Graveyard of Empires

There is a perception that the Chinese market is generally inaccessible to non-Chinese companies. As Elad Gil puts it:

“Basically every other tech giant has been blocked and then cloned in China, with early operations shutting down… For most companies, a China strategy ends up being a painful, money-burning fail”.1

As of November 2019, there is only a short list of US tech companies who can meaningfully consider themselves as having succeeded in China:

  • Uber (with its 20% ownership of DiDi)
  • Qualcomm and Intel (their chips being indispensable in smartphones and PC respectively)
  • Airbnb China2
  • Apple

Then, there is a longer list of companies for whom revenues from China comprise approximately a single-digit percentage point to their overall revenues. Such companies include:

  • Amazon’s Kindle and AWS businesses 3
  • Microsoft
  • Atlassian
  • Workday
  • Oracle
  • IBM

Then, there is a much longer list of US tech companies whose services are simply blocked in China, of which Google and Facebook are the two most notable.4

Two separate but related reasons explain this.

First, on top of the Great Firewall, the Chinese government has rolled out other Internet-specific regulations, such as the China Internet Security Law in 2016, an e-commerce law in 2018 and so on. These regulations are motivated by a mix of social stability considerations, protectionism, industrial policy, and subject matter-specific concerns.

The official line is foreign companies are welcome as long as they comply with Chinese laws and regulations, but the truth is certainly more complex, as evidenced from Google’s decision to exit and subsequent attempt to re-enter the Chinese market and Facebook’s many futile attempts to enter the Chinese market.

Broadly, foreign tech companies with business models that touch atoms rather than purely transmit bits and whose customers are enterprises rather than consumers have a better chance of surviving these regulations, though not necessarily the Chinese competition.

Second, the competitive landscape of China’s tech sector has also changed significantly over the years. In the early days of Chinese Internet, the business models of many Chinese tech companies were simply clones of US tech companies, whose services might be banned in China.

However, such protectionism did not meaningfully reduce the intensity of competition as the size of the market opportunity in China quickly attracted many domestic entrants. Companies that failed to adapt to the rapidly shifting Chinese market did not do well.5

Subsequently, in part because of the opportunities unlocked by the advent of mobile computing, the Chinese tech and venture capital ecosystem has matured and has proved capable of successfully funding start-ups from founding to IPO, much like in Silicon Valley. As such, US tech companies looking to enter the Chinese market find themselves up against domestic competitors that are well-funded and well-connected, understand local consumer preferences, and have greater skin in the game for whom succeeding in the China market is a matter of survival and not mere “global expansion”. 6

China’s massive consumer market and mobile-first approach to computing have also led to a proliferation of companies with no US counterpart and their products and business models are now being emulated by the rest of the world. Short-video and live-streaming apps are examples that come to mind most readily.

To sum up, China’s strict regulations and massive consumer market have given rise to a parallel tech ecosystem that is mostly distinct from the Western, US-dominated one.

  1. Elad Gil (2018) High Growth Handbook. Stripe Press. ISBN 9781732265103.[]
  2. I was unable to find authoritative statistics on how much of Airbnb’s revenues come from China—in the aftermath of COVID-19, there is now much more that is uncertain about Airbnb’s business.[]
  3. Amazon shut down its China marketplace business in April 2019 after being out-competed by Chinese retailers.[]
  4. However, it should be noted that both companies sell good amount of ads to Chinese customers trying to reach overseas consumers.[]
  5. For example, Baidu and Renren are the original Google and Facebook clones of China and both have fallen significantly from their prime.[]
  6. See e.g. the early competition between eBay and Alibaba.[]