Does one need a local partner to survive and grow in China…seems so.
Looking at the strategies adapted by tech companies in China seems like tying up with a local partner is the ONLY way to go.
Firms seek to enter the Chinese market to gain a share of the internet/online services and local software business, attracted by the vast population of the tech savvy people and the high IT demand in the local market. Initially the firms, like done by them in other non-US markets (which seems logical anyways), enter the China market all by their own, trying to establish a presence and gain dominance by rolling out their services for the local consumers. However seems like the China market though lucrative is not all that easy to setup a shop and run all by your own. It has become increasingly evident that the firms struggle to topple the local rivals and are forced to abandon their strategy of doing it all alone and end up tying up with a local partner.
Some of the recent events are as follows:
1. E-bay after spending more than $250 MM since 2002 announced a JV with Tom Online. EBay will own 49% stake and contribute $40 million, while Tom Online will own a 51% stake and contribute $20 million, and provide the local management to oversee the venture. eBay had 79% market share in 2003, however in the last 3 years e-bay’s market share dropped to 36%. EBay was generating between $30 million and $50 million in sales but posting an operating loss of $20 million to $40 million in that market, the analyst wrote.
2. News Corp’s (nws) MySpace has publicly announced its intention to enter the China market. And likely to announce a partnership with IDG’s Chinese venture arm.
3. TATA Consultancy Services, Indian offshore IT services provider entered the China market 3.5 years ago. To boost the progress it has entered a JV with local Chinese firms and Microsoft. With TCS holding 65%, Microsoft 10% and the local Chinese firms 25%. 4. Back in October 2005, Yahoo pulled up its China roots, paying $1 billion and transferring all of its
China assets to Alibaba.com Corp. in return for a 40% stake in the company.
4. Back in October 2005, Yahoo pulled up its China roots, paying $1 billion and transferring all of its China assets to Alibaba.com Corp. in return for a 40% stake in the company.
5. We know how mad Microsoft was when it lost Dr. Kai-Fu Lee to Google in China.
One can learn from the fate and the strategies adopted by these firms in China and prepare themselves accordingly.