Chinese Investment: Some Good Points, Some Important Points Left Out

October 15, 2020

China is probably not on the minds of most US LinkedIn users. Based on my scanning of the “Home” page, there are TikTok style videos for consultants, job seekers, and start ups flogging a range of Gen X, Gen Y, and Millennial services.

Nevertheless, I want to highlight “The Shadow War Between Alibaba and Tencent: Conducting Warfare Through Startups.”

The essay begins with this assertion:

In the West, corporate VCs are often labeled with ‘dumb money’ or being the M&A department in disguise. In China, at least for Alibaba and Tencent, they are kingmakers that can outcompete most financial VCs. They have longer time horizons and deeper pockets than institutional VCs, and bring actual value-adds like consumer traffic and supporting product ecosystems such as payment infrastructure. The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation. In the West, startups can buy consumer distribution as social networks all monetize through advertising. In China, since Alibaba nor Tencent rely on advertising revenue, distribution can’t be brought as easily, it has to be earned. It’s not a surprise that among the waves of startup contenders, Alibaba and Tencent’s picks (and for a time, Baidu) are always among the favorites to win.

We noted two important points tucked deep in the essay.’

The first makes this observation:

For starters, the user-centric approach of Chinese tech means that every battle for consumer’s attention is a relevant one. For both, strategic investments allow increased usage of their respective product ecosystems.

The second offers:

The shadow war has become global, as both Alibaba and Tencent have their sights set increasingly on South East Asia and India. We are probably going to see a similar pattern play out in these regions too…

Several points seemed irrelevant to the author; for example:

  1. The linkages between certain successful Chinese companies and the Chinese government
  2. The “competition” between and among high profile, government-allied Chinese firms is a less-than-subtle way to explain the “competition” that exists in the quasi-market driven country. Who is fooled?
  3. The data generated by these systems can be available to the Chinese government. Data can act like virtual puppet strings, just more difficult to see and disengage.

Nevertheless, the write up reminds me about a belief about the US investment set up: “Dumb money.” Gentle, but evidence about the author’s attitude.

Stephen E Arnold, October 15, 2020

Comments

One Response to “Chinese Investment: Some Good Points, Some Important Points Left Out”

  1. Marjorie Hlava on October 16th, 2020 4:48 pm

    Incisive as always – thank you very much for these excellent insights!

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