Chinese Internet Giants Demonstrate Growing Strength of the Nation

Recently China’s largest online direct sales company Jingdong, or jd.com (JD), successfully launched its initial public offering and raised $1.8 billion on the Nasdaq.

Very soon, its domestic rival, Alibaba (ABABA), the largest e-commerce company in China, as well as in the world, will go public in the US.

It is expected that the IPO will raise $20 billion, surpassing the total generated by Facebook (FB) to make it the No.1 among listed Internet stocks.

The fantastic figure has caused an uproar on Wall Street. The coverage in the English-language media is overwhelming.

And some people have gone so far as to express, with astonishment, “When has a Chinese company ever become the world’s No.1?”

It is true that of all the industries around the globe, it is rare for Chinese companies to become industry leaders.

Reports show that Alibaba’s websites had a turnover of $248 billion in 2013, more than the sum of both eBay (EBAY) and Amazon (AMZN). Leaving other data aside, this alone is enough to declare its No.1 position in the field of e-commerce.

In the past I have stressed that for China to really express her power, it is not necessary that the GDP ranks first, nor that there are flowers and skyscrapers everywhere in the cities, but instead that the country has a large number of invincible multinational companies across the globe.

Today, the comprehensive ability of a native company is a symbol of the international strength of a country, and it serves as an indication of the resilience of a nation’s backbone.

With Alibaba landing in US capital markets and rewriting the financial records for international Internet companies, it is announcing to the world that if all companies begin from the same starting line, Chinese companies can also come to the fore.

When Chinese companies compete against the giant US companies such as Coca-Cola (KO), Boeing (BA), General Electric (GE), Procter & Gamble (PG), Pfizer (PFE) and Apple (AAPL), the gap between Chinese enterprises and these giants will be evident both in global and their home markets. There are many deep-seated reasons for this phenomenon.

To begin with, most US companies have a long history; some even have a history of well over a century.

In other words, when China was still in the feudal era known as the Qing Dynasty (1644-1911), and its people were struggling just to meet the requirements for basic survival, many of these US companies were already in existence and thriving.

Second, the properties and management mechanisms of the largest State-owned Chinese enterprises are also primary factors which constrain development and growth.

State-owned enterprises, which are shielded by national policies or are reliant on their monopoly positions, and are mostly large in scale but lack comprehensive strength.

Due to the fact that the international Internet industry has only recently been developed, it has been able to prosper in China at a time when the domestic economy has really been booming, the overall business environment has been improving, and venture capital funding has really emerged.

The most basic business elements, which are commonly found in US companies, have gradually been formed in China, enabling Chinese Internet companies and their US counterparts to basically stand together at the same starting line. And it should never be forgotten that US companies are generally more advanced in innovation and technology.

In addition, the development process for Chinese e-commerce providers and Internet companies, represented by Alibaba, can be traced back to a process in which foreign rivals initially staked out the leading positions, mainly by virtue of their more advanced technology, but then eventually went into a period of decline.

As time elapses, history has shown that Chinese companies can grow and gradually penetrate the market, pushing the foreign companies aside. For example, Google (GOOGL) has almost been completely squeezed out of China. As another example, Yahoo (YHOO), one of the primary shareholders in Alibaba, now falls far behind the Chinese company.

In response to the phenomenon that foreign Internet companies are waning and domestic ones have been booming in recent years, the US media and most of these companies instead attribute their failures to the strict supervision and interference by the Chinese government.

If this is true, though, why can other US-funded enterprises, especially those mentioned above in other industries, manage to find success in China? Additionally, former Google China president Kaifu Lee said:

Many attribute the American company failures to government regulations or favoritism. While these played a part in their failure, there were other more relevant reasons related to the companies themselves.

According to a study conducted by the World Bank, Chinese purchasing power will soon overtake that of the US, making it the world’s largest economy, and it has been reported that this event will occur 10 years earlier than many expected.

My view is that despite the fact that an elephant is huge, it is most often the lion or tiger that has the final say in the wild. The success of enterprises like Alibaba can be likened to the concept of genetic variation - only when there are a wide variety of successful companies can China’s voice be compared to the true roar of the dragon.

Source: Seeking Alpha

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