Under The Impact Of Foreign Internet Companies, China’s Internet Companies Opportunities And Challenges

Introduction

In this globalized business environment, firms are expanding their business across the world to get access to more customers and achieve competitive advantage in the market. The expansion of the business in international markets enables the firms to increase financial performance and develop market share significantly. But at the same time, it is not easy for them to expand their business internationally as they face several challenges that cause hurdles for them to be successful in foreign countries (Jiang, 2015). The Chinese economy is strongly growing and creates better opportunities along with the challenges for the domestic as well as foreign businesses. In relation to this, the presented essay focuses on the pros and cons of the foreign and domestic internet companies in China. The thesis statement of this essay is to evaluate the opportunities and challenges for Chinese Internet companies both at home and abroad.

Opportunities and challenges for Chinese internet companies in China

It is the big opportunity for Chinese Internet companies due to favorableness in terms of language aspects. These firms have sound knowledge of local language and frame their business strategies effectively. It is troublesome for the foreign internet companies to design their online platforms in local languages as it consumes extra resources in terms of time and cost and workforce. It increases the cost of operations for the foreign internet companies in the Chinese market. In concern of this, Ribbink & Grimm (2014) also stated that it is required for the firms to make content authentic and user-oriented and country-specific to access to the customers. But it is complex for the foreign internet companies to integrate these language differences at each and every part of the business (Samaha, Beck & Palmatier, 2014). Moreover, cultural differences between China and foreign countries are also a significant challenge for foreign internet companies while opportunities for the Chinese firms in China. There are significant differences in the culture of China and other foreign countries that cause a challenge for the foreign companies to design the marketing practices accordingly (Deresky, 2017).

At the same time, it is the opportunity for the Chinese Internet companies to develop their strategies on the social media effectively in China. In the context of the importance of social media in strategic development, the Social Media Integration Theory Model also holds that social media plays an important role in exchanging and sharing information to develop brand image among the customers significantly (Chen, 2012). Therefore, both foreign and Chinese internet companies are investing more in social media to promote their services (Sasaki & Yoshikawa, 2014). But at the same time, the social media environment of China is favorable for the Chinese internet companies but it is challenging for the foreign internet companies in China. It is because China is the world’s largest social media market, but it is different from its counterparts in the foreign countries. In China, social media including Facebook, Twitter, and YouTube does not exist as foreign companies cannot use their own common social media platforms to promote their services. The domestic firms in China have Chinese social media sites Renren, Sina Weibo, microblogging with multimedia, video sharing by Youku, search engine Baidu, etc. (Pan, 2017). All these social media sites are used by the domestic internet firms to promote their services effectively. However, to access these social media platforms, foreign companies need to make more investment for the development of local social media platforms in relation to time, cost, and expertise (Men & Tsai, 2013). It also causes an increase in the operational costs of these firms and makes it challenging to use this media in the promotion. In addition, it is not easy for the foreign internet companies to access to customers worldwide by using the Chinese based social media sites that reduce the effectiveness of their marketing efforts (Chiu et al., 2012).

On the other hand, government challenges are also considerable for the foreign internet companies in China due to censorship regulations. The Chinese government has imposed restrictions on ownership by foreign internet companies due to the concern of national security and protection of domestic industries (Jiang, 2015). This policy has been a challenge for the foreign internet companies and enforced them to adopt variable interest entity (VIE) structures. This structure allows them to divide their business into a domestically-owned operating company actually conducting business and a holding company registering overseas (Chen et al., 2014). But at the same time, this censorship has caused better opportunities for the Chinese internet firms in the domestic market (Kou et al., 2017). But at the same time, the Chinese government is also creating better opportunities for the Chinese internet firms by investing more in infrastructure development including networking, technologies, research, and transportation. High investment in public sector enables private businesses to find out the opportunities and penetrate the market effectively.

China provides a lot of opportunities for both domestic and foreign internet companies due to increasing number of internet users in China. The Chinese consumers spend more time online as better knowledge of domestic social media platforms by the foreign companies can be significant to access more customers in China (Nathan, 2015). The online population of China is the largest in the world and has touched 772 million at the end of 2017. The growth in the number of internet users is 5.6% compared to 2016 indicating a big opportunity for the internet companies in China. The internet availability rate of China has reached 55.8% that is more than the global average of 4.1% (The Economic Times, 2018). It means internet companies get a big customer base in China in coming time showing large opportunities for the business.

