Narrative: Chinese Expansion
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Narrative: Chinese Expansion (Dec 27, 2016)
Updated: April 14, 2017
This narrative was the subject of the Weekly Narrative Video for the week of April 10-14, 2017. You can see the video on YouTube here (with a partial transcript in the description), or embedded below.
One of the most fascinating trends to watch in today’s consumer tech industry is the separate sets of major players coming out of two major markets: the US and China. US companies tend to be pretty successful expanding overseas, until they get to China. Chinese companies in turn tend to fall into two camps – those making just hardware tend to do well in emerging markets but struggle in the US, while those with more of a services bent tend to struggle outside of China in general. But recently several big Chinese brands have attempted to penetrate the US market with a combination hardware and services approach, notably LeEco, and to a lesser extent Xiaomi, TCL, and others.
Smartphone companies in particular have struggled to gain mainstream acceptance in the US – the carriers act as gatekeepers to the market, and the largest carriers have continued to keep Chinese handsets limited to their prepaid channels. This makes reaching mainstream markets tough for Huawei, ZTE, and others, and in April 2017 the challenges facing LeEco in the US became acutely apparent. On the other hand, other hardware categories where branding has traditionally been less important have allowed Chinese companies to flourish in the US – those making battery packs, cables, cheap Bluetooth headphones, and so on have done very well on Amazon, for example.
However, when it comes to services, Chinese companies tend to struggle – the major cultural differences between China and the US are by far the biggest barrier. What sells in China simply tends not to sell in the US (and the reverse is often true too). This is the single biggest challenge facing LeEco and other Chinese companies wanting to bring a services-led model to the US: they have to completely reinvent their bundle of services to make it relevant and attractive in this market.
We’ll continue to see attempts by Chinese tech companies to expand out of China, but they will continue to be most successful in emerging markets and in low-end consumer electronics in mature markets, while their services will flounder in the US and most other Western markets.
Chinese e-commerce giant Alibaba has announced that it will double its R&D spending over the next few years, with the main focus of its $15 billion investment in three areas: AI, the Internet of Things, and quantum computing. Though the Bloomberg piece here suggests this is another front in its competition with Amazon, the reality is that the two compete for very little business, mostly competing against other western and Chinese companies respectively in their major markets, with Alibaba dominant in China but negligible in the US. Rather, this is part of a much broader competition between big tech companies in aiming for leadership in several key new research categories, AI chief among them. That’s a competitive dynamic that has now taken on geopolitical overtones, with the US and China emerging as the likeliest leaders in AI, itself considered critical to future competitiveness in not just business but cyber warfare and other areas. Alibaba is, of course, already growing dramatically as a company, and the increase in planned R&D spending is therefore not wildly out of whack with its overall growth, but it makes for a great press release as the company seeks to burnish its innovation credentials.
China Effectively Blocks WhatsApp (Sep 25, 2017)
It appears that the Chinese government has effectively blocked WhatsApp entirely in the country through some fairly sophisticated and subtle means, making it more or less unusable for the population, an escalation over earlier partial censorship of certain content types. This is obviously a big blow to Facebook – we don’t know how many monthly active users WhatsApp has in China, and it’s clearly not as dominant there as in certain other markets given the popularity of the local messaging services, but it’s still an important market for WhatsApp given its popularity in Asia in general, and WhatsApp has also been about the only property Facebook has that’s operated in China even as the rest of the company has been shut out. The context here is the broader crackdown by the government against western tech companies and especially those that foster open communication at a time when the government is clamping down on dissent.
via New York Times
Baidu Announces v1.5 of its Autonomous Platform and $1.5bn Fund to Invest in Projects (Sep 21, 2017)
Baidu has announced version 1.5 of its Apollo autonomous driving platform with several new features and also announced a $1.5 billion (10 billion yuan) fund to invest in 100 autonomous driving “projects” over the next three years. All the detail in the press release is around the platform, the traction it’s gained, and the new features, which include obstacle perception, planning, cloud simulation, high-definition (HD) maps and
“end-to-end deep learning” capabilities. When the platform first launched, it sounded impressive on paper but in practical terms appeared to be rather piecemeal and unfinished, with many necessary components missing. The new features certainly fill some gaps but don’t supply all the missing pieces, and it’s likely that the platform still isn’t really ready for prime time deployment, especially outside of China where Baidu doesn’t have granular mapping data. The fund, meanwhile, is not detailed at all in Baidu’s release and it’s really not clear whether it will be a venture capital-style fund for investing in companies, or whether it will be more in the nature of grants supplied to companies using Baidu’s technology in some way. Either way, it’s a significant chunk of money in what’s already a very crowded and high-spending field.
Google’s Android One project for emerging markets was launched in 2014, and focused on countries in the Indian subcontinent and other parts of Asia. But it’s appeared to be struggling, with little recent positive news from vendors supporting it in those countries. In addition, at its I/O developer conference this year Google announced a project internally called Android Go, which is focused on optimizing Android for low-cost devices and therefore seemed to be in somewhat the same vein. But the funny thing about Android One is that’s it’s been morphing somewhat from a project for the low end of the Android market to one more targeted at the mid market. There have been several Android One phones through Sharp in Japan since mid-2016, and now Xiaomi is announcing a device. which seems at least in part targeted at India.
The most interesting thing about Xiaomi as a partner is the fact that it’s always majored on its proprietary UI – MIUI – as a differentiator for its devices, and it’s arguably that the fairly locked-down Android One was intended at least in part as a response to Android OEMs’ customizations, so this is certainly a departure for Xiaomi. As with the Japanese phones, though, this one is also targeted at the mid-market, selling for a little over $200, with 80% of handsets sold in India below $200. So it’s a poor fit for the original focus of the Android One project, which is arguably now being taken over by the Android Go initiative, but indicative of what Android One is evolving into. The big question is whether the device will actually sell, given that a Xiaomi phone without MIUI is a tougher sell and there are plenty of other cheaper Android phones in the countries the companies are targeting with this one. There’s certainly no guarantee Android One does any better in India at $200 plus than it did at $100.