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In China, Silicon Valley giants confront new walls

Over the years, internet companies like Twitter, Google and Snapchat have been blocked by censors

Paul Mozur & Carolyn Zhang | NYT 

Silicon Valley
Facebook’s problem in China is simple: Neither its website nor its app is accessible in the country. Both were blocked in 2009, shortly after ethnic rioting in western China

is the world’s largest social network, with more than two billion users. was sold to Microsoft for $26 billion last year. And is Apple, the most valuable company in the world.

In most local markets, it would be a surprise if any one of these were floundering. But in China, the real shock is that their troubles no longer surprise anyone.

Just in the past few weeks, had one of its most popular apps blocked by the LinkedIn, the globe-spanning of résumés, recommendations and management essays, had its local boss step down amid tepid results in the country. And announced a billion-dollar investment to comply with local law as it continued to watch Chinese demand for its fade.

This summer of challenge for the three offers a broad illustration of just how varied the obstacles have become for foreign in They also show in stark terms why this vast market has been frustratingly difficult for outsiders.

Tempted by the world’s largest smartphone market and an increasingly wealthy population deeply intrigued by new technologies, just about every American tech company from Amazon to Zynga has taken a shot at But outside of and a group of older like and Intel, few have a major presence in the country today.

“In general the market is hard, even for Chinese companies,” said Andy Tian, co-founder of Innovations Group in Beijing and former general manager of Zynga “It’s the most competitive place around for and technology.”

Over the years, like Twitter, and Snapchat have been blocked by censors. EBay was outmaneuvered by the local giant Groupon failed to stay afloat in the flood of copycats it inspired. Uber cut its losses after establishing a foothold and sold its local business to a Chinese rival.

Even LinkedIn, which played ball with Chinese censors two years ago in order to get into the country, has had trouble getting traction with a local audience. “The big just don’t have much of a hope here,” said James McGregor, chairman of the greater region for the consulting firm APCO Worldwide.

American start-ups are still in the game, in particular those selling services to Chinese businesses, Tian said. But the number of big American firms trying to get into the country has slowed, though exact figures are hard to come by.

There are issues beyond offending censors. The Chinese culture is different, and at times quirky. And the technical requirements of China’s filters can make operating difficult. 

For those that overcome all that, the market is rough in a way US don’t normally experience.

“It’s basically like someone who has been training for Olympic taekwondo going up against a street fighter,” Tian said. “The Olympic fighter is waiting for the whistle, and the street fighter already has him on the ground hitting him with elbows. There’s no rules.”

More so than the others, Facebook’s problem in is simple: Neither its website nor its app is accessible in the country. Both were blocked in 2009, shortly after ethnic rioting in western For all his efforts, just last week the company’s last major app in the country, WhatsApp, was blocked by the While experts say it’s not clear whether it will ultimately be fully blocked, in recent days users have been unable to send images, videos and voice messages.

At least partially responsible for the block, according to analysts, is a new cybersecurity law that went into effect on June 1. While vague, the new rules call for security checks on foreign and force firms to store key data in

While Apple’s position in is about as different from Facebook’s as possible — it has built a hugely valuable retail business — it too has been affected by the law. Just the week before was hit by disruptions, said that to ensure it complied with the law it would begin storing data from its service in  

It also said it would work with a local Chinese company to set up a data center in southwest as part of a $1-billion investment.

Yet keeping Beijing satisfied is only part of the challenge for With more and more Chinese smartphone makers selling high-quality smartphones cheaply, the company’s sales in the country have slid over the past two years. In the second quarter ending April 1, the company’s revenue in greater fell 14 per cent, even as the market remains critical. Greater accounts for 21 per cent of the company’s sales, making it Apple’s most important market after the US.

In a new tack for in China, just last week it created a new position, general manager for greater China, and appointed a longtime manager, Isabel Ge Mahe, to the position. Ms. Ge Mahe was born in China, speaks Mandarin and has deep engineering experience. The company is also in search of a greater policy head after its former head, Jun Ge, recently resigned, according to two people familiar with the matter.

If is trying something new, is showing that what had been an accepted model within is no guarantee of success. Unlike Apple, which as a hardware company is considered less threatening by the Chinese government, had to go along with a bargain other have refused.

In 2014 the company agreed to start censoring — much as had done almost a decade before it eventually left — and formed a partnership with two influential Chinese venture capital investment funds to create a separate operation. While the self-censorship drew complaints from users, other technology looking to get into came to see LinkedIn’s approach as a model.

By bringing in well-connected investors, it was able to ensure its communications with the were in capable hands. It also focused on the particulars of the local market. It hired Derek Shen, a successful Chinese entrepreneur and veteran, to run its operations separately. Mr. Shen, in turn, created a stand-alone app to bring LinkedIn, a service built around email and computers, to China’s smartphone-dependent population.