Besides, the presence of competitive foreign firms is also a major challenge for the domestic firms in China. It is because the existing giants in the internet industry are focusing on high investments in technologies that causing high competition in the industry. High competition among the internet firms in China has also an adverse impact on their market share. In addition, changing economic perspective in China causes high challenges for the Chinese firms to sustain in the market. It is because recently, the growth of Chinese economy is declining consistently that has raised the issues and challenges for the domestic internet firms in the market (Kou et al., 2017). Changing economic scenario of the country has affected the purchasing power and consumption of internet services that also create a challenge for these firms in the local market. Apart from this, lack of customer loyalty is a significant challenge for the Chinese firms that may cause failure in the international market. It is mandatory for the Chinese internet firms to develop trust among the customers regarding their brand and implement a long-term strategy to brand building if they want to be successful in the global market. The businesses in China relied heavily on price competition that provides them the extra edge over foreign players investing in research and development, marketing and brand building. At the same time, production costs are rising consistently in China due to increase in property prices and rents and labor wages (Lardy, 2014).  In the presence of foreign competition, the Chinese firms can reduce the pricing and quality perception gap between their products and foreign companies’ products by focusing on quality aspects and adopting targeted marketing strategies.

Opportunities and challenges for Chinese internet companies abroad

Increasing globalization and free trade agreements between countries have raised the business opportunities for the firms in internal markets. The Chinese firms are also trying to gain their footsteps in the international markets due to liberalization and globalization.  There are several business opportunities for Chinese internet companies abroad. There are several opportunities outside of China for the Chinese internet firms as they are looking for investments and acquisitions abroad (Horwitz, 2015). Through this, they are oriented to controlling stakes in foreign companies to access new markets. The access to new markets enables the firms to acquire new technologies and capabilities along with the talented personnel to diversify their investment portfolios. However, access to new markets offers both high risks and high returns. In China, there is high competition for the domestic internet firms that have enforced them to go out and expand their business in the international market (Li et al., 2012). Through this, they can diversify their business and maintain their margins.

Asian markets including Southeast Asia provide better opportunities to the Chinese internet companies due to having similarity in demographic and geographic aspects. Even, Alibaba, Tencent, and JD.com are focusing on the expansion and growth in Southeast Asia through investment and acquisition of synergistic technology companies with wide distribution, extensive infrastructure, and large user base (Dollar, 2017). Apart from this, it is not easy for the Chinese internet firms to cater the needs of the customers from different countries across the world with the same internet platforms. if a Chinese internet company is going abroad then it will need to be master in a different world of services like the better understanding of Facebook and Google’s platforms and ads, not Tencent’s and Baidu’s services. However, it is also challenging for the Chinese firms to get the better position in the foreign markets (Deng, 2012). Culture shock is a significant challenge for the Chinese firms as there are considerable differences between the Chinese culture and cultural aspects of other countries across the world. There is a great impact of cultural differences on customer choices and employees interests and expectations. Therefore, it is not easy for the Chinese firms to develop the understanding of cultural differences and get success (Lardy, 2014). Apart from this, legislation and regulatory framework is a big challenge for the Chinese internet firms in the Western countries. For instance, companies are subject to federal, state and local laws in foreign countries that make it difficult for them to establish their business successfully. In addition, China and other foreign countries have very different accounting systems and management methods. Such differences cause difficulties for the Chinese firms to manage their operations in the foreign countries. Additionally, selection for a location is also a significant issue for the Chinese firms in the international market (Cavusgil, Ghauri, and Akcal, 2012). For instance, the Chinese firms are likely to invest in southern US states due to cost-effective resources like energy prices, lower tax rates, and weak labor unions.

