Many of China's most successful companies have begun expanding abroad.
Some, like home appliance-maker Haier, have already built manufacturing
plants in the United States and have successfully staked out dominant market
Other Chinese companies like Lenovo have met with limited success when going
abroad. Ironically, these companies have fallen into many of the traps that
multinational companies succumbed to when they first arrived in China such as
bringing in products that were successful at home without adapting them to local
tastes, depending on general managers without an understanding of the local
market, or even entering the market in the first place without sound financial
Just a few years ago, 70 percent of multinationals lost money in China. In
2007, more than 50 percent will make money here, having learned from their
As more and more Chinese companies nurture global ambitions it will be
interesting to see if they are successful like Haier or learn the hard way as
many foreign companies did when entering China.
Baidu is the latest high-flying Chinese company to announce that it wants to
push out internationally.
"We believe that our proven strength in non-English language search, the high
Internet penetration in Japan, as well as similarities between the Chinese and
Japanese languages make this market an ideal next step for Baidu," Robin Li, CEO
of Baidu, said last December.
Baidu should heed the words many critics have lobbed towards multinationals
when they entered China.
Many brands that are No 1 in their home countries like Google have stalled in
China in part because they were so successful in their home markets. They tried
to implement in China what worked in the United States, without listening to the
wants of local Chinese consumers.
Baidu should not think that just because there are character-based
similarities between the Japanese and Chinese languages that their search
methodologies will be better than those already developed by Yahoo and Google.
There are questions over whether Baidu's search results are actually superior to
those of Google China.
Another potential concern is that while the Japanese have aggressively
incorporated technology coming from Europe and North America, they may be less
likely to readily adopt technology coming out of China. However, Baidu does
understand nationalism, as they have run their own advertising campaigns
portraying outsiders as not understanding Chinese culture. It would be ironic if
they become the foreigners not understanding the Japanese market.
To find success in Japan, Baidu will have to remember that Japan and China
are different markets. Consumers have different needs so approaches that work in
China will not necessarily transfer to Japan. The search engine business in
Japan is not just about search and advertising. Much of the success that the
Yahoo and Softbank achieved in Japan stems from their offering of other services
including online shopping and auctions.
Finding the right talent
Baidu needs to make sure to avoid "lazy localization" in Japan. A lot of
multinationals coming to China sent over managers from headquarters with little
to no hands-on experience in the country. After years of failure, many of these
companies realized that savvy local managers or foreigners who had made a career
of working in China were better suited to the task because they knew how to
navigate local market conditions.
Baidu needs to make sure that they hire the best management team with
Japanese experience. This means lining up a team that the management in China
can trust to make decisions, even if those decisions do not align perfectly with
Baidu China's concept of how their efforts in Japan should unfold.
One wonders if Baidu actually has the in-house talent with experience in both
countries. They have stated that they will find local talent to manage their
Japan operations, but it is unclear who they will trust to bring in and run the
Pressure to expand
Baidu is currently ranked as the No 4 most-visited site globally by Alexa,
sitting behind Yahoo, MSN, and Google. Investors seeking increased returns from
a good thing may be putting pressure on Baidu to expand its operations beyond
its home market.
Over the last 52 weeks, Baidu's stock price has gone from $44.44 to $123.40
on January 29. November and December showed a strong run-up amidst rumors of
Baidu's planned expansion into Japan.
Company growth is good but any company that expands into new markets needs to
consider its long-term objectives.
It should also make sure that it does not lose its edge in its home market,
much as Lenovo lost market share in China after its senior executives got spread
thin integrating IBM's Thinkpad line.
The author is the managing director of the market intelligence firm China
Market Research Group.
(China Daily 02/07/2007 page15)