Some Thoughts on Foreign Internet Companies in China
I read a fantastic article last week on the Advertising Age website entitled, “The Internet Does Not Rise Above Nations and Cultures.” The article, by @wolfgroupasia of the Silicon Hutong blog, takes a closer look at why foreign Internet companies in China fail. Wolf writes that through observing past examples (such as: eBay, Yahoo! & Google) we are able to see some common threads of why foreign Internet companies fail in China. Rather than attribute failure to external factors such as government interference and unfair competitive practices, Wolf makes the excellent point that most foreign firms adopt a similar failed approach, which he terms “T&T” or “transplant and translate”:
The standard practice of foreign online firms coming to China has been to do some cursory research, hold a big press conference announcing that they are coming to China, open an office, hire a large local staff, and with some modest degree of localization set out to do in China the very same business they are doing in their home markets.
After a brief period of success and accolades, the following situation occurs:
The numbers stop rising as quickly. Maybe they even start to decline. Steeply. A local competitor pops onto the scene who seems to offer little more than a clone of the foreign site, but with a few weird differences. Suddenly the buzz is gone. Users flock to the competitor, advertisers and media agencies stop returning calls, and global headquarters is starting to ask hard questions.
A Closer Look at the “Local Clone with Weird Differences”:
If we take a look at this recent Economist article introducing the top 10 sites on the expanding role of Social Media in our lives (ranked by total unique visitor) a clear irregularity pops out:
1. Facebook
2. Windows Live
3. MySpace
4. Baidu
5. Twitter
6. Orkut
7. Hi5
8. QQ
9. LinkedIn
10. deviantART
Three of the top 10 global sites, ranked by total unique visitors, are Chinese sites intended primarily for the Chinese domestic market. These are the sites with the longer shelf life, and they’re also sites that were created by Chinese, for Chinese, in China. Yes, with a total Internet population that exceeds the total country population of the United States, homegrown Chinese Internet companies can rely on the domestic market alone to achieve success.
As long as foreign Internet firms apply the T&T strategy to the China market, domestic Internet firms will continue to thrive without much competition from abroad. This is all fine if Chinese firms focus solely on China, but will these homegrown Internet companies develop the best practices to win overseas? Or maybe the right question to ask is - with a domestic market of such grand proportions, is international expansion even worth the effort?
I highly suggest reading Wolf’s full article on the Advertising Age website HERE
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Comments
Or maybe the right question to ask is - with a domestic market of such grand proportions, is international expansion even worth the effort?
- I think this is a matter of government policy at least in the short run. Consumer goods have been directed in international expansions so far with little success (Haier & Lenovo) - other than Huawei there are very few successes. As the Internets strategic importance reaches new heights its feasible to believe that this will become a sector targeted for international expansion by the government as well. It will be interesting to see how the companies will deal with non-chinese regulations in that case and the effect this will have on internet regulations in china.
Regarding foreign Internet companies; I havent tried starting one up but I am 100% sure that the authorities are making it is difficult as they can for these entities to grows since the authorities cant control them like the local ones - think google. So this is not only a matter of lacking localization (this is also true) but also a matter of a less friendly environment for a business to run in. Anyone who can share experience with Internet startups in China?
@Geraldine:
Thank you for your comment. I agree with you that the T&T market entry approach overlaps with the “glocalization” phenomenon that I mentioned in the reverse innovation post from a few months back. While it can be argued that they are one in the same, I personally feel T&T better describes the strategy adopted by foreign Internet firms in particular, whereas “glocalization” applies to a broader scope of industries.
Joel, this is fascinating stuff from David.
What I think he is mainly talking about is “glocalization”, though, since it’s a buzzword, I don’t blame him for not using it. (Athough, I’m pretty sure I learnt the term from your blog, actually…!)
The foreign companies that fail will be those that take a global concept and apply it wholesale locally, ignoring the local nuances that would require it to really “take” on a local level. Domestic players however might spot the obvious opportunity, and successfully adapt the global technology for the local market, thus “glocalising” it.
The interesting prospect has got to be the reverse, right? When will glocalization” go re-global and when will Chinese or Indian firms take their innovations back out to the global market place?