Development of foreign Internet companies in China

Clearly, the regulatory regime by the Chinese government in relation to the Internet especially social media is restrictive for the foreign internet companies. After the exit of Facebook and Twitter from China in 2009 and Google in 2010, other foreign internet companies have achieved success in China in recent years. These firms have handed over data and control that is a big reason behind their success (Heilmann et al., 2014). In order to develop business in China, it is required to work according to the Chinese government by allowing it to censor content and share access to its data. Some companies are doing well in China by adopting the Chinese context. For example, LinkedIn entered the Chinese market in 2014 by collaborating with the Chinese site Lingying and grew its business largely (Dollar, 2017). It shows that the foreign company adapted the Chinese context by localizing their business to make partners with local firms to understand the Chinese market. Another example is Evernote that also got success through meaningful localization by hiring locally and employing localized marketing strategies. It means the adoption of local business environment can be opportunistic for the foreign internet companies in China also. Apart from this, Uber alike Evernote and LinkedIn also allows the Chinese government to access and censor its data as it stores data in China for its users. Based on this, it can be stated that proper adoption of localization strategy by the foreign internet companies has made them successful to expand their business in the Chinese market (Horwitz, 2015). They are successfully operating in the Chinese market due to localization strategy. Apart from this, they are also adopting diversification strategy by merging or acquiring the local firms which have the local market knowledge and access to the local resources. This strategy enables the foreign internet firms to acquire the local market effectively through the better understanding of the local customers (Zhong et al., 2017).  The most of the firms are seeking to invest in China because China is a growing economy and provides several cost-effective resources. The accessibility of the cost-effective resources including labor and technologies attract the international firms to invest in the country. Apart from this, high infrastructure by the government of China also creates better opportunities for the international firms to invest in the country. The foreign internet firms have highly invested in the country with the focus on the local business environment that has helped them to get high success in the market (Chiu et al., 2012).

Development of China’s Internet companies in foreign countries

Previously, China’s big internet firms were dismissed by the investors in the foreign countries as these firms tried to copy western products and services. Apart from this, they did not diversify their business in past that caused their failure in the foreign markets. But recently, China’s internet firms are also trying to access foreign countries after getting huge success in the domestic market (Jiang, 2014). China’s internet firms are different from their western counterparts because western companies focus on few core areas, whereas the Chinese internet firms typically focus on from cloud computing to digital payments. Other than political censorship, the internet market in China is lightly regulated. The foreign companies like Apple, Google Facebook, etc. are facing scrutiny that is causing opportunities for the Chinese businesses to expand in foreign countries. Apart from this, the Chinese internet firms can be successful in the foreign markets as the Chinese state-dominated economy is inefficient in terms of physical infrastructure (Zhong et al., 2017). For example, Tencent and Alibaba are collaborating to left Baidu far behind. The key purpose of internet giants of China is to go global by developing partnerships with startups or investing in technology. It enables them to access the global market and expand their market share significantly through the integration of talent, technology, and capital.

China’s internet firms are focusing more on emerging Asian markets due to sharing similar demographics to China, where young in urban areas with rising disposable incomes are major online customers. Chinese internet firms like Baidu, Alibaba, and Tencent are (BAT) are oriented towards the growth in neighboring countries through acquisition and Greenfield investment of technologies (Lardy, 2014).  Due to increase in retail spending globally, these firms are investing heavily in merging online solutions with offline solutions. Alibaba is the leading internet companies in China and has captured the attention as it is rapidly growing across the foreign countries.  It along with Baidu and Tencent are investing heavily to make business expansion into new markets and new product categories (The Economist, 2017). BAT is usually performing better than their western equivalents in terms of the size of audiences and depth and scale of their businesses. For many years, BAT have invested in partnership deals and strategic alliances within China and abroad. Due to the expansion of China’s internet market, the domestic firms are expanding their business to access new customers abroad and achieve the global growth. There has been a shift in strategies of the Chinese internet firms as they have more oriented to strategic focus and have started to adopt different approaches to grow their business internationally. Currently, they have approached in different markets than their core business. For example, Tencent operates in social media business; Alibaba operates in e-commerce while Baidu has the search business (Heilmann et al., 2014).  But now, they have invested in content through their video platforms and live streaming and entertainment. Apart from this, they are also investing in their ad platforms, payment platforms, as well as social platforms to expand their business in the foreign market successfully. All these firms are not focusing in one area as they are working on diversification to go international. They are investing in product portfolio by focusing on product ranges including game, payment, music, entertainment, travel and shopping and food ordering (Deresky, 2017).  Therefore, it can be stated that the Chinese internet firms are focusing on diversification strategy to develop their business in foreign markets. Some of the companies are also focusing on the different approach to get success in the foreign markets. For instance, Musical.ly focused on linking itself to the most popular social networks like Instagram, WhatsApp or Facebook, etc. in the USA (Ribbink & Grimm, 2014). It helped the firm to grow naturally to Europe, USA, and Southeast Asia. At the same time, Tencent, Alibaba, and Baidu have all opened offices in the USA through investments and acquisitions to gain footholds overseas. During last two years, Alibaba has invested in two online firms, Snapdeal and Paytm in India to get footsteps in emerging markets and acquired Lazada, an e-commerce site well-known in Southeast Asia (Men & Tsai, 2013). On the other hand, Tencent is more aggressive in expanding its business in foreign markets as it has invested in mobile games with the largest overseas deals.

