Breaking into China has long been a challenge for western technology companies, with policy mandates and fierce competition pushing out the likes of Google and Uber. But Silicon Valley isn’t giving up on the country, as it prepares to take another run at winning over Chinese consumers.
An ongoing battle
To be clear, Beijing isn’t about to relax the ban on some western tech giants: The main services of Facebook, Google and Twitter remain blocked, as authorities continue to tighten their grip over people’s access to information. But the companies nonetheless see an opening: As the world’s second-largest economy tries to foster innovation-driven growth, it will welcome advanced technologies from the west, providing them a chance — despite significant risks — to establish toeholds in different markets there.
Facebook, for example, announced on Tuesday that it will be partnering with Chinese smartphone brand Xiaomi to make virtual reality (VR) headsets, aiming to eventually capture more of the country’s tech-savvy consumers to deliver its vision of “connecting the world.” The device, called Mi VR Standalone and will be sold exclusively in China this year, will also bear the Oculus logo as it uses some of the latter’s technologies, giving Facebook exposure in the country after it was banned in 2009 following tightening censorship. The company has since repeatedly tried to re-enter China, with chief executive Mark Zuckerberg famously taking a run through smog-blanketed Beijing in 2016 to show his affection for the city.
In the meantime, another western tech giant has adopted a similar approach in introducing advanced technologies. Google announced late last year that it is building its first Asia-based artificial intelligence (AI) center in Beijing, working with local talent to better research this emerging technology and fund local conferences and workshops. The move came after China made its AI ambitions clear: By 2030, it aims to be a world leader in this field, claiming that the local industry will be valued at $150 billion by then.
“New products with new technologies are more easily accepted by the Chinese government,” said Nicole Peng, a research director at market research firm Canalys. “Officials would very much like to see western companies introduce their technologies here, and it will definitely help with government relations.”
Business-wise, however, the benefit of this new approach may not be so clear — at least not in the short term. In the third quarter of 2017, a total of 108,000 VR headsets were shipped in China, a fragmented market that is diced up among international and local players such as HTC and China’s DPVR and Pico, according to Jason Low, an analyst specializing in VR at Canalys. With Facebook’s services and Oculus Rift content not readily available in China, it is uncertain whether the headset will stand out from the rest of the pack, which also have good hardware and competitive pricing, Low said.
“Facebook is developing Oculus Go because it wants to tie this up with its main social media services, so users can one day chat face-to-face in a virtual environment,” he said. “But its main business is unavailable in China, so it’s a challenge to connect to local users.”
When it comes to Google, the commercial benefits remain to be seen. For now, the AI center in Beijing is more about collecting data, which is plentiful in the world’s most populous country and critical to the training of smart machines, says Chris DeAngelis, general manager of Beijing-based consultancy Alliance Development Group.
The party line
But whatever goodwill these companies may have built with Beijing is still fragile — as proven by Apple. The California-based smartphone giant doesn’t hesitate to sing praises of the Chinese government, with chief executive Tim Cook opening research and development centers in the country, as well as backing Beijing’s “open” internet environment at the Wuzhen World Internet Conference last year — a comment that raised the eyebrows of many as China is using increasingly sophisticated tools to police its web.
Even so, many of Apple’s service offerings — like iBooks Store and iTunes Movies — remain blocked, and it was recently forced to remove apps from its China iOS store at the request of local censors. On Wednesday, the company also shifted the operation of its iCloud services to a state-run firm, which will have full access to Apple’s China customer data.
“Of course every company wants build relationships with the government, but the trend is becoming more difficult,” DeAngelis said. “Apple has done tones of public relations, but they are still being affected and have to run app stores locally.”
Another risk is forced technology transfer. China has long pressured foreign companies to share knowledge with local partners in exchange for market access — an issue that is now under investigation led by U.S Trade Representative Robert Lighthizer.
Still, these companies have no choice but to carry on. As China grows in economic might, the allure of such a huge market still beckons. With the government mandating domestic firms to take the lead in critical industries such as automobile and robotics, western companies are left with opportunities in less sensitive markets such as smart devices like VR headsets, often relying on Chinese partners to reach local consumers.
“The exchange of technology is something Chinese companies are obviously interested in,” said Jeffrey Towson, a professor of investment at Peking University. “They [Western tech companies] are looking for something doable in China, and this is their best option.”
More Info: www.forbes.com
Categories: Money Matters