Why Western Tech Companies Fail in China

A Pattern of Failure -June 2003, eBay acquires Eachnet, the largest e-commerce website in China. Within two years, the Chinese company, TaoBao.com held 67.3%. Eachnet dropped to just 29.1% of the market share. -Yahoo tries to make a go in China. Can’t compete with Chinese rivals. Alibaba.com acquires Yahoo! China in 2005. -In 2004, IAC/Interactive bought a controlling interest in then leader eLong.com. eLong was promptly overtaken by rival Ctrip.com.

-June 2003, eBay acquires Eachnet, the largest e-commerce website in China. Within two years, the Chinese company, TaoBao.com held 67.3%. Eachnet dropped to just 29.1% of the market share.

-Yahoo tries to make a go in China. Can’t compete with Chinese rivals. Alibaba.com acquires Yahoo! China in 2005.

-In 2004, IAC/Interactive bought a controlling interest in then leader eLong.com. eLong was promptly overtaken by rival Ctrip.com.

-Google has gone from being a market leader to having just a fraction of the share of Baidu.com

-Google has gone from being a market leader to having just a fraction of the share of Baidu.com

So why does it happen? There are some commonly held beliefs in the West that are not quite right. -Chinese companies’ main advantage is in protectionist measures by the government -There is such a huge cultural divide -China is basically an inscrutable country/marketplace

There are some commonly held beliefs in the West that are not quite right.

-Chinese companies’ main advantage is in protectionist measures by the government

-There is such a huge cultural divide

-China is basically an inscrutable country/marketplace

“The Perfect Storm” China has…. -A great influx of V.C. -Excellent computer science/engineering talent -An incredibly entrepreneurial population of young people comfortable with not having standard career paths -A telecommunications infrastructure that is far beyond its development in other areas -and a population without a lot of money

China has….

-A great influx of V.C.

-Excellent computer science/engineering talent

-An incredibly entrepreneurial population of young people comfortable with not having standard career paths

-A telecommunications infrastructure that is far beyond its development in other areas

-and a population without a lot of money

The Big Problems -Localization/Partnerships -Top executives are entrepreneurs -Misguided or irrational hiring practices - Western companies just can’t bend the rules like domestic companies can

-Localization/Partnerships

-Top executives are entrepreneurs

-Misguided or irrational hiring practices

- Western companies just can’t bend the rules like domestic companies can

Still a developing country -China’s population of Internet users is nearing 300 million, but they are not white collar people from Shanghai and Beijing. -Foreign companies and their Chinese employees have failed to connect to the vast majority of this group.

-China’s population of Internet users is nearing 300 million, but they are not white collar people from Shanghai and Beijing.

-Foreign companies and their Chinese employees have failed to connect to the vast majority of this group.

What should a site look like?

What services matter -When they tried to enter the China market ICQ spent a lot of time and money trying to ensure user privacy. -Tencent QQ grabbed an advantage by assigning numbers rather than making users choose an “alias”

-When they tried to enter the China market ICQ spent a lot of time and money trying to ensure user privacy.

-Tencent QQ grabbed an advantage by assigning numbers rather than making users choose an “alias”

Netizens can’t spell G-O-O-G-L-E For most Chinese netizens, spelling “google” is sufficiently difficult as to warrant a switch to baidu.com or hao123.com

For most Chinese netizens, spelling “google” is sufficiently difficult as to warrant a switch to baidu.com or hao123.com

Web Users Don’t Like Type -Compared with web users in the west, Chinese have a very high tolerance for extended browsing but try to avoid typing. -As a result, companies like Google are adding predictive text functions.

-Compared with web users in the west, Chinese have a very high tolerance for extended browsing but try to avoid typing.

-As a result, companies like Google are adding predictive text functions.

What does work? -The most important key to success is giving ground operations the freedom to react in a timely manner, and respond to the needs of the specific market -Google China has 20% policy that is expected to pay dividends -MySpace China will be basically autonomous.

-The most important key to success is giving ground operations the freedom to react in a timely manner, and respond to the needs of the specific market

-Google China has 20% policy that is expected to pay dividends

-MySpace China will be basically autonomous.

Can Chinese companies win abroad? Baidu is looking to take on Google and Yahoo in the Japanese market, but will lose some of its advantages. Chinese may truly take leadership position on mobile social networking -mobile infrastructure -fewer privacy concerns

Baidu is looking to take on Google and Yahoo in the Japanese market, but will lose some of its advantages.

Chinese may truly take leadership position on mobile social networking

-mobile infrastructure

-fewer privacy concerns