Besides, there are some challenges related to recruitment and selection in foreign countries. The Chinese internet firms basically adopt their culture largely by integrating Chinese rituals and beliefs in their working environment; it is difficult for them to come out from such cultural integration as they feel difficulty in recruiting and selecting the people in foreign countries who have the better understanding of their local culture. The differences in cultural aspects make it challenging for the Chinese internet firms to find the most suitable candidates to run their operations overseas (Deresky, 2017). Apart from this, customer loyalty for the Chinese products is at stake because the Chinese products and services are not trustable across the world due to their focus more on price rather than quality aspects. In addition, the Chinese market also provides counterfeit products of original brands in abundance that raises the questions on the quality aspects of its products and services across foreign markets (Klossek et al., 2012). Therefore, lack of such business aspects causes difficulty for the Chinese firms to maintain customer loyalty.

Overseas Chinese’s help and shortcoming of Chinese Internet companies in their overseas development

The reason behind the failure of Chinese firms overseas is obvious as Chinese firms focus on a Chinese consumer rather than the people of foreign countries. They rely on personal level approaches to gather the market information that lacks of systematic and scientific market research performed by professional western research companies which understand the local market. It causes challenges for the Chinese Internet firms to understand the local needs and preferences and meet them efficiently causing customer dissatisfaction and leads to failure of the business (Liu and Woywode, 2013). It is better to understand the cultural differences between Chinese culture and culture of other countries to develop the better understanding of the needs and preferences of the local customers. Through this, the Chinese Internet firms can better cater the local needs and get success in the foreign market.

Apart from this, these firms do not realize that it takes time to position their business in the foreign countries as they are unwilling to spend time and money. the increasing industrialization, urbanization, and modernization in less time period have encouraged the Chinese firms to think that everything can be done and fast through hard work (Shen, 2015). But the success in the overseas market takes time to understand the market needs and fulfill them effectively. Apart from this, the major focus of the Chinese firms is on the end outcomes i.e. making money as it causes the loss for them in terms of professionalism and quality aspect that is not better to achieve the sustainable growth in the foreign market. Without the focus on professionalism, it is difficult for any business to get success in the market for the longer period. It is required for the firms to focus on quality and innovation aspects while launching the new business in the foreign market. By doing this, these firms can get success in the international market due to trust development among the customers (McFarlin and Sweeney, 2014). Ideally, the Chinese people like long-term success but the changes in social, economic and political frameworks of the country in past century have caused changes in long-term thinking people. In this competitive business environment, the Chinese firms entered endless price wars and are providing the products and services without the focus on quality, which is required to sustain them in the long term. Therefore, the Chinese internet firms should think about long-term success rather than short-term success because it can help them to sustain in the foreign market for the longer period (Jiang, 2015). Moreover, Chinese internet firms are also accused of just telling the users rather than listening to users. They are inefficient in supplying the necessities and adopt one-sided propaganda as they skipped the vital steps to develop business in the Western countries (Allen et al. 2012). Furthermore, the Chinese internet firms are failed to make the differentiation in their products and services that is also a big shortcoming in their offerings and cause of their failure in the foreign markets. Lack of differentiation from the foreign counterparts is significant in the failure of these firms as they offer similar types of products and services to the customers that are not preferred by the customers regularly. It is mandatory for the firms to integrate differentiation strategy in their business operations to develop a different position from the foreign internet companies. Besides, the lack of proper communication strategy is also a big shortcoming of the Chinese internet firms in the international market. The Chinese firms are likely to rely on phone calls and face-to-face meetings rather than e-mail (Cunningham and Fröschl, 2013). However, this may be the part of the Asian culture as they are more focused on personal communication instead of technology-based and less interactive email services. The integration of communication technologies makes it possible for the firms to make the communication faster and more effective to get the desired results. Through advanced technologies, these firms can get access to the audiences and users effectively and convey their messages to achieve better results. Apart from this, lack of effective recruitment strategy is also a shortcoming of the Chinese internet firms as they want everything under their control, so they prefer to hire or appoint Chinese people in foreign countries to operate their business (Day, 2016). But there is the need for the firms to hire the talented people with local knowledge in the foreign countries to run their operations smoothly overseas. It is because there may be language barriers and different business values that may hamper the business operations in the foreign market. Along with this, the Chinese firms are unable to adjust to transparent management practices in developed economies, which is also a major cause of failure of these firms (Deresky, 2017).

