As it takes full control of ChinaHR, Monster thinks it can avoid the struggles other U.S. Internet companies have experienced in the country
There's no shortage of U.S. Internet companies that have failed to replicate their successes at home in Chinese cyberspace. Despite throwing considerable resources at its Chinese-language operation, for instance, Google (GOOG) is a distant No. 2 in online search (BusinessWeek.com, 8/30/07) behind local champion Baidu.com (BIDU). In online auctions, eBay (EBAY) threw in the towel (BusinessWeek.com, 12/19/06) in December 2006 after failing to dislodge the market leader, Hangzhou-based Taobao, and joined forces with Hong Kong billionaire Li Ka-shing's TOM Online. In instant messaging, Microsoft (MSFT) lags far behind local rival Tencent. Most recently, News Corp.'s (NWS) MySpace has had a disappointing performance in its attempt to export its social-networking model to China.
Edward Lo, the top China executive for online recruitment company Monster Worldwide (MNST) knows all about this sorry track record, but he says those failures won't deter him and his colleagues. In a sign of their confidence, Monster on Oct. 8 announced it was taking 100% control of ChinaHR, one of the top online recruiting companies in the country. Monster, which already owned a minority stake in the company, is paying $174 million for the remaining 55% of the Beijing-based ChinaHR.
Why is Lo so confident that Monster can avoid the traps other U.S. e-commerce powerhouses faced in China? Demographics. With some 70 million college graduates a year, China has a strong demand for online recruitment, he argues, and Monster can capitalize on that. "The key thing is, we are in the right space," says Lo, a former executive at AIG (AIG) who joined Monster in January.
Net-Savvy Job Seekers
Another plus: China's young people are extremely savvy about using the Net, he says. Chinese college students spend a lot of their time playing online games, sending instant messages, and participating in social networks. So it's only natural that young Chinese will turn to the Internet to find their first jobs out of school. "You have a young generation. When they start thinking of careers and jobs, obviously they go to the Internet," says Lo. And while China already has more Internet users than any other country, with 260 million Chinese online, the potential for growth is large, since only 15% of the country's population is connected. "This is the generation that's growing by leaps and bounds," Lo says.
Still, there's good reason for caution. Ted Dean, president of Beijing-based market research firm BDA China, says big U.S. Internet companies have a "checkered past" investing in China and trying to replicate in the Chinese market the success they had at home. "It's hard to come up with a successful example of an American Internet company that has pulled that off yet," he says.
The problem, says Dean, is often an inability for U.S. executives to understand how to connect with Chinese consumers. "A lot of these things are thought of as technology companies because they are on the Internet, but in many ways [the business] is consumer services," he says. "The assumption is U.S. companies come in with powerhouse technology that will steamroll the industry. But in some cases that's not the deciding factor in the market. It's understanding the consumer and being able to adapt to consumer tastes here."
Combining Two Successes
Lo says that won't be a worry for Monster. The company first invested in ChinaHR in 2005 and has been closely involved with its Chinese partner since then. "It's a long-lasting kind of relationship," he says. "We know the people. We like the people. We are just combining the two success stories into one."
While Lo says the Monster-ChinaHR combination will become tops in the market, it faces plenty of competition. ChinaHR, launched eight years ago, is No. 2 in the recruiting market, with 24% share, behind Nasdaq-listed 51job (JOBS). Another rival, Zhaopin, received a $105 million influx of cash in July thanks to investments from Australian online recruiting specialist SEEK, which owns 43% of the company, and Macquarie Group, which owns 29%.
According to Beijing-based market research firm Analysys International, the online recruiting market in China is small but growing. In a report released in August, Analysys put the size of the market at just $44 million in the first quarter of 2008. However, that was an 8% increase over the previous quarter and a 38% increase over the same quarter of 2007. According to Analysys, 51Job has 29% market share, ChinaHR has 24%, and Zhaopin 15%.