Did get Oracle the Tiktok deal because it cozied up to the US president more than any of the other US companies, wonders international trade expert Harry Broadman at CNBC. Many questions remain after Microsoft was replaced by Oracle.
Harry Broadman is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.
Are you looking for more experts on managing your China risk? Do check out this list.
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| Shaun Rein` |
New implementation regulations for the law unveiled on Monday say it applies “whether or not the identification record or decryption key” central to a particular national security case is located in Hong Kong.
Shaun Rein, managing director of China Market Research Group, said that given how politicised Hong Kong had become, Facebook risked being criticised at home if it did not publicly say it would resist police requests.“I think a lot of companies like Facebook have a decision to make. Is it better to upset the Hong Kong police and the government, or is it better to upset their home market in the US? So maybe it is better for them to leave Hong Kong completely,” he said.
Rein said there was a “real risk” that the legal representatives of these companies could go to jail or be fined if they did not follow the law, leaving tech giants stuck in a “very difficult and dangerous situation”
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| William Bao Bean |
William Bao Bean, partner, General Partner, SOSV Capital said travel needed to solve a very big problem – high customer acquisition costs – and he said it needed a new model in which everyone wins, and not like now “where everyone loses but the platform”...
Bao Bean spoke of one of his investments, Travelflan, a new superapp-like model which worked on revenue share to offer distribution reach to travel suppliers to sell services. “It doesn’t make money on advertising, it works on revenue share. We have industry players who are under such pressure from Google, Facebook, Taobao, all the big giants that they are willing to trust each other and work together.”
Their secret sauce is zero customer acquisition cost, he said. “We should take advantage of this difficult time and come around a trust-based model, stay profitable and serve customers.”More in WebInTravel.
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| Shaun Rein |
According to Pew Research Center, almost half of immigrants live in just three states - New York, Texas and California, home of Silicon Valley, where tech giants such as Google, Facebook and Cisco are based.
"Trump's immigration ban will hurt US tech companies' ability to recruit the talent necessary to remain competitive and focus on innovation," said Shaun Rein, managing director of the China Market Research Group.
"Instead of staying in America and building America's tech prowess, top talent will return to their home countries and build the next round of innovation powerhouses." US companies are battling it out with Chinese internet giants such as Alibaba and ByteDance in the field of innovation.
"Now, with the immigration ban, more top Chinese, Indian and other foreign talent will seek jobs in tech hubs globally like Shenzhen, Seoul and Bangalore rather than Silicon Valley. They will push invention and innovation in software, hardware and in semi-conductors," Mr Rein added.More on the BBC.
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| Kaiser Kuo |
Central to that decision by Google management was a wager that by serving the market—even with a censored product—they could broaden the horizons of Chinese consumers and nudge the Chinese world-wide-web towards increased openness.
At initial, Google appeared to be succeeding in that mission. When Chinese customers searched for censored information on google.cn, they saw a notice that some benefits experienced been eradicated. That community acknowledgment of internet censorship was a initially between Chinese search engines, and it was not popular with regulators.
“The Chinese government hated it,” claims Kaiser Kuo, former head of global communications for Baidu. “They in comparison it to coming to my household for supper and stating, ‘I will concur to consume the meals, but I really do not like it.’” Google hadn’t requested the govt for permission just before employing the notice but wasn’t ordered to eliminate it. The company’s international prestige and technical knowledge gave it leverage.
China may well be a promising current market, but it was nevertheless dependent on Silicon Valley for expertise, funding, and know-how. Google required to be in China, the contemplating went, but China wanted Google...
“[Chinese officials] have been truly on their back foot, and it appeared like they could possibly cave and make some sort of accommodation,” says Kuo. “All of these folks who apparently did not give significantly of a damn about world-wide-web censorship right before have been really offended about it. The total internet was abuzz with this.”More in the Go Tech Daily.
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| Harry Broadman |
The US campaign against Huawei, one of China's most powerful tech companies, reached new heights earlier this month when the Trump administration added it to a list of companies said to undermine American interests. That forced crucial suppliers like Google and ARM Holdings to cut ties with the Chinese company, while top carriers in the United Kingdom and Japan delayed the launch of Huawei smartphones.
Now China's blacklist could target those same companies, penalizing them for complying with the US ban.
