American and Chinese tech titans battling in South East Asia

There is a major contest playing out on the smartphone screens of consumers in India, Indonesia and other emerging economies of South East Asia. American tech titans, holding billions in their thrall, are pitted against a Chinese dream team, as they vie for global domination.

Time and capabilities have changed as Chinese tech firms that once mimicked Silicon Valley products have now become pioneers. Mainland firms are now ready to make a strong play for markets which neither they nor American firms can call home. As they vie for the next billion consumers to come online, Alibaba is taking on Amazon, Baidu is matching against Google and Tencent is proving its mettle against Facebook. WeChat, a messaging app run by Tencent with endless bells and whistles, for example, rivals anything from California.

The American and Chinese tech giants have very different strategies. American firms typically set up outposts from scratch. They fund subsidiaries that offer to Indians or Mexicans the same services that their domestic users might expect. For example, Amazon in India has built a network of warehouses to fulfil e-commerce orders, rolled out its Prime video service (with added Bollywood content), website-hosting services and so on. Google and Facebook also provide offerings similar to those that consumers get in America. Google customers worldwide use the same Chrome browser, YouTube website or Android phone-operating system—and are served advertisements in much the same way. Also, it is easier for English-language firms than for Chinese ones to hire staff or to attract users.

On the other hand, the Chinese strategy in emerging markets has been not to set up shop itself but instead, to invest in local players, whether by buying them outright or acquiring a minority stake. The Chinese have built a constellation of firms focused on shopping, payments and delivery. These include Paytm and BigBasket in India, Tokopedia in Indonesia, Lazada in Singapore, Daraz in Pakistan and Trendyol in Turkey. Interestingly, most of their customers probably have no idea that these apps are backed by a Chinese tech titan.

The different approaches reflect the way the Western and Chinese firms make money. Google and Facebook earn the bulk of their revenue from advertising against services their users flock to. The downside of the American approach is that subsidiaries are wedded to a business model that proved itself in completely different circumstances. In contrast, the competitive advantage of Chinese firms has historically come from processing payments and organising distribution of goods in countries where these were previously tricky. The Chinese firms have a proven record of chaperoning hundreds of millions of emerging-market consumers onto the internet. They also enjoy the tacit support of their country’s government, keen on pushing them to expand in the countries near China. Yet, the Chinese firms sometimes end up competing against themselves.

The dynamic Southeast Asian market has emerged as the battle field for the burgeoning penetration of e-commerce, smartphones and digital economies. Whether the Chinese tech companies continue to globalise while challenging its Western counterparts or the latter successfully win the next billion internet users, this battle will define who primarily generates technological growth over the next two decades.

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