Opinion: How China is catching up to America’s tech industry

Photo credit: Manuel Joseph

This article was co-written by Paul Shetler. The following is a shortened version of a six-part series, which you can check out here.

Big, brash predictions are venture capitalists’ hallmarks, as they look to usher in a wave of investment for their new favored product. Venture communists have been much shier about how their investments are changing the world. But their expectations about the future of digital technology are no less ambitious.

Over the last decade, China has transformed itself into a global tech leader, pivoting from low-cost manufacturing to high-powered technological development. Global expansion is next on the agenda, as its twin giants—Alibaba and Tencent—are starting to prove themselves offshore. The Chinese government is also a key contributor to the country’s digital success.

Meanwhile, US tech companies are feeling the heat of mounting Wall Street pressure. And the increasing internet penetration, mobile access, and willingness to transact online are making Asia and Latin America fertile grounds for expansion.

The battle for digital dominance will bring wealth, jobs, global expansion opportunities, and much responsibility. Given the size and importance of these developments, we assess how Chinese and American tech companies compare in strategies, structure, and relationship with government in terms of global expansion.

Countries are rushing to digitize

When we think digital, too many of us are still picturing Palo Alto and not Hangzhou’s Dream Town. That picture is no longer accurate. Chinese startups now comprise almost 40 percent of the world’s unicorns.

Digital China’s rise has been enormous and rapid but far from inexplicable. The Chinese market represents a perfect combination of high population, available internet access, willingness to experiment, and a growing middle class with rising disposable income.

Chinese consumers’ willingness to buy, sell, and communicate online has enabled Chinese tech firms to scale new products and services, reaching ubiquity and speed and proving new business models’ worth. In turn, that’s created a substantial amount of cash flow, enabling further investment in new ventures, R&D, and fund expansion plans.

The key players: BATX vs FANG

China’s tech community has expanded exponentially, but it would be wrong to assume that those gains have been shared equally among companies or sectors.

Just as Facebook, Apple, Netflix, and Google (FANG) have occupied a huge share of the innovation industry in the US, so too have Baidu, Alibaba, Tencent, and Xioami (BATX). These eight leaders have set the digital benchmark, and many are on track to becoming trillion-dollar companies.

At this point, FANG possess higher market capitalization. Over the next decade, we expect the competitive landscape to level, bringing some parity to the valuations. However, there are already a few areas in which the BATX look to be ahead of their Western counterparts.

If ubiquity and scale are king in digital enterprise, then product diversification is the queen. Though America’s largest tech companies continue to successfully grow their core competencies, they lag in profitable product diversification compared to their Chinese counterparts.

Best digital practices

When Uber first came to China, it tried to replicate the same things that had made it a success in America. That included using Google Maps (despite it being inaccurate in China) and insisting on credit card payment (even though credit cards aren’t popular in China).

Government and innovation

Intellectual property

What’s next?