Thought Leadership

Journey to the East: Challenges of Tech Companies Expanding into China

June 24, 2019
Journey to the East: Challenges of Tech Companies Expanding into China

“Journey to the West” is a Chinese literary classic that depicts the challenges Buddhist monk Xuanzang faced in the seventh century AD during his pilgrimage to India. Based on a true story, the novel is a fantasy of Lord of the Ring-type adventures. The three superhero-type disciples of the monk assist their teacher in surviving danger and challenges throughout the journey. In the end, Xuanzang reaches the borderlands of India, successfully reaching his goal. Escalent wishes that our team can assist tech companies in their journey to the East to achieve their goal of expanding business in China. In this article, we will discuss the challenges some foreign companies have faced during their journey and see what lessons the rest of us can learn.

Samsung’s Lesson: Local Competitors Become Mature

For a long time in most countries, the smartphone market was dominated by two brands—Samsung and Apple. China was no exception. While Samsung is still the largest Android maker globally, it has almost completely lost China. In recent research we conducted with Chinese consumers, we found that Samsung is out of mind for most consumers. Statistics in 2013 and 2018 show that in merely five years, Samsung has been displaced from the top position to out of sight.

Analysts often conclude that this is best explained by the fact that the current generation of local Chinese device makers, namely the big four—Huawei, Xiaomi, Oppo and Vivo—have mastered both the technology to manufacture state-of-the-art phones as well as becoming more mature in marketing strategies. In our consumer research in the 1990s and 2000s we often heard sayings like “Imported products are just better.” Or, “Chinese products are good only because they are cheaper.” Today, such sentiments are rare. Consumers genuinely believe that Chinese-branded smartphones are not only less expensive but technologically more advanced and feature-rich than Samsung as well as Sony or LG. We now hear people saying things like: “The camera of [local brand] is undoubtedly the best. Heard that it has an AI chip in the phone.” Or, “I switched to [local brand] now after years of being loyal to [foreign brand].”

Samsung’s lesson tells us that the Chinese competitive landscape has changed. China now has its own brands participating in the race, and they are winning. Old strategies need to be revised as new players have come into the picture. China is no longer a blank canvas where a well-known international brand can charge premium pricing just because of its brand name.

Uber’s Lesson: When You Inspire a Competitor to Do the Job Better Than You

With its innovative business model, Uber was born to disrupt the taxi and transportation industry in the US. Despite controversies about its legal status, Uber has practically succeeded in beating its competition in many international markets. However, there are two big Asian countries where Uber tried to put its footprints on but ultimately withdrew: Japan and China. Japan is a possible topic for my next blog post, so I will continue to focus solely on China. In 2013, Uber first appeared in China and grew for a few years. It inspired the birth of local competitors Didi and Kuaidi (Kuaidi later merged into Didi). Then in 2016, the short-lived Uber China exited the market.

Analysts often conclude that Uber’s challenges in China came mostly from Didi, a powerful competitor. Didi was a start-up financially backed by Tencent and Kuaidi was financially backed by Alibaba. Funded by the cash-abundant internet giants, Didi and Kuaidi employed a high-value subsidy marketing tactic. The two firms issued significant subsidies and coupons to riders and drivers that caused a large number of frauds. While Uber also had deep pockets, the subsidy warfare burned a lot of its fuel. In addition to financial pressure, Didi also had a cultural advantage. It better understood the needs and desires of Chinese consumers. One example is that while Uber was mostly a ride-sharing service using amateur drivers, Didi offered different options including professional chauffeurs at the luxury end and carpooling at the budget end. This spectrum of options matches the high heterogeneity of China’s socioeconomic classes. Chinese consumers gradually grew to use Didi and drop Uber. We used to hear things like “The design [user interface/menu structure] of Chinese apps are more up to what the Chinese people need.” Or, “I just feel that apps made by Chinese people feel more suitable for the Chinese to use.” Didi’s story is a familiar one. Remember the dot-com era? When eBay was up and coming, it entered China in high spirits. Then it left because it lost the battle to what it inspired, the local equivalent called Taobao. Amazon hung in there for years but announced earlier this year that it is exiting China.

Uber’s lesson tells us that one must be aware that Chinese start-ups can quickly adopt an innovative business model from the US and use their local background to defeat a foreign innovator. A foreign tech brand must strive to localize itself enough to be adopted or even preferred by Chinese consumers or businesses. And this localization task is not an easy one.

Google’s, Facebook’s and Twitter’s Lesson: Is It a Level Playing Field?

Stories of how US tech giants Google, Facebook and Twitter are banned in China need no introduction. Due to tech firms’ nature in enabling information exchange and social networking, these companies (see full list here) are considered unacceptable in China.

Apart from political sensitivity, some analysts believe that Google, Facebook and Twitter were disqualified from the game partly because the Chinese government wanted to grow China’s own tech private sector. The playing field was designed to not be level. Some analysts found that the Chinese government has been favoring state-owned enterprises and big private tech firms such as Huawei, ZTE, Alibaba, Tencent and Baidu. Our B2B research with decision-makers in the tech firms and end-user businesses in China often reveal perspectives such as: “The BAT [Baidu, Alibaba and Tencent] are favored by the government when there are government projects. Other companies cannot truly compete with them.” Or, “The government somehow has its interests in making the BAT succeed.” This masked protectionism has been working. Some analysts assess that if Google, Facebook and Twitter were to reenter the market today, they might not be competitive because their Chinese equivalents have grown deep roots in consumers’ and business decision-makers’ minds.

Google’s, Facebook’s and Twitter’s lesson tells us that the Chinese government has a very visible hand in its market economy. While we know that the political factor should not to be ignored in any market, in China, it is critical. As of the writing of this blog post, the US-China trade row is still ongoing. Huawei is still banned by the US, and we cannot predict how US tech companies currently operating in China will be impacted.


Foreign tech companies participating in China’s market must keep in mind that the Chinese government’s policies are the biggest influence before any market and economic factors can begin to be considered. Apart from that, tech innovators should be prepared that their innovations can be quickly learned, or surpassed, in a maturing China. And when Chinese tech companies have become more sophisticated in technology and marketing, they can do better than you can because they are at their home.

Contact Us

Escalent’s Technology industry group regularly researches China and APAC markets. We are now supported by a growing in-house APAC team located in Shanghai. The APAC team consists of local Chinese researchers who are experienced in research and business insights as well as knowledgeable about local culture.

Send Us A Note

David Ying Hon Ho 何英瀚
Director, International Studies

David Ying Hon Ho is a former director of international studies in the technology division at Escalent.