Sep2

China’s Competition To Western Companies

We all have our preferred online mega companies, but China has internet companies of their own and many stand as direct competition to our favorites.

Living in the western English-speaking world, it’s easy to assume that the internet giants that have become household names are known to users all over the world. The likes of Google, Facebook, Twitter and Uber are so prevalent in our daily lives, we assume that every internet user is also intimately familiar with their workings.

The reality is that there are often domestic competitors to the internet giants that those in Silicon Valley routinely underestimate. This is especially true when it comes to the Chinese market, where two events have recently served as a reminder that what works in Europe or the US might not always find market dominance in other countries.

Rival Companies

The first was when Chinese company LeEco—which has been called the “Netflix of China” and spans streaming, electronics and cards—announced that it will acquire Vizio for $2 billion. This announcement means that the company will expand beyond China and tap the North American market for the first time. Some say this global move will allow it to start competing with competitors including Samsung and Apple. As Mashable points out, “The deal will also give LeEco access to over 700 million monthly active users, who the company will be able to leverage as it promotes its video streaming services and devices such as internet-connected TVs, smartphones, VR and cars.”

Catching A Ride

Another example is the announcement by Uber that it will merge with its biggest in-country rival in China, Didi Chuxing. The move came after a long uphill battle by Uber to gain a foothold in the country, “where it’s been burning through $1 billion a year trying to compete with Didi,” according to Mashable. “Didi itself is a merger from two powerhouse ride apps, Didi Dache and Kuaidi Dache, and has a killer 87% market share of private cars, and 99% of taxis. It also operates in over 400 Chinese cities, while Uber has struggled to expand beyond 60.”

Google And eBay

There are other examples of Chinese companies thwarting the success of their global competitors. Google gave up trying to compete with online search engine Baidu, while the online marketplace Alibaba continues to beat out its global competitor eBay. With all these examples, it’s worth asking why it’s proving so hard for foreign companies who find mega success elsewhere to compete in China.

Part of the answer, at least, can be found in the different government regulations and legislative climate that global firms have to navigate in China. Quartz notes that “Asking for forgiveness later has long been a key tactic for China’s most successful internet companies,” and Uber’s decision to forge ahead before ridesharing was entirely legal and in line with that tactic. In fact, some are saying that given China’s harsh climate, the resulting deal with Didi—where Uber will still have a 20% stake in the company, which is valued at $35 billion—is a kind of best case scenario when you compare it to how other companies have fared.

Cannot Compete

That looks to be especially true when you compare it to how other companies have existed. As Quartz notes, “Google folded its consumer-facing business in China in 2010, after years of political pressures and management issues. Politically, the company’s ambivalence towards censoring its search results (felt at the highest levels of the company) led to soured relations with the government.” In addition, “eBay exited China in 2006 after a years-long battle against Alibaba’s Taobao. The company lost the competition by relying too much on its American management team to run its Chinese operations.”

It’s clear that there are numerous pitfalls to entering the Chinese market, but highest among them might be the arrogant belief that if it worked elsewhere, it will work in China. As Uber has recently learned, that’s absolutely not always the case. And with Chinese companies moving in the other direction to put pressure on global firms on their home turf, there’s every indication that anyone’s market dominance is far from guaranteed.

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