Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

It seems odd to imagine that any ambitious company would ignore the United States, the world's largest economy and home to the world’s biggest spenders. But for today’s and tomorrow’s generations of China’s Web companies, shunning the U.S. is exactly what they’re doing. And that is the right approach.

The country’s biggest Internet companies have built themselves into goliaths by riding the boom of Internet and smartphone use in China. Even with slowing economic growth, China’s tech companies have plenty of room to roam in their home country, and in India, Brazil, Southeast Asia and other population centers that aren’t the U.S. of A. Expansion won’t be a cinch, but these companies are battle-tested by a highly competitive domestic tech industry -- the likes of which most U.S. tech companies have never seen.

There are almost no examples of Chinese Web companies that have found success in the U.S. This is the result of both not needing to reach Americans to be successful, and a difficulty in finding a foothold in the U.S. if they tried.

One big reason to stay close to home: The scale of China’s consumer market and the companies' own market dominance are incredible. Nearly $400 billion worth of shopping transactions was conducted on e-commerce giant Alibaba last year, or double the merchandise volume of Amazon.com and eBay combined. Google takes a bit more than 70 percent of the total money spent on U.S. Web-search advertisements, according to research firm eMarketer, while Baidu has 80 percent of the market in its home country, China Internet Watch estimates. Xiaomi sells about 5 percent of the world’s smartphones, according to research firm IDC, even though nearly all the company’s sales are in its cutthroat domestic market, home to an estimated 1,000 handset companies. 

Market Heft
China's Internet titans are among the world's most valuable consumer technology companies. Market capitalization as of Nov. 13.
Source: Bloomberg

And even if China’s tech firms did want to dive into the U.S., they might not find it hospitable. Neil Shen, a Sequoia Capital partner and one of the most prominent investors in Chinese startups, says tech companies in China and in the U.S. have honed their products and cultures to meet the needs of the customers in their home markets. And that makes it tough for each country's tech companies to be successful in the home market of the other.

"It's going to be difficult for a Chinese company to fully appreciate the needs of a customer in California," he said.

There are a handful of interesting exceptions to the lack of Chinese tech companies with footholds in the U.S. Lenovo plunged in by acquiring IBM’s ThinkPad computer business a decade ago. A teenager in Des Moines may not know the name SZ DJI Technology, but he might be getting one of the company’s Phantom drones for Christmas. The Shenzhen company has become the world’s biggest consumer drone maker by revenue.

Selling gadgets, however, is a different game from the Web, where knowing what consumers want is even more essential. Alibaba’s struggles with its first U.S. e-commerce foray are instructive. The company agreed in July to sell 11 Main, a U.S. shopping website that Alibaba had opened just months before. Shoppers and merchants who sold through 11 Main complained it seemed like an “amateur” operation, as one business owner told Bloomberg News

China Rising
Chinese tech startups are focusing on their home market
Source: Bloomberg

That doesn’t mean Alibaba or other Chinese tech companies don’t want to make a splash in the U.S. eventually. It remains the world’s biggest stage, but hardly the only fruitful market. While Alibaba is happy to make money connecting Americans with Chinese manufacturers of men’s pants, U.S. consumers aren't a central plank of Executive Chairman Jack Ma’s goal of generating 40 percent to half of the company’s revenue from outside of China in the next 10 years.

The executive in charge of Alibaba’s global growth told Bloomberg TV that the company’s strategy is to help American companies reach the huge Chinese consumer market. Alibaba is also expanding its online shopping malls further into Singapore, Malaysia, Brazil and Russia. Likewise, Xiaomi has set its sights on India, Indonesia and Brazil. On-demand taxi company Didi Kuaidi has essentially stuck to its knitting in its home country, while U.S. rival Uber has made no secret of its ambitions in China, including plans to invest more than $1 billion there in this year alone.

Like Didi, most of China's other hot startups are honing their businesses in China. That hasn't hurt investors' views of their potential. CB Insights’ ranking of the 143 most valuable private tech companies includes 20 Chinese startups. No other country besides the U.S. has more than seven on the list. 

For U.S. consumers, it's a bit of a shame they won’t get to enjoy many of the smart or weird innovations cooked up in China’s hotbed of tech ideas. For China’s entrepreneurial generation, though, staying close to home is the right move. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net