A few days ago, Hugo Barra, the ex-head of product management at Google and currently the head of global for Xiaomi, urged high potential of Chinese market based on many index including its number of internet users. As he mentioned, maybe the Chinese market may become the largest one after several years and some Chinese companies may globally lead IT industry as Samsung does. However, some people cast a doubt on the global potential of Chinese companies in that Chinese market is still local-oriented and driven by copycat models. My viewpoint has been on the same page with this opinion for the last several years. In 2007, I changed the approach to enter Chinese internet services industry due to a strong governmental regulation that restricted foreign capital from entering Chinese internet companies – it allowed foreign companies to establish a JV for the business. When I attended Tech Crunch in Beijing in 2011, a lot of people asked Chinese experts and business founders if the Chinese market can globally extend its business beyond the limits of copycat models. Many people underestimate the services as simply mimicked businesses by exemplifying Alipay (Paypal), Taobao (e-Bay), and Baidu (Google).
Regardless of negative factors, Chinese companies have high potential to go global. Most important of all, these companies have gathered a large number of domestic users. This powerful user base is originated from 618 million internet users (2013). This huge number ceaselessly makes network effect and some companies such as Baidu and Tencent syphon off abundant revenue from users. The capital gained from domestic market is connected to the global market and to other industries as Lenovo has done.
Lenovo acquired Motorola Mobility for $2.91B on January 29th, 2014. As the company became thesecond largest personal computer vendor in 2012 after acquiring LG IBM, it continues to look for a new business opportunity of global mobile device market. This demonstrates an important lesson, which is aligned with Samsung’s global strategy – ‘Smart Follower’ of Google and Apple. Chinese companies with sufficient capital can bet on the global market in terms of global entities that they bought out and selective focus. Internet services can utilize the same strategy, which is buying a global firm and expanding fast on the basis of following market innovators.
It is no longer productive discussion that Chinese companies cannot be competitive with their copycat models in a global market. What we really care about is whether they fix what their stepping stone is for the global market. This does not mean that only capital matters. Chemical combination between original business and new target business is also a key point. Lenovo bought mobile communication technology for $200M in 2009 and has kept enhancing its market share in the personal computer industry. For instance, Taobao can be threatening to incumbent players if it acquires a globally known e-book publisher or digital contents provider. Already Samsung has shown how it is possible to work out globally. After two to three years, the axis of competition may change whether it is driven by Chinese companies or not.