"They have not identified which companies this means but I'm sure, knowing the Chinese as I do, that they will do counterpart targeting matching the US," said Harry Broadman, a former US trade negotiator. He added: "Clearly their buttons have been pressed, with the way we're dealing with Huawei."More at CNN Business.
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| Shaun Rein |
China is considered by many as a difficult market for foreign players even without taking into account hindrances caused by government policy. In the case of Amazon, however, analysts said the reasons for its poor performance lie in its not being able to localize to meet the requirements of the market.
Shaun Rein, managing director of Shanghai-based China Market Research Group (CMR), said Amazon's Chinese platform could not survive because it did not have a strong and stable management team. He does not think Amazon was hampered by government policy.
"I don't think it is a problem of government protectionism," he said, adding, "They (Amazon executives) didn't have the necessary relationship in China and were unable to build the right ecosystem for people to sell on Amazon."
Getting a large number of local sellers is crucial for an e-commerce platform to provide goods at competitive prices and in sufficient variety to customers...
Foreign internet-based businesses have very little presence in China, which has the biggest number of web users in the world. This is partly because a large number of U.S.-based sites including Google, YouTube and Twitter are banned, while e-commerce companies have walked away. Amazon's departure will likely only make it harder for other foreign retail companies to succeed there.
"I think it would be very hard for large e-commerce players from foreign countries to build in China. It is still possible for niche players like there are opportunities in luxury space and cross-border trade," Rein said.
American and European brands will have to depend heavily on local e-commerce companies like Alibaba and jd.com to see their products, analysts said. Although Amazon will continue to sell foreign-made goods, its reach is limited in China because local companies dominate the cross-border trade as well.
"Unfortunately, Alibaba is almost a monopoly in some ways and they have way too much power because they control the eyeballs," said Rein, adding, "They (Alibaba executives) control traffic so they are able to force Western brands to discount even if Western brands do not want to,"Rein said. "Alibaba controls the relationship with the customer rather than the brand controlling the relationship with the customer."More in the Voice of America.
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| Matthew Brennan |
Tencent does not sell access to user-data to third parties, such as advertisers. The data of the Chinese app is to all intents and purposes the handsets of the users. “It would have been possible to compare We Chat to Facebook, Baidu to Google or Alibaba to Amazon ten years ago, but that’s no longer possible today,” insists Matthew Brennan a consultant specializing in Chinese IT...
The most widely used of WeChat’s secondary functions is WeChat Pay. Until recently, Chinese people’s attachment to paying with hard cash was the norm. Nowadays, e-commerce represents 14% of all retail sales, against 8% in France. With WeChat Pay, you can use your phone to settle a bar tab or pay an electricity bill. Even the famous hongbao red envelopes Chinese use to exchange monetary gifts are being replaced by the application. During the 2017 Chinese New Year period, 14 billion transactions were carried out using the app. “Tencent has taken advantage of the lack of a developed baking sector in China, where the use of credit cards is not commonplace,” adds Brennan. By cannibalizing all the different services available on smartphones, WeChat has become a killer app, which the competition find impossible to match.
Tencent is the big winner from the success of WeChat. Not only does the company take a percentage of every transaction made using the app, but it has developed its own content for the platform. “WeChat does not monetize data, but it is a growth lever for other businesses in the Tencent group. It’s a bit like iOS or Android in that regard,” stresses Brennan. Via WeChat Tencent can commercialize other businesses, such as Tencent Video or Tencent Music. In total the average mobile phone user spends 55% of their time on a Tencent service. The case of streaming services is particularly instructive. Thanks to WeChat, Tencent has managed to increase the subscriber base of its VOD platform Tencent Video, seizing a quarter of the Chinese market. The company claims to have more subscribers than Netflix even.
Between 2016 and 2017, Tencent made 318 investments in startups and diversified number of sectors it is involved in in order to propose more services on WeChat. Tencent has invested in Karius, a platform specializing in the diagnosis of infectious diseases, and branched out into the connected agriculture sector.More in Leadersleague.
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| Kaiser Kuo |
Central to that decision by Google leadership was a bet that by serving the market—even with a censored product—they could broaden the horizons of Chinese users and nudge the Chinese internet toward greater openness.
