Monday, May 4, 2009

Thank you very much for buying our Chinese competitors!

Li Guoqing (李国庆), the co-CEO of Dangdang China's largest online retailer of books, CDs and videotapes, said that if Dangdang's biggest competitor Joyo had remained Chinese he would have had a much harder life. Obviously, he is right. Joyo was the No. 1 in the market before. But since Amazon's acquisition, Joyo has been going downwards and lagged far behind Dangdang. Joyo is not alone. Eachnet shares similar experience. Eachnet used to be the No. 1 auction site in China with over 60% market share. However, Eachnet gradually became mediocre after being acquired by Ebay. The new Chinese entrant, Alibaba's Taobao entered the market and quickly surpassed Eachnet. Now Taobao has firmly established itself as the most popular online auction site in China and the gap between the two is growing. Foreign internet companies do not seem to adapt well in China. Need more evidence? Google is trailing behind Baidu while Yahoo is struggling.

Why foreign internet giants fail to win the competition against their Chinese counterparts? This is a question that many have tried to answer. I'm not going to do it here, but I have been keen to hear what those who have been personally engaged in the competition would say. Here are some of them.

The outspoken Li Guoqing ,once on a TV program, ridiculed Ebay by telling a story about Ebay's inefficiency. He says that once Ebay's Chinese team decided to change some Chinese fonts on Eachnet. The Chinese team could not do it right away. They needed to report to the US headquarter of Ebay to obtain an approval before they could actually do the change. The approval did not come soon and one China-based Chinese executive of Eachnet was very angry and threatened to resign. After all the farce, the change of fonts was finally done, which was not quick. I know the story sounds absurd and I am not sure if it is true. But from my personal experience with a foreign company in China, I tend to believe the story. If you have followed the news, Ebay and Tom formed partnership and Tom's former CEO Wang Leilei (王雷雷) became the CEO of Eachnet. When he began to work at Eachnet's Shanghai office, he was not impressed. He once said Eachnet's staff had the bad habit of doing every thing by emails, powerpoint files, etc. They did things in a less straightforward way. He thought they had gone too far, which was less efficient. Anyway, Wang himself failed to lead Eachnet out of oblivion and then quit. Another well known resignation from Yahoo China was Xie Wen (谢文). Xie, the former CEO of Hexun, was invited to lead Yahoo China as CEO by Alibaba's Chairman Jack Ma (马云). But after a meeting in the US with Yahoo CEO Jerry Yang, Xie decided to resign. His resignation was just about 40 days from his appointment. Rumors say Xie had not won the support he needed to change Yahoo China. The reason for his resignation has not been disclosed.

I assume the above does give a glimpse at why foreign internet giants stumble in China. Has any of them improved? I don't see it for the time being. Actually, those foreign internet giants deserve a big 'thank you' from their Chinese competitors for destroying those Chinese companies acquired.


Ramesh said...

Interesting Post. Many companies get it wrong and the trick is to get the best of global reach and Chinese practices. One example of a good success would be Procter & Gamble - they have built a very powerful China business beating many competitors.

Nice to visit your blog Hang - you write very well.

Hang said...

Ramesh, thanks for your comment. I agree that many foreign companies have achieved success in China such as P&G, HP and IMB, etc.

I think a number of foreign companies have not done real localization, which is more than just employing local people. It's more about empowering local people.