Chinese Digital Capitalism

FROM CHINA MOBILE TO BAIDU, FROM LENOVO TO MUSICAL.LY, WHO ARE THE BIG NAMES OF CHINA'S HIGHTECH REVOLUTION AND WHERE THEY ARE HEADED

by Elisabetta Marafioti, Dept. of Management and Technology, Bocconi
Translated by Alex Foti

Gone are the times when China was simply considered “the workshop of the world”, i.e. a manufacturing economy specializing in low-cost products. The internationalization of Chinese multinationals, especially in hi-tech industries, is changing this perception. Lenovo's acquisition of Motorola in 2014 was just one many acquisitions recently made by Chinese technology companies overseas. China Mobile has invested more than $1 billion in Pakistani and Thai telcos; Lenovo spent $2.3 billion buy IBM's low-end server business in the US; Huaxin acquired 85% of French telecommunications company Alcatel-Lucent; Alibaba spent $220 million for a 20% stake in the mobile video app Tango, and participated in a $250 million round of investment into Lyft, the ride-sharing app which is Uber's major competitor in passenger transportation. And we could add to the list Baidu's stake in Uber and its opening of a research and development center in Silicon Valley thanks to a $300 million investment.
 
The motivations that have pushed Chinese technology companies to dramatically increase their foreign acquisitions are many: firstly, the search for resources that the country lacks, including natural resources; secondly, access to advanced technology and also the legal systems for the strong protection of intellectual property they find in the West. Chinese companies with state-of-the-art technology can thus choose to develop new patents abroad, thus bypassing China's shaky system of intellectual property rights. This is matched by the availability of large financial reserves to be spent abroad, also benefiting from the effects of the crisis which has made international targets more accessible. Moreover, since 2010, the Chinese government has progressively reduced constraints on foreign investment made by Chinese companies, especially if they are privately owned (foreign investment by state-owned enterprises has been ongoing since 1999 with the so-called “going out strategy”). This measure has made its impact felt, if we consider that 95% of China's investment into Internet-based industries is made by private companies.
 
When investing overseas, Chinese tech enterprises buy stakes in foreign companies to enter new markets, absorb profitable technologies, talents and skills, or simply diversify their investment portfolios. In many cases, starting from a very competitive domestic market, they adapt their products abroad to conquer local market, expanding bothi in developed and developing markets. In 2012, the Chinese Internet media company Tencent invested $ 63.7 million in KakaoTalk, a Korean mobile messaging application. Unlike many messaging services, KakaoTalk has successfully developed monetization strategies that include emoticon and game offerings, which have already been introduced in Tencent's hugely popular messaging service, WeChat.
 
Tencent's acquisition of foreign gaming companies, such as Riot Games and Epic Games, allowed the company to appropriate game franchises that are highly successful in the US and could be introduced into the domestic market with some adaptations. The acquisition of a stake in the Finnish company IndoorAtlas suggests that Baidu is also interested in studying abroad. IndoorAtlas is a state-of-the-art mobile app that allows you to map and navigate indoor spaces, and find objects and people. Such technology could have great potential for Baidu, which controls about 80 percent of the mobile search market in China and just over half of the market for digital maps. And this move can be seen as part of a larger trend whereby China and its tech companies are trying to surpass the US in digital innovation.
 
Emblematic is the case of Musical.ly. Developed in China and now estimated to be worth $500 million, it is one of the most fashionable apps in the world today, downloaded by over 100 million Western teenagers; it is believed that Musical.ly is doing for music videos what Instagram did for pics. Adolescents share short videos where their lips are synced with popular songs. Many would be probably surprised to learn that the application is run by Chinese engineers, who work on it 24 hours a day from their offices in Shanghai. But a bigger surprise would be to find out that such international success follows in the tail of domestic flop in China, where students, unlike their Western peers, do not have free time in the afternoon to navigate social media. Could this be the first sign of international conquest by Chinese media companies?

Read More on this topic:
Andrea Colli, China Inc: The Celestial Empire Is Changing Direction
Dino Ruta, China's Soccer Strategy
Dialogue between Italy and China is an opportunity for all concerned. Interview with Marco Tronchetti Provera
Andrea Ghizzoni, I Can Tell You Why Tencent Chose Italy to Win Over Europe
Rodrigo Cipriani Foresio, When Alibaba's Jack Ma Told Me “Take Your Time”
Emanuele Francia, How I Help Chinese Companies Acquire Expertise
Kelly Chen, The Reasons Behind China's Successful Expansion
What Our Country Can Give You