At first, (in 2006) Google appeared to be succeeding in that mission. When Chinese users searched for censored content on google.cn, they saw a notice that some results had been removed. That public acknowledgment of internet censorship was a first among Chinese search engines, and it wasn’t popular with regulators.
“The Chinese government hated it,” says Kaiser Kuo, former head of international communications for Baidu. “They compared it to coming to my house for dinner and saying, ‘I will agree to eat the food, but I don’t like it.’” Google hadn’t asked the government for permission before implementing the notice but wasn’t ordered to remove it. The company’s global prestige and technical expertise gave it leverage. China might be a promising market, but it was still dependent on Silicon Valley for talent, funding, and knowledge.
Google wanted to be in China, the thinking went, but China needed Google...
The Google announcement shoved cyberattacks and censorship into the spotlight. The world’s top internet company and the government of the most populous country were now engaged in a public showdown.
“[Chinese officials] were really on their back foot, and it looked like they might cave and make some kind of accommodation,” says Kuo. “All of these people who apparently did not give much of a damn about internet censorship before were really angry about it. The whole internet was abuzz with this.”
But officials refused to cede ground. “China welcomes international Internet businesses developing services in China according to the law,” a foreign ministry spokeswoman told Reuters at the time. Government control of information was—and remains—central to Chinese Communist Party doctrine. Six months earlier, following riots in Xinjiang, the government had blocked Facebook, Twitter, and Google’s YouTube in one fell swoop, fortifying the “Great Firewall.” The government was making a bet: China and its technology sector did not need Google search to succeed.More at the MIT Technology Review.
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| Shaun Rein |
That doesn't mean JD.com's shareholders are sitting quietly. While Walmart declined to comment on whether it has queried the company about the allegations against Liu and Google did not respond, institutional investors are worried.
"Shareholders are hugely concerned," said Shaun Rein, managing director of China Market Research Group in Shanghai, who said he had recently spoken with about 20 funds which have invested in JD.com or Tencent. "The uncertainty is bad for stock prices and bad for partnerships. Worries will grow over time if the stock continues to slide."
Funds are likely to query the company about the criminal case, said Jamie Allen, secretary-general of the Asian Corporate Governance Association. "They won't refrain from talking to JD about it," he said. "They would have some opportunities to raise it."More in the Nikkei Asian Review.
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| Shaun Rein |
A lot of Google’s new users will have to come from China, if the company is to achieve its stated target of reaching ‘the next billion people online’. Government interference saw Google quit the China market in 2010, but it is now trying to re-enter.
“It is going to be very difficult,” says Shaun Rein, founder and managing director of the Shanghai-based China Market Research Group (CMR). The company will have to change how it operates, bend to a very different set of rules, particularly in terms of content curation.
“Also,” says Rein, “the Chinese-language Google was just not as good as [the Chinese search engine] Baidu the last time they were here.”More in the Hindustan Times.
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| Shaun Rein |
“The initial success of Taobao was as much due to the failure of EachNet and eBay’s American management teams, as to the success and savviness of the Alibaba management team,” said Shaun Rein, the managing director of China Market Research Group and author of The War for China’s Wallet: Profiting from the New World Order.
More at the South China Morning Post. Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.“A lot of Americans complain that Western tech companies cannot succeed in China because of the government, but in fact a lot of the failures were due to the management teams, from eBay to Google.”
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| William Bao Bean |
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| Shaun Rein |
The rewards China bestows on the these foreign Internet companies can be huge—China is Apple’s largest market outside of the United States. It generated 18 percent of Apple’s global revenue in the third quarter of 2017. Most of its products are assembled in China. Executives salivate at the size of the Chinese consumer market. It has become the largest market outside of the U.S. for companies ranging from Starbucks to Nike.
China has a long memory, too. While Tim Cook spoke to a packed auditorium in Wuzhen, his counterpart at Google, Sundar Pichai, spoke to an empty room. Reports were that authorities never made it clear what time Pichai’s speech was set, so no one knew when to attend. But Cook’s words in support of China’s Internet policies will be used in propaganda by the government to show how open they are to foreign players. And Cook will be rewarded with continued access to the lucrative Chinese wallet.
