouTube, respectively.
While the likes of Ren Ren weren’t able to replicate Facebook-like success in China, others have evolved beyond being clones to having their own unique, innovative ecosystems.
One such example is WeChat. Though it was originally inspired by Kik, and had similar features to WhatsApp, it evolved from mere messaging to becoming an integral part of the Chinese connected lifestyle.
WeChat users can now link their bank cards to WeChat Pay, make in-store payments, transfer money to peers, buy movie tickets, hail taxis, pay for utility bills and so on.
Importantly, Chinese innovators are developing new intellectual capital. They are crafting innovative business models and reaching new frontiers of business strategy and organization.
Prime examples include Alibaba and LeEco. Jack Ma has built Alibaba into a sprawling internet business through “multiple jumping” from one business area to another, while building its capabilities along the way through a combination of self-built and collaborative partnerships. This disrupted the conventional “core competence” approach that has ruled modern business for the past 30-odd years.
Of course, China’s market for tech companies has evolved significantly for over a decade and a half. Today, both the market and the players have become much more sophisticated and their business approaches are much more refined.
The leading Chinese innovators are digital ecosystem players building scale and creating customer stickiness through their entire ecosystem. Foreign tech players tend not to be as extensive in ecosystem building.
To “win”, foreign tech companies need to adapt to the China context and deeply understand the key factors of success. Local leadership is critical and appropriate empowerment by the global headquarters to the local leadership to do the right things is essential.
While for some, the market is not open or they are not welcome, for many, the opportunities are right there. China is not easy, but why should it be?
It’s tough for everyone, no matter if one is foreign or not. And no one can be sustainably successful if they don’t observe, learn and adapt.
As China’s digital business grows, it’s going to provide more opportunities for many players. Who “gets it” and who doesn’t will certainly not only be a function of “being blocked or not”, but equally (or even more importantly) those who have the right mindset and approach to the China context (and for that matter, China for the world).
To this end, it’s a real test of the leadership and capabilities of the companies, as well as the capital behind them.
Edward Tse is founder and CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).
Read Edward Tse’s article on TechCrunch.com