The world’s largest telecom market by number of users, formed the basis of technological power giants China, which are respectively Alibaba, Tencent and Baidu, creating an intense rivalry within the country. However, following a series of major acquisitions, these three companies do not have much room for growth in their domestic markets. These companies then look increasingly toward what the world has to offer, potentially seeking to compete with the Western giants. 2014 in particular saw the media IPO of Alibaba at Wall Street. For these Chinese companies, getting to know how to identify the demand and needs of non-Chinese consumers will be a challenge.
A huge market
Having access to the huge Chinese consumer market and its insatiable appetite for all things present on Internet marketplaces allowed the giants of the Chinese digital triad to enjoy the sudden development of most digital branches. China is the world leader in number of telephone subscribers (1.2 billion) and Internet users (626 million) in 2014.
Alibaba has many e-commerce platforms, including Taobao and Tmall, but also holds a payment platform and media brands. Tencent has one of the largest social networks in the world, Qzone, and is especially powerful on mobile instant messaging and games with WeChat. Baidu, the Chinese Google is the dominant search engine in China and has a range of associated complementary services.
Implications for the global market
Digital brands sharing the local internet market in China have created an almost monopolistic solution. The battle of acquisitions and investments of Alibaba, Tencent and Baidu has had a major impact on the sector -already mature- of e-commerce in China and payments online, with a respective total of 98.5 billion and 7.8 billion dollars.
The saturation nationwide is now pushing Chinese companies to look for opportunities abroad. Their high levels of liquidity lead them to the launch of purchases and services on the international scene. The platform of low-cost B2C e-commerce, AliExpress, is one of the cross-border platform knowing the most success globally, while the mobile messaging Tencent, WeChat, is growing strongly in the Asia Pacific region and Africa.
West versus East round 1!
“The growing influence of the Chinese giant will be a strong competition for Western technology companies, leading brands in the international market until then,” says T. Jean, from Daxue Consulting. “The vast extent of their portfolio enables the Chinese trio to propose incomparable integrated offers, from commercial social services to online gaming platforms.” Especially since “major Chinese telecommunications company particularly benefited from the impact of espionage scandals that have tarnished the image of US brands like Facebook and Google in the eyes of many consumers in the world.” According to trade sources in 2013, the scandal could cost up to 35.0 billion dollars in sales to US technology companies until 2016.
To qualify this approach, Chinese companies have benefited of a very large state protectionism on their home territory and they still need to be tested against their Western counterparts.
Similarly, even though the giants of the Chinese would not see the digital success outside their borders, the internal market will continue to provide new opportunities through the development of the middle class and increasing consumers in rural areas connecting internet from their mobile devices. This might prompt less aggressive strategies in case of failures, even relative on the international markets.
As of today, the label “Made in China” is too strongly associated with “low cost & poor quality” that the world has been accustomed to since the opening of China to the world back in the 1980s’. Some brands have tried to change this cliche but it will take a very long time to go from “Poorly made in China” to Quality product from China.
In this battle, reality matters very little for now, Chinese companies need to change how they appear to customer to become very competitive and go against other foreign companies without any disadvantage.
Dear reader, what’s your opinion? How do you think Chinese companies should act and react?
How should foreign companies design a strategy to efficiently enter the market?
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