It’s been choppy for Chinese IPOs lately. With curveballs such as the U.S. position on Chinese listings and Ant’s failed IPO, the pressure is on Chinese companies to prove trustworthiness to investors, officials, and the market. With the U.S. presidential race ending, Chinese companies are [...]
China’s tech industry has grown rapidly since 2010. These five companies are the face of Chinese tech, and presenting a keen challenge to their U.S. counterparts.
For a long time, China was internationally known as a source of cheap labor. It was the final word in affordable manufacturing facilities, for avant-garde tech gadgets and global companies alike. At this time, China’s technology products weren’t perceived as innovative – rather, they were imitations of better-known Western products. But all this began to change around 2010.
China quickly began to catch up to the U.S. in the global technology race. Now, its homegrown tech giants offer tough competition to their established and older U.S. counterparts. The country’s technological dominance has not only set the country years ahead in digitalization, but has also has stoked fears of challenging the global economic order and sparked the ongoing U.S.-China trade war.
The U.S. has been cracking down on Chinese companies, trying to deter them from listing on U.S. stock exchanges, and squash China’s emergence as a global power player. But this has only increased the Chinese government’s resolve to create self-reliant and sufficient home markets and effectively decouple the Chinese economy from that of the U.S.
Here’s a list of five Chinese tech behemoths that compete with the biggest U.S. tech giants.
1. Baidu vs Google
Google entered China in 2006 and was banned by 2010. In the brief period that Google operated its search engine in China, it was locked in a battle with Chinese authorities, who were demanding censorship.
While Google complied at first, it refused to do so after 2010 following a debilitating cyber attack. At present, while Google has offices in China, its search engine remains banned in the world’s most populous country.
But Google’s loss was Baidu’s gain. Like Google, it specializes in Internet services. But over the years, it has expanded its scope and become more than just a search engine. It now has prominent projects in areas ranging from artificial intelligence to autonomous driving.
Google is a global company and dominates over 86% of the worldwide search engine market share. But despite focusing only on China, Baidu is the fourth most popular website in the world, and ranks in the top five search engines globally. Moreover, it is the largest search engine in China, with roughly 70% market share in the country.
2. Alibaba Group vs Amazon
Despite being the most valuable Internet company in the world, Amazon failed to capture the Chinese market. In July last year, Amazon shut down its ecommerce business in China, although it still offers Amazon Web Services (AWS), Kindle and a few fulfillment centers.
The global ecommerce giant ultimately conceded defeat to local players like Alibaba-owned Taobao and Tmall, and JD.com. It surrendered with a mere 6% market share in the Chinese ecommerce sector, according to a Wall Street Journal report.
From a humble beginnings as a B2B marketplace for Chinese exporters, Alibaba Group now owns over 55% of all retail ecommerce transactions in China. Its main websites include B2B marketplace Alibaba.com, B2C ecommerce site Tmall, and C2C commerce platform Taobao.
Though Jack Ma stepped down as the Chairman of the Group this year, the company is remains at the top of the food chain in the Chinese ecommerce sector. In a three-day period around this year’s Singles Day, an annual China-wide shopping event where ecommerce players offers steep discounts, Alibaba sales exceeded US$74 billion.
3. NIO vs Tesla
Tesla is now the most valuable automaker in the world, and by a very well-padded margin, making its Chinese competitor NIO a much smaller fish in the sea. However, Nio may be ranked only as the sixth most valuable carmaker, but it places ahead of storied automakers like General Motors and BMW.
Often called the Tesla of China, this comparatively young NYSE-listed Chinese startup is growing fast. NIO’s shares have risen by 1,200% since the start of the year, and the company delivered over 12,200 cars in Q3 2020, while Tesla delivered close to 140,000 vehicles in the same period.
It is interesting to note that before its monumental growth in 2020, NIO’s sales and dwindling cash reserves were inching the company toward balance sheet doom. However, as consumer perception changed from skepticism to opportunism, the startup turned things around. According to a Bloomberg report, this turnaround can be largely attributed to the $1 billion investment from municipal Chinese entities that the company bagged in April this year.
4. DiDi Chuxing vs Uber
Uber and DiDi have a long history. Uber exited the Chinese market after selling its business to DiDi in August 2016. In return for the sale, Uber obtained an 18.8% stake in DiDi, which has subsequently diluted to about 15% following a new funding rounds for the Chinese company. Uber is currently mulling over selling its entire stake in the SoftBank-backed startup, which is worth about $6.3 billion.
While DiDi was initially focused on the Chinese market, the tech startup is now pushing back against Uber on the global stage. As announced in April, DiDi’s three-year goals include reaching over 100 million daily trips globally, 800 million monthly active users, and an 8% penetration rate in the home mobility market by 2022.
These goals, while seemingly impressive, were branded as ‘vague,’ ‘uninspiring,’ and ‘ambitious’ by a Reuters report, which added, “Didi’s plan seems out of touch and suggests it isn’t looking in all its mirrors.” The report refers to DiDi’s lack of acknowledgement of how COVID-19 has affected consumer habits, and its apparent ignorance of predictable future changes in consumer travel preferences.
It is important to remember that DiDi has ventures in financial services, autonomous driving, ecommerce, and more. It is, therefore, a significant contender to its U.S. counterpart, and may triumph by virtue of diversification if nothing else.
While DiDi is currently valued at $53 billion, it is in talks to go public in Hong Kong next year at a valuation of $60 billion.
5. WeChat vs Facebook
Facebook is the largest social media platform globally, with over 2 billion users. But its user base is almost totally devoid of Chinese citizens, who account for over 18% of the world’s population. Facebook was blocked by Chinese authorities in July 2009, along with Twitter (after a riot in Xinjiang to prevent activists from communicating using the platform).
In its absence, Tencent’s WeChat and QQ have become the Chinese social media platforms of choice. WeChat has come to be classified as a ‘superapp,’ since it not only offers instant messaging, but also online games, shopping and financial services, much like Facebook. For Chinese companies and startups, the platform has become indispensable for announcements and marketing.
It is important to note that some also refer to Renren as China’s Facebook, although Tencent-owned WeChat remains the largest social media platform in China.
While the Chinese contenders remain smaller in size than U.S. big tech companies, they show great potential. Many factors remain obstacles to these companies’ global ambitions, perhaps foremost among them a general distrust of Chinese entities (Huawei is a good example of this). Yet, with time and a slight rebrand, they might grow to pose a serious challenge to the established players of the West.
As Uber’s Eric Allison once said, “Strategic planning must consider who our future competitors will be, not only who is here today.”
In short, U.S. tech giants should heed these potential Chinese challengers with caution – and put strategies into place for the day when their market leadership is openly challenged.
Header image by Denys Nevozhai on Unsplash