China has smartly used it wallet to get what it wants politically beyond its own borders. See how publisher Springer censored its own book catalog. China’s wallet is a power so large and lucrative that no single Internet company can withstand it. Going forward, it is only at the government-to-government level that these issues can be worked out. It is surprising that neither the Obama nor Trump administrations made a bigger push for greater access for Western technology firms in China—such a push should be couched not as a human rights issue but one based on money. America’s Internet companies are losing out on billions of dollars of profit under the current policies.More at ChinaFile.
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| William Bao Bean |
One critical question on everyone’s mind was who would emerge victorious in the online travel market: Local or global players?
Bean offered a slightly pessimistic view, remarking, “the big is getting bigger and the small are getting crushed,” and citing the example of how Facebook and Google currently control the majority of global advertising; or how payments and e-commerce are now owned or invested in by Tencent and Alibaba.
He did also add that “travel is insulated,” but nevertheless, its turf will be harder to defend from global players over time. “If they don’t have a short, they’ll use money as a weapon and acquire” businesses that will let them get ahead...
So, the big are getting bigger, but “they can be quite myopic”. It grants smaller companies and startups with a slim but existent window of opportunity to sneak ahead. But they must also be aware of common pitfalls, to avoid common mistakes that befall many entrepreneurs.
Bean argued, “the dumbest thing entrepreneurs do” is trust their gut when trying to expand their brand globally from the get go. “You cannot go with your gut, because it will take you in the wrong direction.”
Instead Bean recommended “focusing on data and trying things,” encouraging “companies to use data to back up their decisions.” He continued, “you will fail, but it will help you to fail faster” and recover sooner.More in WebinTravel.
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| William Bao Bean |
So here's the difference: in China you can go on any social network and pretty much anything that you see you can click and buy, whereas on Facebook, on [Facebook] Messenger, on WhatsApp, on any of these platforms, they have a different business model, or actually, they do not have a business model. They are not making any money. So Facebook played the long game and now they are making lots of money. But it's all advertising based and if you think about basic economics, advertising drives behavior. And usually people want to drive purchasing behavior so advertising revenue is actually a subset of the actual commerce revenues. Advertising drives game revenue; advertising drives commerce revenue.
Facebook makes money on advertising while in Asia, social media platforms like WeChat and Weibo make money on commerce such that they get a cut of the actual purchase. So if you control the payment platform as well as the user, it's much more powerful than just controlling the advertising. You can potentially have an order of magnitude of greater revenue. So we will see an interesting battle played out in other countries like India, where Facebook and WhatsApp are strong and where Chinese players have backed local commerce companies and local payment companies. So it'll be the Indians backed by the Chinese against U.S. heavyweights like Facebook and Amazon. And that'll be interesting to see how things play out, especially in comparison to China, because the Chinese retail industry is under a huge amount of pressure since people don't carry wallets or buy offline anymore.
Adam: Given that Facebook is entering new markets like India, and with the other Chinese-backed providers which have payments attached to the virtual and social experiences, how do you think Facebook might localize their products or customize in those particular markets in terms of payments?
William: Facebook does not localize. They have an “one size fits all” strategy. Facebook in the U.S. is the same as Facebook in India. They can add features, and they are adding payment methods. But the bottom line is that a product designed for one market does not always work in another market. So far Facebook has been very successful in Southeast Asia and same with WhatsApp, but they are somewhat bounded by the fact that they do not localize. So what you'll see play out is global companies like Facebook and Google increasingly going up against local players backed by Chinese companies like Alibaba and Tencent.
I think it is like the next World War. It's not going to be fought with the tanks and bullets and guns, but between global companies. Instead of having 80 percent of the money made by 20 percent of the companies, it's 99 percent of the money being made by 1 percent of the company.
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| Kaiser Kuo |
China’s internet exploded with outrage over the company’s perceived lack of supervision over sales of medical ads. Chinese state media joined the chorus, while authorities formed a task force to investigate the case bringing in Baidu’s CEO Robin Li for a talk.
“In this case, to me, it was obvious that the anger that was directed at Baidu was out of proportion with Baidu’s crime,” said Baidu’s former communications officer Kaiser Kuo during a recent episode of the China Tech Talk podcast.