China’s culture, especially in Internet culture, is quite different from the culture developed in the West. There are significant differences in needs and desires regarding the online services between China and other foreign countries. If the firms ignore such aspects while designing the global strategies, they are usually doomed to failure. In addition, they have shortcoming related to picking the wrong partners and ignoring the right local partners (Kou et al., 2017). It is the major concern for the Chinese firms to have right local partner companies as they run their own competing services leading to conflicts of interests while operating and promoting their partners.

China has failed to develop its own strong brands and the Chinese government and businesses are focusing on this lacking area to address the challenges due to shrinking global markets and decline in the local economy (Dollar, 2017). The current economic slowdown in China is a big challenge for the domestic as well as foreign internet firms in the market. At the same time, rapid transformation in China raises the need for the firms to evaluate the marketing strategies regularly and how they can engage the customers outside of their local market (Jiang, 2015). The changes in consumers’ needs and preferences at global level raise the need for the Chinese internet firms to design their products and services accordingly and increase customer satisfaction.

It is also the shortcoming of the Chinese internet firms that they are not efficient to develop consumer trust as lack of consumer trust in Chinese products and services in local and global markets is a significant problem. It inhibits their brand development and causes a reduction in their revenues and profits. For example, several Chinese online brands are perceived as lower quality than the foreign brands. The higher-end shoppers including educated professionals prefer to buy foreign brands. However, big Chinese internet firms like Baidu, Alibaba and Tencent have performed very well in China but due to regulations for the foreign brands allowing the Chinese firms to grow without competition at home (Dollar, 2017). For example, Google, Facebook, and Twitter are blocked in China that created opportunities for Baidu, Alibaba and Tencent to grow their business in the home market. On the other hand, the Chinese firms can face discrimination in foreign markets due to political and cultural reasons. However, brands from Japan, UK, USA and European countries like Germany, etc. get more positive responses from the people (Deresky, 2017). So, it is crucial for the Chinese internet firms to address the challenges of creating strong positive image among the customers.

Conclusion

On the basis of the above discussion, it can be stated that there are several opportunities and challenges for the Chinese firms at domestic and global level. In China, there are regulatory reforms and changes that facilitated the opportunities for the foreign businesses also. But at the same time, regulations have causes restrictions for the foreign internet companies to expand their business in China. On the other hand, China’s large population, cultural diversity, increasing use of internet and online purchasing patterns provide better opportunities for the local and global firms in the Chinese market. In addition, the foreign internet firms have developed their business by focusing on innovation and quality aspects that provide them the extra competitive edge over the local firms in the Chinese market. Apart from this, they also face some challenges related to cultural differences and government regulations and economic perspectives of China that causes barriers for them to grow in the market. On the other side, it can also be summarized that the Chinese internet firms have not got exposure in the foreign markets due to more focus on the Chinese culture without considering needs and requirements of foreign markets. In addition, the Chinese internet firms need to focus on innovation and quality and develop trust among the foreign customers to be successful in the international market.

References

Allen, F., Qian, J., Zhang, C. and Zhao, M., 2012. China’s financial system: opportunities and challenges (No. w17828). National Bureau of Economic Research.

Cavusgil, S.T., Ghauri, P.N. and Akcal, A.A., 2012. Doing business in emerging markets. Sage.

Chen, S., Xu, H., Liu, D., Hu, B. and Wang, H., 2014. A vision of IoT: Applications, challenges, and opportunities with China perspective. IEEE Internet of Things journal, 1(4), pp.349-359.

