Identify and Explore Why “WeChat” Failed Internationally

Case study of WeChat

Introduction

After fast growth in the domestic market, there are more and more Chinese internet companies start to expand their international business at abroad to seek for new growth point, serve current customer needs, maintain advantage competitions and build a dominant position in the market etc. As lack of international business experience, many Chinese companies meet different problems during the progress. WeChat as one of the famous internet Applications from a top Chinese company, with tremendously representative of the trend that more and more Chinese companies go to internationalize. The study is trying to find the reasons behind their failure. This assignment is a case study of WeChat, an online social application originally from China, which has the largest scale of registered users in China. They combined many functions such as online chatting, ticket booking, wireless payment, online shopping, food delivery service etc. in the one platform to occupy the market as much as possible. Firstly, this essay will introduce how WeChat started internationalizing and also explain how they chose the location to start by quoting an example WeChat Amsterdam Office through theory “Poter Diamond” (Porter, 1990). Secondly, this essay will analysis why WeChat failed internationalization based on “Platform Economy” (Publishing, 2013), “Product life cycle” (Vernon, 1966), “Psychic Distance” and Hymer’s theory. The final part of the essay, by providing some brief of solutions through the analysis to conclude the essay.

Part 1 How WeChat started internationalizing

1. Company Background

WeChat was found in 2011 and became one of the most popular apps in China within a short time. As a largest online social app in China, WeChat not only provides online chatting service, but also plenty of services related to mobiles such as mobile games, online ticket booking, WeChat moment (story-sharing platform), and WeChat pay is one of their main services in the app with extensive fluences same as Alipay (Another biggest online payment service app in China).

WeChat established its international business since April 2012. Till 2019 WeChat reached 1.133 billion monthly active users but over 75% from China market (Tencent.com, 2019). It means their international customers just around 283.25 million. Comparing with their competitors abroad such as WhatsApp with 1.5 billion (www.statista.com, 2019), Facebook 2.41 billion (Statista, 2019). WeChat still has a long way to go.

2. The Drive of Internationalize to Remove of Conflict

WeChat began with chatting service, but WeChat Pay is one of the main and profitable services now in the app. The main reason for WeChat to go internationalize is to remove of conflict from Alibaba.

Alipay is an online service platform which under the Alibaba group, as the biggest competitor for WeChat Pay in China, started their international business from 2014. With more and more Chinese tourists choosing international travelling and shopping. To maintain WeChat’s leading position in China and the removal of conflict. WeChat began their internationalize strategy to be a transnational company. It also means that WeChat went global because of the market drives.

3. Four Determinants lead WeChat’s International Strategy

Based on Poter Diamond we could analysis how it leads WeChat’s office site selection and strategy of market selection. (Porter, 1990) I would quote an example of Amsterdam for detail. As the capital of Netherlands, Amsterdam proving outstanding context by both physical assets and softer assets to get selected.

Factor Conditions

With the diverse and livable environment, Amsterdam continual attractive international talents to settle down here. The plenteously international workforces make firms which willing to set up branch could easily find skilled employees. Additionally, it has one of the most developed transportation networks, not only airport or highway on physical infrastructure but also data transmission hub. Advanced transmission facilities are significant for an internet company.

Demand Conditions

The superb location and culture resemblance make Amsterdam can connect potential customers across whole Europe market. The huge market not only inside the continent but also from enormous Chinese WeChat users to use service in Europe.

Related and Supporting Industries

To serve customer extraordinary service and usage experience, WeChat cooperates with many related firms. Due to successful investment promotion and innovation, Amsterdam becomes the 2nd most attractive city for FDI (Voorden, Voorden and Netherlands, 2019). WeChat chose to set up an office in Amsterdam for developing a relationship with further and current business partners. For example, WeChat Pay established “Flagship smart airport” with Amsterdam Schiphol Airport to serve more than 500,000 Chinese passengers. (The Moodie Davitt Report, 2019)

Firm Strategy, Structure and Rivalry

The drastic competition through other giant social platform companies such as Facebook, WhatsApp, Snapchat required WeChat has to develop their product with innovation. It’s a good strategy to locate the branch office and R&D in Amsterdam because of advanced digital. (Silicon Republic, 2019）

These four determinants could also explain why WeChat developing their international business in the USA, Spain, Italy, Singapore and so on because of the similarities in context.

Part 2 Why WeChat Failed Internationalization

Even WeChat adapted correct strategies at the beginning to start their international business as we mentioned above, but success never comes from one part. Due to other improper actions, they failed internationally. Resulted in most of the countries, their competitors occupied more market shares. There are some main reasons caused WeChat’s failure as follow.

1. Failed to Transplantation of Platform Economy

WeChat failed abroad because they did not fix the market imperfection (Ietto-Gillies, 2002) by transplanting their key features to “foreign country”. WeChat has competitive advantages in China market because of application ecosystem. By combining various functions in one WeChat platform, they increase the adhesiveness of user and diversification of services so that for their competitors it’s difficult to pursue their steps.

For example, in China customer can book a taxi, close payment, online shopping and even order food through WeChat platform, but when WeChat comes to abroad, most of the functions are confined-limited due to there is no cooperated local supplier to provide those service (Medium, 2019). It causes WeChat to become just simply online chatting app and lost their competitive advantages. At meanwhile, the competitions are extremely fierce in the “foreign market”. There are applications with abundant financial resources to support their business development like WhatsApp, Line and Skype which provide similar online chatting service. Based on David Ricardo’s principle (Coats and Ricardo, 1973）, without diversification services to build platform economy (Publishing, 2013), WeChat lost their competitive advantages and failed international market.

