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Why are Chinese tech companies crushing global tech giants in China?

Many people believe that due to the “Great Firewall” and protectionism by the Chinese government, Chinese tech companies crush the global tech companies in China, but is this really the truth? After digging into this, there are various reasons to be found which explain why the Chinese tech companies are doing so well and growing so fast.

Relentless work effort

In the Chinese tech companies, they work under a certain principle, the 996 principle. This principle means that you work from 9 A.M. until 9 P.M. and that for 6 days a week. The working weeks vary from 80-100 hours every single week. Many global companies entering China don’t follow this principle, they mostly just have 40 hours work weeks, which means that the Chinese companies putting in two times or even more hours in their work every single week. Especially for tech companies, the number of hours put in into the work is very important. Therefore when the Chinese companies do exactly the same as the western companies, the Chinese companies finish their objectives two times as fast as the global companies because of the extra hours they put in.

“If other people are putting in 40-hour work weeks and you’re putting in 100-hour work weeks, then even if you’re doing the same things, you know that in one year you will achieve in four months what it takes them a year to achieve.”

Of course, South African Musk’s suggestion received blowback in the Western press, as people argued that working more than 50 hours is counterproductive. The Harvard Business Review weighed in: “In sum, the story of overwork is literally a story of diminishing returns: keep overworking, and you’ll progressively work more stupidly on tasks that are increasingly meaningless.”

But what these commentators and researchers don’t appreciate is that in the age of tech, when you have the fastest feedback loops in history, working 100 hours can work because you get product out faster to receive customer feedback faster, and that leads to faster iterations and finally a market-accepted product. Everything I just said can be done faster and faster. A dev team working 100 hours vs. 40 hours really makes a difference!

Most global companies just see China as another market

China is its own separate and unique market, global companies need to realize the fact that the strategy they use in other countries might not work in China. Many global companies expect their strategy to use in the Chinese market only because it worked in other countries and countries that are near China.  The problem is that most of the global companies don’t see China as a top priority. The Chinese tech companies see China as a top priority and are therefore fully focussed on the Chinese market and therefore outshine the global companies because of the lack of prioritizing the Chinese market by the global company.

Furthermore, especially with more product-focused industries such as tech, a China CEO oftentimes isn’t equipped or empowered to maximize success. For example, most of the people who do backend work or “upstream work” in tech, such as supply chain or product development, rarely if ever report to the China CEO. The China CEO tends to own the go-to-market, which produces sales, but it limits their ability to operate as fast as their Chinese tech counterparts, whose primary purview is China and have entire product teams 100 percent devoted to them. How can a manager be expected to beat a faster and more relentless competitor if the manager doesn’t own the product for the Chinese market? It’s not a fair fight.

Localization

Most Western tech firms that come to China try to import the successful aspects of their business models from the West. This doesn’t really work. A great example is gaming. When Western gaming companies come to China, they adopt their Western business model. You pay for a license to play. In China, that’s just not how gaming works, and it never has been. Tencent, for example, has really been the pioneer of freemium innovation, where games can all be played, but players pay for premium items. This has made Tencent create some of the most profitable games in the world, such as Honor of Kings.

Across the tech industry, we have yet to see a Western tech company that has created a completely separate business model for the China market. There are many instances where companies will do something China-specific, such as creating a China entity, joint venture, or even special pricing. But a separate “this is the special business model for China that we don’t use anywhere else” has not been done by any major tech company. Even today, Facebook’s functionality and business models across Facebook.com, Instagram, and WhatsApp outside of China can’t even compete with WeChat’s ecosystem inside of China, so competing in China wouldn’t really be a fight.

Amazon isn’t restricted and it’s still losing to Alibaba and JD.com

While Facebook, Twitter, and Google are blocked in China, Amazon is not, and there aren’t really any restrictions on the e-commerce market. Care to guess what Amazon’s market share is in China today? Less than 2 percent.

Amazon isn’t the first American e-commerce company to lose in China. eBay China was crushed by Taobao. Groupon tried to enter into China with more than $1 billion in its war chest, a headcount target of 1,000 employees, and a goal to hire the “best of the best” McKinsey consultants and investment bankers. What did Groupon China end up with? It couldn’t even get its own name. Moving away from e-commerce, even Uber — which pumped more than $1 billion into China — was simply outmaneuvered by Didi, its nimble and relentless local competitor.

Conclusion

While I can understand Bloomberg and other Western media’s perspective, they tend to overstate the importance of Facebook, Google, and Twitter being banned, and end up falling into familiar narratives of Chinese tech entrepreneurs in cahoots with the government. The boring truth of the matter is, as much as many don’t want to admit it, the Chinese tech companies are successful because they’re genuinely well-managed companies with great leaders who know how to execute and who aren’t afraid to innovate. Unfortunately, the headline “Chinese tech billionaires manage companies well” doesn’t sell as many clicks as “China protectionism creates tech billionaires who protect Xi.”

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