US-based tech companies are pulling out of China amidst growing tensions with Beijing over new data privacy laws and stiff competition. What was once seen as a gold mine is no longer worth the gold.
Big tech firms in the US were first drawn in by the promise of a new era by Jack Welch, the former CEO of General Electric, on the future of China’s market in the early 1990s.
His words opened the eyes of tech companies to the massive opportunities offered by China. As he set the ball rolling, big tech companies started trickling in, eventually building bigger bases to take on the Chinese market and the world. Its size, both in economy and population, were impossible to ignore and drew in multiple tech companies.
Why western countries are leaving China?
Last November, China enacted a data privacy law that soured things for US companies in China. The rule states exactly how much data can be collected and how it should be stored. The new law raises costs of compliance and seemingly jeopardizes the future of US companies in China.
A combination of regulatory crackdowns, fierce domestic competition, and changing Chinese consumer preferences have forced US-based tech companies to reconsider their strategy. The pandemic did not help cement the relationships between the Communist government and the US companies in China.
The severe lockdown and other Covid restrictions have also added to companies’ grief as supply chain issues threatened to choke growth, amidst growing geopolitical uncertainty. Companies are unwilling to risk losing clients and reputation as the advantages of staying do not outweigh the possible losses.
What company pulled out of China?
Ride-hailing giant Uber sold its China operations to rival Didi Chuxing in 2016, making a clean exit. Much before Uber, fed up with censorship, Google shut down its search engine business in China in 2010.
Jeff Bezos’ Amazon entered the Chinese market in 2004. The company branded itself as Amazon China to cater to the domestic market in 2011. But, alas, intense home-grown competition had Amazon reevaluating its plans in 2019. The ecommerce giant finally decided to shut down its domestic businesses and focus on cross-border sales for Chinese customers.
A heavily restricted LinkedIn by Microsoft was operational in China for a few years. But new data privacy laws and regulation made it shut shop by the end of 2021.
San Francisco-based online travel marketplace Airbnb too decided to exit China by June of this year. The company faced intense competition from indigenous rivals such as Meituan and Ctrip. Airbnb’s co-founder and China chair, Nathan Biecharczyk informed Chinese customers that the company will focus on outbound travel from China starting July 2022.
Tightening regulations have also affected the offerings of sports apparel brand Nike. The sportswear company informed Chinese customers that they will no longer be able to use its Runner Club app, which allows users to track their fitness activities and share the information with their friends. The new data laws state that companies must store data locally and comply with government inspections.
Tech companies have also found it difficult to navigate the Chinese market, as they struggled to put up a sustainable infrastructure that catered to the unique needs of customers in China. One expert also mentioned that it is tough to stand up to the locally dominant players as they are incredibly fast and dynamic with regards to changing their strategy and goods based on demand.
There are few cases of foreign players managing to thwart local players in the Chinese markets. Some investors are more optimistic about Chinese players globalizing than they are about tech companies localizing their wares for the country.