Kuo, who spent six years with the company, believes that Baidu was scapegoated by authorities to avoid lashing out on China’s scandal-ridden health care system. The incident, however, can also be viewed as a tragic culmination of a series of controversies related to medical and health care ads which used to comprise 20 to 30 percent of the company’s search revenue.
Baidu’s health troubles started in 2010 when it was accused of promoting counterfeit drugsthrough its search engine. Four years later, the company was sued by a man who used the search engine to seek out a cure for his homosexuality but ended up traumatized by an electroshock therapy in a conversion clinic. The company was acquitted but was warned against advertising dubious medical practices...
It is not surprising then that in 2010 when Google announced its departure from China because of government mandated information filtering, doubts rose over Baidu’s involvement. At that point, for many Chinese internet users, Google’s “Don’t be evil” slogan and their decision to withdraw stood in contrast to Baidu’s pragmatism–and so Baidu became “evil.”
“There is a kind of psychological habit that we have that when you have a narrative that casts one character as an obvious protagonist of the story,” said Kuo. “The narrative wasn’t exactly fair. There was never any evidence and it just wasn’t true that Baidu had something to do at all with Google’s decision to decamp from China. They were certainly the beneficiary of it but there was nothing sinister going on.”
However, Baidu’s questionable business practices, such as enabling piracy, copyright infringement, plagiarizing Wikipedia, and cheating on AI tests have not helped its case. Neither has the incident in which Baidu employees accepted bribes for deleting negative comments behind the company’s back, nor the lawsuit over censorship by US-based pro-democracy activists.
For Kuo, Baidu is a company of great technology, but one in which sales are often done ineptly. PR has also been the company’s weak point. Baidu’s poor response over the death of young Wei Zixi coupled with failed opportunities to capitalize on several major tech trends has left experts wondering about its future. After the incident, Baidu was ordered to revise its medical ads policy at a time when web search ad revenues have already been shrinking.More at TechNode.
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| Jeffrey Towson |
Explanation 3: Going international.
Another natural use of the newly raised funds would be to expand abroad given that Chinese app users are already going abroad in great numbers. Didi led a $100 million fundraising round for Brazilian ride-sharing app 99 in January and earlier invested in India’s Ola, Southeast Asia’s Grab and American app Lyft as part of an alliance of the four companies to take on Uber globally. In March, Didi opened an R&D center in Silicon Valley. I would not be surprised to see another string of international investments over the next twelve months, especially in Southeast Asia.
Explanation 4: There is a big disruption coming.
In theory, self-driving cars (i.e., autonomous driving) could reduce costs dramatically for Didi. Some reports suggest that driver fees, insurance and driver acquisition costs add up to two-thirds of the company’s operating expenses.
However, the cost-saving argument misses the bigger implication of self-driving cars. If the technology is successful, it could wipe out the business model and competitive advantage of most ride-sharing services and could be a body blow to Didi’s current business.
The reason this sector has consolidated down to just one or two dominant companies per region is because of the powerful economics of two-sided platforms. To get drivers, you need riders. To get riders, you need lots of drivers. Being bigger in a region not only creates a superior service — since more drivers means shorter wait times for pick up — it also creates an insurmountable barrier for new entrants.
Self-driving cars will disrupt this competitive strength. If you no longer need drivers, you no longer have a two-sided network. Didi and Uber will then be exposed to new entrants with good cars, clever technology and different operating systems. Self-driving cars could make driver-rider networks obsolete or marginal at best.
So Didi and Uber have a strategic imperative to transition to this new technology and search for a new source of competitive advantage. This could be by becoming the transportation ecosystem in which self-driving cars operate. It could be by becoming the operating system, the “Microsoft of moving computers.” It could be by integrating with public transportation services. Possibly though there may just not be an opportunity to be so dominant in this emerging market.
Google, Apple, Uber and lots of major Chinese companies are rushing into self-driving cars (article here). One to keep an eye on in China is Baidu. It is developing an open-source autonomous driving platform involving hardware, software and cloud data services. This could enable lots more automotive and autonomous driving companies to enter the business. Code-named Apollo, Baidu’s project will provide capabilities in obstacle perception, trajectory planning, vehicle control and vehicle operating systems. Note that Baidu first successfully road tested its self-driving cars on the highways of Beijing back in December 2015.More reasons at Jeffrey Towson's weblog.
