>One of the major puzzles of corporate China is why firms have struggled to expand internationally. The answer may be that they're offering solutions to problems that don't exist in quite the same way overseas. Unless they can cater to the needs of customers operating under very different conditions, their remarkable progress may end at China's shores.
Is this not the case for all companies who want to scale internationally? Maybe I am naive but I think it would have to be extremely difficult for a U.S company to immediately succeed in China w/o extensive knowledge/expertise beforehand.
Not really. If you look at Baidu, the company formed because Google left/was kicked out. China is a tightly controlled market because of the banning culture. That's why, they had to build everything from scratch, their own OSes, routers, phones, car, electric cars, AI etc.
Also they are opaque because no copyright law exists and it is too big of a market that other countries will do something offensive against it.
wecash is used as an acceptable form of currency by everyone, including Starbucks in China. That's WeChat's currency launched way back. Tencent can't repeat WeChat's success elsewhere because we have an open market and they do not.
Right, these are just forks of existing systems with very, very trivial changes.
Do you know of any significant programming languages, libraries, or frameworks that originate from China?
Seems like most of the best Chinese software talent moves abroad. I suspect Chinese government's decision to cripple their internet plays a significant role.
> Unless they can cater to the needs of customers operating under very different conditions, their remarkable progress may end at China's shores
What kind of double speak is this? At least some of the success of wechat, alibaba, et al is due to the fact that China is not operating in an open economy. International companies can't operate in China for reasons related to IP or information availability - and we're talking about how people outside China operate under different conditions?
Haha don't reach for Orwellian buzzwords so quickly =P. A lot of successful Chinese tech companies don't succeed just because competitors were banned. Even when Google was in China, Baidu catered specifically to local needs whereas Google just paratrooper dropped their product in. Baidu was more successful. As for Wechat, given how Facebook messenger has been shamelessly copying Wechat features for years, I highly doubt Wechat was at danger of losing marketshare to Facebook.
Baidu won out because of porn, technically illegal in china. It used to be that almost every image search in baidu, no matter how innocent, would lead to a bunch of naked pictures. Google of course, not being a chinese company, would never have gotten away with that. Baidu is otherwise a horrible search engine for anything productivity related.
That wechat would have won over Facebook is completely hypothetical given that they weren’t allowed to compete. Facebook, WhatsApp, and YouTube are dominating in china’s backyard, including newly opened internet markets like Cambodia and Myanmar.
They got enough people on the inside to make their companies really big, more than the US and they got rather big too before selling to outside customers.
Even though china borders Myanmar, there are more Burmese working at google in the USA than Burmese working for all of china’s tech companies. Now what services are becoming popular in newly opened Myanmar? Hint: none of them are Chinese.
The Chinese side is really easy, they just don’t take in immigrants. On the Bay Area side, well, count the number of Burmese restaurants in Palo Alto and Mountain View. Google doesn’t release its nationality breakdown, but there are going to be a few Burmese in there mix just going by the Bay Area population.
And that’s why American tech companies have a huge advantage over Chinese tech companies when it comes to going international. Immigration.
I understand but in your comment above you mentioned that there are more Burmese at Google than at all the Chinese tech companies. I get that that was just an exaggeration.
It really isn’t though. There is probably something close to zero Burmese working in the Chinese industry, and anecdotally I’ve met a few working for Facebook/google/etc in the Bay Area. The Chinese tech industry is so homogenous (99.9% Chinese) while the American tech industry is anything but (at least with respect to Asian diversity, 40% foreign born, at least, higher in places like the Bay Area).
There are ~166k Burmese in America. There are around 42k Burmese in China. Given the differences in education between the US and China it would be very easy for Google to employ more Burmese than the entire Chinese internet industry.
It's not going to be so simple for China going forward. Every aspect of their growth will get a lot more difficult, including that switching to a services dependent economy is dramatically slower growth than what you get from filling out extreme slack in a very backwards economy that hasn't fully industrialized (China circa 1980s & 1990s).
It doesn't matter how many people you have on the inside in isolation. It matters what the output per person is combined with how many people you have.
China is running into an increasing blockade with its largest trading partners, as they recognize China has been playing the game one-sided for a long time (to say nothing of the rampant state-supported dumping). It's still illegal to acquire the majority ownership of a Chinese company as a foreign entity, 16 years after they joined the WTO.
It cost China $40 to $50 trillion the last ten years, to grow as they have. The return they're yielding on each dollar of debt has long since gone below 1 to 1. Now their households are rapidly taking on large amounts of debt. Their corporations are the most indebted on the planet. It's a trick that can't be duplicated in the next ten years to keep the magic growth machine going.
In the span of ten years, China caught up to the US in terms of total debt load as a percentage of GDP. S&P is projecting they'll expand that by a further 77% by just 2021. That would entail taking on another $25 to $35 trillion in debt, in just four years or so. To put that into context, in four years they'll add roughly ~$3 trillion to their GDP; can that amount of economic expansion fund another $25 to $35 trillion in debt? We'll soon find out (by another contrast, the last $25 to $35 trillion in debt they took on, coincided with $8 to $9 trillion in new GDP; while high, a $3 of new debt to $1 of new GDP ratio sure beats a $10 of new debt to $1 of new GDP ratio).
Their large foreign reserves used to be a safety offset to their debt. Except now debt has grown ~15 fold beyond the $3 trillion they have in theoretical reserves and is still rapidly expanding while their reserves haven't net moved in years (with at least half of those reserves already spoken for).
They're well aware of this dangerous situation of course. Which is why they're attempting to slow the growth of debt, but they've entirely failed at that:
And this vast collection of debt has happened while China still almost entirely lacks an actual entitlement system similar to developed nations with the highest standards of living (such as Sweden, Germany, Denmark, Canada, etc). I don't see how they can ever afford that, if they're already starting from a position of such extreme debt entanglement. As their population ages rapidly, they'll find a far greater need for those types of systems, and it will further drain their growth potential by siphoning growth capital (up to now, China has gotten a free ride on that aspect, they've had to devote very little capital to such things as a total percentage of their GDP or budget).
Probably the only reason China is still chugging along with growth at this point, despite the mounting problems, is that they've done a pretty great job learning from other developed economies. It has helped them get huge at warp speed without tipping over. They expended a lot of effort on studying other major economies and their central bank systems. If anything gives them an opportunity to not fall into the Japan-trap in terms of debt and growth, it's that willingness to learn fast, adapt fast and rechart the map quickly if needed (when it came time to change course, Japan refused, they kept piling up debt even after it crushed their budget and savings rate; they kept over-spending on public works even as the return on investment went negative, and they entered a repeating cycle of making the same mistakes over and over again for years as it increasingly trapped them in a huge debt spiral).
I am not even sure they are learning much faster than the Japanese during their period of growth. Their progress definitely looks very Japan circa 1980’s to me.
Either way the massive debts in their financial system seem like a test of the limits of Keynesian and Monetarists theories. With their absolute control of money supply they can increase it at will to compensate for a decline in consumption. As far as I can see only inflation limits a government’s ability to print money. China isn’t quite at the same level as Japan, the US and Europe in terms of having crossed that weird post-inflation threshold where central banks literally print trillions and still fail to meet their inflation targets. It might turn into a Venezuela but the interesting things happen if it doesn’t. What happens to the economy when the government prints huge amounts of money but still fails to produce growth or inflation? What does that economy looks like? Moreover why doesn’t printing money cause inflation in the same way it did before?
Is this not the case for all companies who want to scale internationally? Maybe I am naive but I think it would have to be extremely difficult for a U.S company to immediately succeed in China w/o extensive knowledge/expertise beforehand.