In the proverbial West, it is difficult to envision an Internet landscape which isn’t dominated by Google, Amazon and other Western behemoths, behemoths which have been fortifying their positions for so long that it is difficult to the point of impossible for their supremacy to be meaningfully threatened by newcomers. For example, in a heavily logistics-dependent industry with very high barriers to entry, can Amazon (with its razor-thin margins) be challenged? Possibly… but probably not.
Governments from all over the Western world are anything but thrilled about the fact that various Internet-related segments are dominated by mega-corporations for a wide range of reasons:
- The fact that these entities hold immense power with respect to influencing the behavior of their users, as made clear by the Cambridge Analytica election interference situation involving Facebook and a wide range of other examples illustrating that key Internet players hold more power than even they themselves realize
- Monopoly and oligopoly-related concerns, with well-funded Internet sector players having enough capital at their disposal to not just buy out companies at the slight hint that they might end up representing potential competitors but even venture into other industries and aim for domination there as well. From search with the Google search engine to video with YouTube and even operating systems with Android in the case of Google/Alphabet, from social media to instant messaging after the WhatsApp acquisition in the case of Facebook and the list could go on and on
- The multi-jurisdictional nature of these corporations and the various tax benefits this brings about… let’s just say that these mega-corporations and their armies of accountants as well as lawyers can afford to dramatically minimize their tax burden in either a 100% legitimate manner or at worst grey area manner. Needless to say, this tends to “nurture” frustration among the average population, who obviously feel they are receiving the short end of this regulatory stick
For these reasons and many more, measures have been taken in the West against tech giants, anything from fines to plans which involve a more or less forced fragmentation or at the very least barriers to expansions. Still, at this point in time, Western tech giants feel untouchable and the degree to which our Internet experience depends on such a small number of companies gives many observers goosebumps.
Is the same principle valid when it comes to the influence of the previously mentioned tech giants in China?
No, once again for a wide range of reasons such as:
- The fact that the Chinese authorities, while willing to let Western players proverbially play ball in their jurisdictions, attach various strings to this privilege. These strings oftentimes include stipulations which aren’t exactly in the spirit of human rights and as such, Western tech giants find themselves in a bit of a predicament. Should they simply accept whichever stipulation(s) the Chinese authorities throw at them and thereby gain access to a market which consists of roughly 1.4 billion individuals even if they risk tarnishing their reputation in the West or should they simply say no to China’s requests?
- The fact that even if all tech giants would have been willing to comply with whichever requests are made by the Chinese authorities, China still strongly believes in making it possible for domestic companies to dominate. There is a world of difference from the perspective of the Communist Party of China between a Western corporation which is taking on the calculated risk of playing ball and a domestic company which can be far more rigorously controlled and punished if need be
- The volatile nature of the Chinese legislative landscape, a topic covered in detail through an article which can be accessed by clicking HERE. In a nutshell, the lack of legislative clarity and predictability makes many Western tech giants think not twice but ten times before allocating potentially came-changing capital toward their Chinese departments because they know they are just one legislative 180-degree turn away from having to pretty much write off the entire investment
Does all of this mean Western tech giants are doomed in China?
There are forces at play which at least occasionally make the Chinese authorities tolerate Western tech mega-corporations. For the most part, we are referring to reasons which pertain to China being a cog in a deeply interconnected worldwide economy and as such, striving for autarky would be downright irrational. And in this interconnected landscape, compromises need to be made every now and then when it comes to enabling Western players to gain access to your market.
Aside from that, we need not forget that the Chinese authorities are anything but immune to money. While they are not willing to tolerate Western investments which risk jeopardizing the political status quo, Western money is more than welcome in other situations, especially if we are referring to Foreign Direct Investments as opposed to ultra-speculative financial system hot money.
As a conclusion, “tolerate” is the optimal word to describe the current state of affairs with respect to Western tech giants which are either present in China or are interested in gaining exposure to this jurisdiction. While there is definitely potential there, it would be overly optimistic at best to assume that China’s long-term goals revolve around anything other than the strict dominance of domestic companies as far as its tech landscape is concerned. Not only that, as mentioned in other articles, Chinese tech companies such as TikTok are actually taking things one step further by reaching out to the West themselves… in some cases quite successfully so. “Prudence” and “skepticism” are therefore the operative words when assessing investment opportunities which pertain to the Chinese agenda of Western tech giants.