How foreign tech companies that 'go local' survive - and thrive - in China

Over the past few years, many people have come to believe that local companies have risen to occupy leading positions in the growing, lucrative Chinese internet industry simply because foreign tech companies were blocked from the market. However, real-life examples present a different case.

In 2003, for instance, eBay entered the Chinese market by acquiring the then leading Chinese platform for consumer-to-consumer auctions, EachNet. But, by 2006, eBay decided to shut down its Chinese EachNet site. By failing to understand the local market context and choosing to migrate everything to the global eBay platform, eBay forced its Chinese customers to suffer a degrading user experience while its competitor Alibaba, with a new platform called Taobao, moved in the exact reverse direction and enabled its customers to dictate many new terms over the same period of time. Besides allowing users to exchange messages, Alibaba created Alipay, an escrow payment service that provides convenient, secure online payment, at a time when online credit or debit card payments were not common in China.

eBay's lack of success in China is not a result of a ban or government protection for local competitors. Rather, the problem was how the company ran its Chinese business. Not understanding the Chinese market made it hard to win over local customers.

Google's retreat from the Chinese market was slightly different. Google China, formally established in 2005, at first complied with the internet censorship laws in China and imposed self-censorship on its search engine until January 2010. Due to tightening censorship and alleged cyberattacks from Chinese hackers, Google China decided to stop its self-censorship and moved its servers to Hong Kong. Eric Schmidt, Google's CEO from 2001 to 2011, said in his book How Google Works that senior management views on the move were divided. Schmidt argued that Google should stay in China, while co-founders Larry Page and Sergey Brin strongly favoured a withdrawal due to the censorship.

In this case, government regulation was clearly an important factor. But was it the main reason for Google's retreat? Every company will have to decide what is right for itself.

LinkedIn, the leading global professional social networking service, is a good example of how to enter the Chinese market. Linked- In officially launched a dedicated Chinese site, Lingying, in February last year, conforming to China's online censorship regulations. Sequoia China, a venture capital firm that understands the China context, helped LinkedIn navigate the local competitive dynamics and government relations. Instead of hiring a figurehead "China GM" who would merely follow orders from corporate headquarters, LinkedIn decided to hire a "China CEO" who is given a high degree of autonomy to run LinkedIn China like an independent start-up company.