Chen, Y., 2012. China’s relationship with Israel, opportunities and challenges: Perspectives from China. israel studies, 17(3), pp.1-21.

Chiu, C., Lin, D., & Silverman, A. 2012. China’s social-media boom. McKinsey and Company.

Cunningham, P. and Fröschl, F., 2013. Electronic business revolution: opportunities and challenges in the 21st century. Springer Science & Business Media.

Day, K.A., 2016. China’s environment and the challenge of sustainable development. Routledge.

Deng, P., 2012. The internationalization of Chinese firms: A critical review and future research. International Journal of Management Reviews, 14(4), pp.408-427.

Deresky, H., 2017. International management: Managing across borders and cultures. Pearson Education India.

Dollar, D., 2017. United States-China two-way direct investment: Opportunities and challenges. Journal of Asian Economics, 50, pp.14-26.

Heilmann, S., Rudolf, M., Huotari, M. and Buckow, J., 2014. China’s shadow foreign policy: parallel structures challenge the established international order. China Monitor, 18, p.28.

Horwitz, J. 2015. A new wave of US internet companies is succeeding in China—by giving the government what it wants. https://qz.com/435764/a-new-wave-of-us-internet-companies-is-succeeding-in-china-by-giving-the-government-what-it-wants/

Jiang, M., 2014. The business and politics of search engines: A comparative study of Baidu and Google’s search results of Internet events in China. New Media & Society, 16(2), pp.212-233.

Jiang, Y., 2015. Cyber-Nationalism in China. Challenging Western media portrayals of internet censorship in China (p. 156). University of Adelaide Press.

Klossek, A., Linke, B.M. and Nippa, M., 2012. Chinese enterprises in Germany: Establishment modes and strategies to mitigate the liability of foreignness. Journal of World Business, 47(1), pp.35-44.

Kou, Y., Semaan, B. and Nardi, B., 2017, September. A Confucian look at Internet censorship in China. In IFIP Conference on Human-Computer Interaction (pp. 377-398). Springer, Cham.

Lardy, N.R., 2014. Markets over Mao: The rise of private business in China. Columbia University Press.

Li, P.P., Leung, K., Chen, C.C. and Luo, J.D., 2012. Indigenous research on Chinese management: What and how. Management and Organization Review, 8(1), pp.7-24.

Liu, Y. and Woywode, M., 2013. Light‐Touch Integration of Chinese Cross‐Border M&A: The Influences of Culture and Absorptive Capacity. Thunderbird international business review, 55(4), pp.469-483.

McFarlin, D. and Sweeney, P.D., 2014. International management: strategic opportunities & cultural challenges. Routledge.

Men, L. R., & Tsai, W. H. S. 2013. Beyond liking or following: Understanding public engagement on social networking sites in China. Public Relations Review, 39(1), pp.13-22.

Nathan, A.J., 2015. China’s challenge. Journal of Democracy, 26(1), pp.156-170.

Pan, J., 2017. How market dynamics of domestic and foreign social media firms shape strategies of Internet censorship. Problems of Post-Communism, 64(3-4), pp.167-188.

Ribbink, D., & Grimm, C. M. 2014. The impact of cultural differences on buyer–supplier negotiations: An experimental study. Journal of Operations Management, 32(3), pp.114-126.

Samaha, S.A., Beck, J.T. & Palmatier, R.W. 2014. The Role of Culture in International Relationship Marketing. Journal of Marketing, 78, pp.78-98.

Sasaki, I. & Yoshikawa, K. 2014. Going beyond national cultures–Dynamic interaction between intra-national, regional, and organizational realities. Journal of World Business, 49(3), pp.455-464.

Shen, X., 2015. Private Chinese investment in Africa: Myths and realities. Development Policy Review, 33(1), pp.83-106.

The Economic Times 2018. https://economictimes.indiatimes.com/news/international/world-news/chinas-online-population-climbs-to-772-million/articleshow/62726168.cms

The Economist 2017. China’s internet giants go global. https://www.economist.com/news/business/21721203-tencent-leading-acquisition-spree-alibaba-close-second-chinas-internet-giants-go

Zhong, Z.J., Wang, T. and Huang, M., 2017. Does the Great Fire Wall cause self-censorship? The effects of perceived internet regulation and the justification of regulation. Internet Research, 27(4), pp.974-990.

Appendix

Mind Map template

Research Log