1) the stories of Google and Baidu (NYT article also cached here).
2) Google aground in China, MySpace sailing for trouble? (via ESWN)
3) Google losing traction in China - China Herald
4) Economist on Alibaba
Trend in search engines market share in US and China
In both charts a bi-polarization trend is observed, i.e. the market leader is widening the gap. This is quite typical in the technology industry, as was demonstrated since the Win-tel era, and reached a susperstitious peak in the dot-bomb era when everyone rushed to reach #1, at all costs, with the MBA-student-naive superstition thinking first mover advantage. Of course, not all sectors follow this rule. There are a few pre-requisites
- The market leader need to be a well-run company, continue innovation is a must (e.g., google, microsoft)
- A well defined sector where similar business rules applies for all competitors (hard for the challenger to innovate)
- Users are fairly sticky and lazy to switch
- A highly scalable business model for all, such that the leader continues to have more resource to invest (due to its larger starting scale of revenue) -- a positive feedback cycle (borrowing the concept in electronic science)
- Shift in market rules is either slow, or inter-related with the choice of the market leaders. i.e. market leader has the clout to influence the shift in market place
The second question is related to one that NYT asked, what is so special about China?
- China is the largest (or potential largest) market outside USA (or larger than USA), scale-wise -- just see the number of internet users, so that much of the US model which could not be replicated elsewhere (e.g. smaller European and Asian countries) could be make profitable in China
- China market may have many aspects which are different than the US market (e.g. credit card and payment, consumer segmentation, geographic fragmentation), but it also has a lot of similarity. There is NO fundamental difference IMO.
- e.g., Consumer behavior in China also bears a number of similarities with the US: Chinese are more receptive (than Europeans) of tested models in US such as Walmart and Disneyland
- e.g. the importance of branding is doubly magnified in China market, as a result of inadequate consumer protection by the government
- The difference in these MNC cases boils down to one key factor, people. In all cases cited, yahoo, ebay and google alike, multinationals did not have the talent to manage the China business. No doubt Kaifu Li is a great scientist. But I am not sure if he is a great business executive, or that he was given such mandate by the people in CA. Google China may churn out some very innovative product for google worldwide, but it is much less likely to win the China market for google. (Ludington's said "running Google China from Mountain View, CA" here, in that Li was hired for running a research institute, not a real business)
- The google/yahoo phenomenon is not alone for the internet business. Other industries, such as PepsiCo (Consumer goods), pharmaceuticals (mostly all except Jansenn and SKF, especially Glaxo), had all experienced a long learning cycle (a decade) before turning profitable. A HK/Taiwan/Singapore ethnic Chinese manager, though fluent in Mandarin Chinese and familiar with western management skills, may not be the best choice. (e.g. Yahoo, Unilever, Glaxo, Microsoft in late 1990s). A reluctant ex-pat is the worst choice.
- How to succeed? Do not use the particularity of the internet industry as an excuse. Yes, times have changed, the Chinese managers are more competitive today than 10 years ago. I insist there is no fundamental difference. and
- Study the success stories of Janssen, KFC and P&G. Study the failure lessons of Yahoo, eBay, Glaxo and Whirlpool.
- Hire the right people. It does not necessarily have to be ethnic Chinese or Mandarin speaking (think Ghosn). Though experience in mainland and MNC are very important, many MNC have confused language ability (e.g. manager from Singapore, Taiwan) with experience in China market. The person needs to have the will and ability, and a clear goal to achieve.
- Do not micro-manage. But set very objective and measurable milestones to monitor progress. Change the China CEO before it is too late.