The conventional view of China’s tech industry has long been that local companies mimic American tech giants without innovations of their own, achieving success with borrowed products in a market where foreign rivals are largely blocked by internet censorship and government regulations. This narrative is increasingly coming under fire, however, as a series of recent articles illustrates. From The Economist, for example:
“WeChat is the best riposte to the condescending, widely held belief that Chinese internet firms are merely imitators of Western ones, and cannot innovate themselves. But it is not the only example. Alibaba kick-started Chinese e-commerce with the clever trick of holding payments in escrow, helping buyers and sellers establish trust. It now offers services that exploit its vast customer database, including credit-scoring, digital marketing, and vetting visa applicants and users of dating sites. Didi’s ride-hailing app includes novel features such as on-demand bus services and the option to request a test-drive of a new car. Sina Weibo, the Chinese equivalent of Twitter, has a built-in payments system and supports premium content, both features that Twitter lacks. With revenue from payments, virtual goods and gaming, Chinese internet firms are also much less dependent on online ads than Western rivals.”
Mobile phones are the primary computing device in China, where the majority of internet users access the web using smartphones instead of via personal computers. The increasing importance of mobile technology in Chinese society has led to remarkable innovations in the industry in recent years despite internet censorship. Tencent’s social media platform WeChat is one of the most innovative services to have developed from this mobile internet boom. The Economist further examines how WeChat outcompeted its rivals by innovating and adapting to local needs:
How did Tencent take WeChat so far ahead of its rivals? The answer lies partly in the peculiarities of the local market. Unlike most Westerners, Chinese possessed multiple mobile devices, and they quickly took to an app that offered them an easy way to integrate them all into a single digital identity… But the bigger explanation for WeChat’s rise is Tencent’s ability to innovate. Many Chinese grew up using QQ, a PC-based messaging platform offered by Tencent that still has over 800m registered users. QQ was a copy of ICQ, a pioneering Israeli messaging service. But then the Chinese imitator learned to think for itself. Spotting the coming rise of the mobile internet, Tencent challenged several internal teams to design and develop a smartphone-only messaging app. The QQ insiders came up with something along the lines of their existing product for the PC, but another team of outsiders came up with Weixin. When Tencent launched the new app, it made it easy for QQ’s users to transfer their contacts over to the new app. The Economist follows as:
“Another stroke of brilliance came two years ago when the service launched a “red packet” campaign in which WeChat users were able to send digital money to friends and family to celebrate Chinese New Year rather than sending cash in a red envelope, as is customary. It was clever of the firm to turn dutiful gift-giving into an exciting game, notes Connie Chan of Andreessen Horowitz, a VC firm. It also encouraged users to bind together into groups to send money, often in randomised amounts (if you send 3,000 yuan to 30 friends, they may not get 100 yuan each; WeChat decides how much). That in turn led to explosive growth in group chats. This year, over 400m users (both as individuals and in groups) sent 32 billion packets of digital cash during the celebration.”
At The Washington Post last month also wrote that the prevalent view of China as a place that can’t innovate is disproved by the country’s flourishing tech scene: “There’s this strange belief that you can’t build a mobile app if you don’t know the truth about what happened in Tiananmen Square,” said Kaiser Kuo, who recently stepped down as head of international communications for Baidu, one of China’s leading tech companies, and hosts Sinica, a popular podcast. “Trouble is, it’s not true. The truth is that behind the Great Firewall, the system of censorship designed to block content that could challenge the Chinese Communist Party, China’s tech scene is flourishing in a parallel universe…. China is now the world leader in e-commerce. Morgan Stanley projects that by 2018 China will be conducting more online transactions than the rest of the world. Buoyed by that cash, China’s tech start-ups are experimenting with new models that have the potential to make real money — and influence people around the globe.… Tencent’s WeChat, which is censored, is also hugely innovative. It combines some of the most useful parts of chat services, social networks, mobile payment, even online maps. You can use it to read news, send a real-time location to a friend or pay for a pancake at a streetside stall. The rapid development of China’s mobile market is accelerating the trend toward local innovation, experts said.”
