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Media '08 - Presentation by Jonathan Haagen (Economist Intelligence Unit)
 

Media '08 - Presentation by Jonathan Haagen (Economist Intelligence Unit)

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Presentation by Jonathan Haagen, Economist Intelligence Unit (New York, Beijing) at Media '08, Sydney, 7th March 2008

Presentation by Jonathan Haagen, Economist Intelligence Unit (New York, Beijing) at Media '08, Sydney, 7th March 2008

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  • Nice one! Another reason is that many Western firms overestimate their own abilities (hubris) and underestimate the local firms' hunger for a piece of the action, a very dangerous combination. Local Chinese firms will compete even when they are losing money: destructive competition to the point where it is the last man standing. Often, the last man standing is the (subsidized) Chinese firm with the Western firms running away with their tails between their legs and a serious financial loss on their hands. And to top it all off: never a nasty word is spoken! Watch out!
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  • Introduce myself and a very brief breakdown of the work I have done on this topic. From the perspective of someone working in financial journalism in China, this is one of the most important issues in digital media…. I think that using this as a microcosm for changes in digital media, we can better see the limits of certain models, the absolute necessity of being adaptable, and, more specifically, look at how different demographic groups respond to different things. From a business standpoint, I think this is an essential topic for anyone who is holding on to a “gold rush” image of this market. It is by no means the gates of the inferno, but hope for financial success should be seriously tempered.

Media '08 - Presentation by Jonathan Haagen (Economist Intelligence Unit) Media '08 - Presentation by Jonathan Haagen (Economist Intelligence Unit) Presentation Transcript

  • 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.
    • -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
  • “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
  • 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
  • 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.
  • 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”
  • 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
  • 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.
  • 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.
  • 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