(American) Business in China

American technology companies have not done particularly well in China.

Google shut down its Chinese service in 2010.

Facebook has been banned in China since 2009.

Apple has been forced to shut down many of its services in China.

With 1.4 billion people, many transitioning from rural poor to urban middle class, the Chinese market is an unparalleled opportunity for technology companies, especially those producing software that can efficiently scale.

If the market is so large, and the financial incentive is so high, why aren’t these companies catching fire in China?

Two reasons: the Chinese government and local competition.

The Chinese Government

Since the late 1970s, the Chinese economy has hesitantly wrapped its massive arms around the world. This transformation — from rural to industrial — was led by the Chinese government.

After taking over in 2013, Xi Jinping accelerated government-led economic statecraft. The government established a massive development bank that will lend $15,000,000,000 per year. It is spending $1,000,000,000 to reestablish the Chinese “Silk Road” economic empire. It is leading on large global issues like climate change.

Last year, Jinping, accompanied by Chinese entrepreneurs and business leaders, met with the top American technologists — Bezos, Zuckerberg, Chambers, Nadella, and others — to outline the Chinese Advantage: 300 million people in the middle class, set to double over the next ten years; 600 million people using the internet; 1.2 billion people using cellphones; and an economy growing at 7%.

The results are starting to materialize — in late 2014, Alibaba, a Chinese technology company, had the largest IPO in history.

Local Competition

As I’ve written before, entrepreneurs who are close to the business-problem have significant advantages over outsiders. We see this constantly — including this week when, after a multi-billion dollar battle, Uber decided to focus on other markets.

Competition is fierce. Chinese entrepreneurs are coming at the champs — startups in Silicon Valley and institutional players in NYC — and starting to win. American entrepreneurs should be excited and nervous.

As Tom Birtwhistle, a businessman in Hong Kong, told Bloomberg:

“The local competition has improved dramatically. Look at smartphones: the Chinese smartphone manufacturers used to offer phones that were cheap and crappy, but now they’re both affordable and very good,” Birtwhistle said. “There also used to be a challenge around branding,” he said. “But today, a lot of the newer companies are doing brand and marketing as well as western brands. Now they can offer high specs, low price-tags, and world-class branding — that’s hard to beat.”

Since we work with startups, THRIVEX is thrilled by the emergence of a global class of entrepreneurs. We are focusing on closely coordinating efforts — training, incubation, market penetration — so that our growing community can capture this once-in-a-generation opportunity.