Three years on, the results have been mixed. Troubles have included missing sales targets and failing to attract enough users, according to four former and current employees who declined to be named because they were not authorized to speak officially. LinkedIn’s local app, Chitu, also failed to attract the hundreds of millions of would-be users who have less exposure to the work force and live in China’s smaller cities.

While in most countries simply runs its network as it does in the United States, in that proved difficult. In China, many of the people the company wants to attract use only smartphones, and communicate on messaging apps instead of email. Mr. Shen decided to try a specialized app catering to those patterns. Yet it had to compete with entrenched social networks, like WeChat, and gained little traction.

In June, the company also announced the departure of Mr. Shen and is still in the process of looking for his permanent replacement. A spokesman said the decision that Mr. Shen would leave was mutual, and his decision was motivated by a desire to join a more entrepreneurial effort.

Holding back wasn’t so much the ferocious local competition or the regulatory hurdles, but Chinese culture itself. Many are simply not in the habit of publicly sharing their professional connections, and it has been hard to convince them, said analysts and those who worked at

A business person in may blush at making a Rolodex public because it is so personal, and also incredibly valuable. And publicly updating a résumé can be misconstrued by an employer as a signal that an employee is looking for a new

Also, with a corruption crackdown ongoing in China, showing the relationships that allow business leaders to get things done can be a liability.

As a result, professional relationships are often managed on a more conventional that allows for greater privacy: WeChat. Though at its heart a messaging app, it has a function like Facebook’s newsfeed where people can post. Also widely used are group chats, where school alumni, embittered ex-employees or parents of a local school can keep up with the latest gossip or get a few potential candidates for a new position they have to fill.

With the social side of business life on WeChat, many local services have focused more on the posting of openings.

“It may not be so much that is having trouble in because they’re a foreign company,” said Mark Natkin, founder of tech research firm Marbridge Consulting. “It’s more that they’re having trouble in because this is not the model people want to use here.” Most use Tencent messaging services like WeChat or QQ — another Tencent messaging service originally built for desktop computers — to connect for business instead, he added.

That cultural difference has kept a broader swath of the Chinese from joining Two former employees said that they had quotas of posts they had to write on China’s website each week to help boost activity. One of them, who said she used to write five to 10 posts a week, said it often seemed futile because most people used WeChat for professional discussions. Along with group chats, articles and even long messages easily go viral with people sharing them between groups, or on their moments, roughly the equivalent of a wall.

A spokesman said the program encouraging employees to post was voluntary.

Selling to customers without experience in business was often an exercise in explaining why people would want to post their résumé online, one former employee said. As a result most of LinkedIn’s best Chinese consumers were with major operations like Huawei and the drone company DJI.

Xu Mengya, a former marketing employee at China, said that although there were far fewer users in Australia than China, the network there was much more active. She attributed the difference to a more distinct work-life divide, where people use to communicate with friends and family, and with work connections. In China, she said, everyone uses WeChat for both.

As continues to press ahead, its new legacy may be less its model for going into China, and instead a willingness to accept a more modest type of success — underscoring the reality that for the world beaters of Silicon Valley, getting into is only a first step in what can become a long slog.

Although it failed to attract the huge number of users that like and Tencent have, has attracted a large number of China’s professional class.

In his departure note, Mr. Shen noted as a sign of its success the fact that the company had 32 million users in While that may be less than 5 percent of China’s total internet-using population, a spokesman for the company said it showed the venture was living up to expectations. The company has also attracted more than 1,000 clients since coming to less than four years ago, he said.

“So they haven’t achieved nothing, they can congratulate themselves on making a start and not having been lapped by any local competitor,” Mr. Natkin said.

Still, the current and former employees said there were other problems. LinkedIn’s ad and recruiting rates are far more expensive than local competitors, making it hard to sell, according to two former employees.

Simply to get in, needed to create a new operation partially owned by well-connected local investors. Yet the logic also followed that an independent business would indeed be more independent, allowing it to respond more quickly to local challenges without the myriad phone calls at odd hours required to coordinate with headquarters. But the structure also had a negative side. Benefits and quotas at were also different from the rest of the company, sometimes damaging morale, the two people also said.

Ultimately however, Ms. Xu said LinkedIn’s original sin was simply being too late and not necessary enough. “The root of the problem is that Chinese do not need a social platform for work. It is a fact in that all social activities related to work are on WeChat,” she said.

“In China, has turned into a hiring website — a high-end version of domestic hiring sites,” she said, referring to the many local sites that specialize in listing opportunities.

“This has led to a lack of activity because it has lost its social side.”

© 2017 The New York Times News Service

First Published: Mon, July 24 2017. 00:13 IST