However, the market still existing another competitor’s popularity app named WhatsApp, which was designed based on minimalism philosophy without diversity of product and service, is particularly simplicity that only with chatting and posting photo functions. This is not aligned with our findings but if we go further, we might explain why this happened based on “Product Life Cycle” theory by Vernon R (Vernon, 1966). It also applies to WeChat failed internationally.

2. Entered on Late Growth Period Caused Failure

Based on “Product life cycle theory” (Vernon, 1966). WeChat failed because they did not enter the “foreign market” at the best time.

Before WeChat entry the international market on April 2012, WhatsApp already passed their innovation period from 2009 to 2011. On the growth period around April 2011 to December 2013, they announced that they got 400 million monthly active users. WeChat lost the best chance to enter the market while their competitors did not occur and occupy the global market. In 2014, the Instant Messaging (IM) & Social Network Service (SNS) industry has been in the maturity period, which means there is limited growth space to obtain users (populartimelines.com, 2019). In addition to this, there are more IM & SNS Apps established and expanded earlier than WeChat such as Skype, Facebook, Line etc. It was a big challenge for WeChat to grab the global market after the growth period.

Nevertheless, there still were born global spin-offs companies at the late growth period. For example, one globally messaging app named Snapchat, which was found on July 2011. Until now with 203 million daily active users, Snapchat is considered as worldwide popular App (The Verge, 2019). The reason behind is that through unique functions to attract users. With interesting viral face filters and Auto-Delete message after reading, those specific features as unique sales points (USP) make Snapchat different with others.

By teenager orientation market strategy, Snapchat got successful in the segment field. And for the general market there is a different situation, due to market imperfection has been solved by other competitors, WeChat has no chance to grab huge market shares after missing the product growth period. The way to solve this problem could be rejuvenation through update new features via a bunch of innovations.

3. Obstacles for Developing Functions

Even WeChat launched a lot of functions through innovation and technology in China, but they cannot shift the same application services to “foreign markets” due to some obstacles from suppliers and government. This is another reason why WeChat failed abroad.

Outside of China market, WeChat lacked strong competitive suppliers to provide services in their platform. In China, they have cooperated with most popular online shopping company named JD, taxi booking service company “Didi”, Food delivery company “Mei Tuan” etc. so that WeChat could provide a various excellent experience to their customers. Without excellent suppliers at abroad, WeChat lost their competitive advantages like the capacity of resource integration (FORSGREN, 2017).

To solve this problem, WeChat set up several branch offices all over the world to develop their local service functions and cooperate with supplier companies. For example, it was forbidden to bind bank card which not issued by China UnionPay, a financial services corporation from China, in WeChat pay. After business negotiation and cooperation, as foreigners, they can also use WeChat pay in any acceptable store now (Lee, 2019). From continual business developing, there are more and more stores accept WeChat pay in the world now. But the problem also comes with it, in some area the government starts to stop this service as it may cause them lost foreign currency earning from tourists. (Gulfnews.com, 2019) Also, finance is a sensitive field for any country, through WeChat pay the company could get lots of confidential financial information of the region.

It’s essential to know how to escape the operation risks from the political issue with supervision government as well as cooperate with local key suppliers so that WeChat could skip entry barriers and develop their innovation functions overseas.

4. Cultural Differences Made Longer Psychic Distance

The differences of culture between Asia and US & Europe make too longer psychic distance for WeChat to be a success at the majority of “foreign markets”. Neither the operation team from headquarter is difficult to understand foreign customer’s needs nor the international market environment.

WeChat grabbed and held some market shares in countries like Malaysia, Thailand and Vietnam which mostly focus on Asia（Aseantoday.com, 2019). Because those countries there are more Chinese and got influenced by Chinese culture since long time ago. China as an Asian country, naturally close to those markets by both geographical location and psychological distance. But for the markets like US, WeChat failed to catch the majority of customers due to psychic distance.

Due to culture difference, WeChat’s social system designed base on acquaintances networking, the user could only send a message or share information to the person who has accepted a friend request. User’s information cannot be seen by strangers. It’s more likely a private platform. This system works well in Asia because people think the social relationship is matter. It’s different from other apps which popular in the US. For example, one of the popular platforms named Instagram, which focuses on sharing photos with proving high-quality filters. People get around by labelling their photos and they could find other strangers who have the same hobbies as them, it’s basically stranger networking. Even more, another app named WhatsApp, you can send a message to anyone only by knowing the numbers. This might be considered as harass in China.

WeChat could not get successful in Europe and America markets because of psychic distance. The psychic distance required product should modify to be localization so that they can more appropriate to serve the local customers.

Conclusion

As it was mentioned above, WeChat has chosen correct locations to set up its subsidiary abroad offices and initiate their international business. However, they still cannot avoid failing internationally due to these specific reasons, such as poorly transplantation platforms with missed advantage functions, belated access international market, blocked features by entry barriers and psychic distance-related issues. Through analysis, it founds those main reasons caused WeChat’s failure. So far, it’s still cannot define that WeChat exactly failed or not as WeChat is continually developing their international business all over the world and existing many regions. WeChat might be able to get rid of this backward situation by innovation to develop new functions of platform ecosystem and construct efficiency sourcing and marketing through local suppliers and related industries (FORSGREN, 2017), investing in market campaigns and understanding the culture difference to modify better localization so that they can gain their competitive advantages at “foreign market”. Although WeChat currently failed internationally, with on account of numerous customers from the domestic market, they still have lots of resources to support and develop their international business. By solving these problems with time, WeChat might get another chance to stroke participants from the international market in the nearly future even it will not be easy.

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