The successes of Chinese tech firms have led American companies to replicate technology popularized in China instead of the other way around as commonly perceived. As researcher and futurist Jan Chipchase provocatively wrote last month, “the sooner western companies own up to copying WeChat, the sooner we can get on with acknowledging a significant shift in the global creative center of gravity.” The New York Times reports:
“Industry leaders point to a number of areas where China jumped first. Before the online dating app Tinder, people in China used an app called Momo to flirt with nearby singles. Before the Amazon chief executive Jeff Bezos discussed using drones to deliver products, Chinese media reported that a local delivery company, S.F. Express, was experimenting with the idea. WeChat offered speedier in-app news articles long before Facebook, developed a walkie-talkie function before WhatsApp, and made major use of QR codes well before Snapchat. Before Venmo became the app for millennials to transfer money in the United States, both young and old in China were investing, reimbursing each other, paying bills,and buying products from stores with smartphone-based digital wallets.
“Quite frankly, the trope that China copies the U.S. hasn’t been true for years, and in mobile it’s the opposite: The U.S. often copies China,” said Ben Thompson, the founder of the tech research firm Stratechery. “For the Facebook Messenger app, for example, the best way to understand their road map is to look at WeChat.”
As China’s tech sector develops, it is becoming increasingly difficult for foreign companies to conquer the Chinese market, even with the help of experienced China brokers who have brought extensive connections and knowledge of China to their clients. Just recently, U.S.-based ride-hailing giant Uber merged its business in China with its local rival Didi Chuxing, effectively relinquishing its local operations in return for a minority stake in the Chinese company. Bloomberg Technology’s Christina Larson discusses what Uber’s retreat says about local competition in China and what it means for other American companies looking to profit from the Chinese market:
“The days of simply entering China with something new” – a soda brand or a novel smartphone – “are gone,” said Tom Birtwhistle, a senior manager at PricewaterhouseCoopers in Hong Kong. “Now if you’re entering China, you’re having to compete with lots of companies already there. Moreover, it’s no longer the case that Chinese consumers and companies are “happy with crappy,” as one China hand explained to The Atlantic Monthly in 2007. Observe how Huawei, Xiaomi and Oppo have taken a big bite out of Apple, a series of successes stemming from savvy marketing and homegrown tech wizardry. The local competition has improved dramatically. Look at smartphones: the Chinese smartphone manufacturers used to offer phones that were cheap and crappy, but now they’re both affordable and very good,” Birtwhistle said. “There also used to be a challenge around branding,” he said. “But today, a lot of the newer companies are doing brand and marketing as well as western brands. Now they can offer high specs, low price-tags, and world-class branding – that’s hard to beat.”
China File offers a different perspective on Uber’s decision to leave China:
“Uber is a failure in the sense that it did not conquer the Chinese market. If that is the metric we continue to use to measure the performance of Western companies in China, then we can expect a lot more “failures” to come. But this narrative is outdated. First of all, the Chinese market is not winner-takes-all. A U.S. company can make serious money just by capturing a relatively small slice of China’s enormous consumer market. Of course, some U.S. companies do fail in China, due to both political obstacles and/or business mistakes. But that is not the same thing as coming in second to a fierce local competitor, especially one that had first-mover advantage in China. It’s time to retire this outdated “dominate or die” narrative. China is not some sleepy tech backwater that is ripe for Western conquer. As this recent New York Times article points out, “China’s tech industry—particularly its mobile businesses—has in some ways pulled ahead of the United States. Some Western tech companies, even the behemoths, are turning to Chinese firms for ideas.” I agree with Bao that China still offers promise for Western companies. Sure, U.S. tech companies will have their work cut out for them. But even if they don’t become #1 in the Chinese market, that’s not the same as failure.”
For more on China’s tech scene, tune into this week’s episode of Sinica Podcast as Clay Shirky joins Kaiser Kuo and Jeremy Goldkorn to discuss the strengths and weaknesses of China’s tech industry. South China Morning reports that the Chinese government has unveiled plans to transform the country into a global cyber power in the next two decades.