Chinese startups won against their US competitors despite their government, and not because of it, Hans Tung, Managing Partner of GGC Capital said yesterday at the India Internet Day conference organised by TiE Delhi. Tung was being interviewed by Dev Khare, MD at Lightspeed Venture Partners, who asked him about a common perception in India: “that in the Chinese digital economy, the winners there were Chinese companies because of the great firewall of China, and the government had an active intervention policy to help Chinese companies win. There are several initiatives in India around, trying to level the playing field, or tilt in in favour of Indian companies etc. Was it the case in China that the government helped all these companies win, or was there something else?”
In response, Tung said that, oddly enough, the government doesn’t want Chinese startups to work. “They want their own companies, that they have stake in, to work. But the Chinese companies beat the state owned enterprises. The same problems that the state owned and US companies have to solve, are the same problem that the Chinese companies have to solve. They just solved faster, because they moved faster.” He added that the American companies were coming in to China for the very first time back then, and they didn’t realise that China was so different from Europe and elsewhere, and they would have to move at a faster speed to deal with Chinese competitors.
As an example of the versatility of Chinese Internet businesses, Tung pointed to Alibaba’s competition with eBay in 2005-2007, when eBay entered China, with a lot more money than Alibaba. However, they followed a global playbook. “Ebay charged [sellers] 15% of the sale, as a cost of keeping the platform more secure [from counterfeit goods, for consumers]. So if you’re a seller you have to give eBay that amount. What Alibaba did was, have 0% transaction fee. Sure, you had a lot more counterfeits, and a lot of stuff that didn’t work. But that’s why you had Alipay: the seller will ship out the goods, and if the buyer didn’t report a counterfeit good, then in seven days the money will release from the buyers account. Having that seven day guarantee made people a lot more comfortable to sell on Alibaba. When you have more sellers, you attract more buyers. So over a period of three years eBay declined.
eBay thought what works in the US also works in China. They refused to change. I was an early investor in Xiaomi. Did I think that Xiaomi will do well in India? Why would anyone in India buy a phone from China? But Xiaomi did a great job with globalisation. Hugo [Barra], whom I helped Xiaomi recruit, helped with that. They took time to understand the Indian consumers’ needs. In theory, any company that comes to India from China or the US will take time to adapt to the taste of local consumers. If Indian companies move fast, adapt fast: in theory, Sharechat can take on Bytedance’s TikTok and Helo.”
Tung did point towards Amazon and its willingness to change in India, after “losing China”, to JD.com and Alibaba. “India’s market will become the most competitive market in the world, with American companies, Chinese companies and Indian companies all going at it. Despite that, I think that Indian companies understand [the market], they’ll have to learn faster, move faster. As Internet penetration goes down to tier 3,4,5 cities in India, we have more and more varieties of Indian consumers coming online. Being here locally and being able to adjust locally is the number one reason why Chinese companies were able to take on global competitors.”
If I look at Didi versus Uber, a lot of people believe that it was government protection that helped Didi fight Uber, but the opposite is true. The Chinese government actually liked Uber more. They think that Uber is like a typical Chinese company: aggressive, moving fast, and they wanted it to give Didi competition.
“But the truth is that most of the engineers that Uber has are in Silicon Valley. So what happens is that when you’re working on a China problem in Silicon Valley, by the time you hit midnight, it’s time to go home. And when it’s midnight in Silicon Valley, it’s 3pm in the afternoon in China, where things are still happening. Didi was willing to make more changes and do more for their clients than Uber. We’re debating 996 (the practice of working from 9am to 9pm 6 days a week in Chinese tech companies), it is not a great practice and not great for health — but the tech companies in China have worked smarter, faster, and harder against the US tech competitors, and they won.”
Tung likened the current market penetration in India – around 40% – to that in China in 2007-2008. It had taken off after that, he said.
Photo courtesy TiE Delhi.
Disclosure: MediaNama was a parter for TiE’s India Internet day