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.