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China's star as a competitive economy is on the rise -- and businesses worldwide need to take a look at the constellation of seven technology companies that is ascending with it.
When you look at the international expansion of Chinese technology firms, there is no doubt that the ambition is there. In addition to all the favorable factors that both China's economy and its leading corporations have at present, China is clearly a nation on the rise -- and its technology enterprises want to break new ground.
Increasingly, Chinese companies are challenging established market leaders in mobile devices, telecommunications, and online services. Even if China as a whole has not yet shed the second-rate, factory production image, it's safe to say that the longstanding (and off-base) reputation is on its way out.
Tech Pro Research profiles the "big seven" among Chinese technology companies. You may not need to memorize the list: You'll probably be hearing a lot more from them in the coming years. Nevertheless, here they are in alphabetical order:
Alibaba Group Holding Limited
- Headquarters: Hangzhou
- Description: Alibaba is a Chinese e-commerce company operating online marketplaces for both international and domestic China trade.
- Founders: Yun (Jack) Ma, Eddie Wu
- Founded: June 1, 1999
- Categories: E-commerce
- Website: http://www.alibaba.com
2014 was an eventful year for e-commerce powerhouse Alibaba. The company's Wall Street IPO in September broke records as the largest in history at $25 billion. Shares opened at $68 and closed at $93.89 -- not a bad day. With that impressive debut, Alibaba Founder and Chairman Jack Ma made more money than anyone else in 2014; he is now worth $29 billion and is the wealthiest person in China.
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Alibaba is the dominant e-commerce platform in China. In the words of our sister site, ZDNet, it is an "eBay-meets-Amazon and then some kind of business."
Mostly known in the United States for its investment in Yahoo, the company wants to woo the American consumer as the next necessary step to becoming a global powerhouse. That will entail winning market share from Amazon, which is well entrenched as the go-to online shopping destination for US buyers. It will be worth watching the steps Alibaba takes in 2015 to extend its international reach, given both its strengths as a company and the challenges that a Chinese enterprise faces in breaking such new ground.
Alibaba's main revenue is from online marketing and advertisements; other sources include membership/transaction fees and cloud services. It also has opened a new data center in Beijing and has been gathering up patents. With these assets on paper and new shareholders on board, Alibaba is currently valued at $200 billion.
Among its Chinese competitors, there is a rising star: 58.com, a classifieds website platform similar to Craigslist, made Bloomberg's list of 10 fastest-growing public tech companies from emerging markets. As of April 2014, 58.com had a 139% three-year compound growth in net sales.
- Headquarters: Beijing
- Description: Baidu is a Chinese website and search engine with more than 500 million monthly active users.
- Founders: Robin Li, Eric Xu
- Founded: October 11, 1999
- Categories: Search
- Website: http://www.baidu.com
Baidu is the main search engine in China, and in fact Google has only a single-digit market share. The company holds two-thirds of the search market in a bustling nation of 1.4 billion. Not to mention that Baidu meets the Chinese government's demanding and ever-changing rules -- what has been lovingly dubbed the "Great Firewall of China." Co-founder Robin Li was working in New Jersey in the 90s and actually received a US patent for Baidu's technology before Google did.
Baidu Research, located in Silicon Valley and Beijing, announced this month the initial results of its speech recognition system, Deep Speech. It exceeded published results of the Switchboard Hub5'00 benchmark and performed 10% better than Google Web Speech and commercial systems with background noise present.
"Baidu's innovative work with GPU scaling and large data sets brings us a step closer to the vision of being able to converse naturally with smart devices, appliances, wearables and robots, even in noisy environments," said Dr. Ian Lane of Carnegie Mellon University in a statement. "Honestly, I think we're entering the era of speech 2.0," said Dr. Andrew Ng, Baidu's chief scientist, in a recent VentureBeat interview.
Also this month, Baidu announced an investment in Uber reportedly worth $600 million, in a bid to compete with Alibaba and Tencent in the Chinese online car-booking market. In China, Uber is interestingly free of the regulatory challenges it's facing in Brazil, Europe, and India.
Baidu tried unsuccessfully to expand to Japan in 2007, but it has offices and labs in Singapore, Australia, India, and Brazil. Its plans for the US are as yet unclear, but there's no doubt, just as with its fellow Chinese tech companies, that the ambition is there.
Huawei Technologies Co. Ltd.
- Headquarters: Shenzen
- Description: Huawei Technologies, a telecoms solutions provider, offers infrastructure application software and devices with wireline, wireless, and IP technologies.
- Founder: Ren Zhengfei
- Categories: Security, storage, mobile, wireless, web hosting
- Website: http://huawei.com
- Founded: January 1, 1987
Huawei is now the world's second-largest telecom equipment suppler, second only to Sweden's Ericsson. And it has the R&D budget to match: Outlays for research have gone up from $389 million in 2003 to $5.5 billion in 2013, a fourteen-fold increase. Total sales in 2013 were $39 billion, and Huawei is funding work at the University of Surrey to develop 5G networks, beyond the numerous patents it already holds for 4G LTE technologies.
Not surprisingly, Huawei has already achieved global reach. In 2013, just over one-third of its revenues came from China,. The share in EMEA was 35%, which grew 9% over 2012. The company plans to extend into smartphones as well: It shipped 52 million units in 2013, up 60%. Sales in Europe for 2013 doubled, thanks to cost-conscious buyers not attached to any brand.
In the West, Huawei faces claims of espionage. The US and Australia have both barred it from public sector contracts, fearing that its systems could be tapped to benefit Chinese spies. Huawei's founder, Ren Zhengfei, is a former Chinese military officer. For its part, the company denies the accusations, pointing out its board members from Western countries.
In October 2014, Danish telecom carrier TDC announced a $700 million deal to switch its existing Ericsson gear for Huawei. TDC CEO Carsten Dilling said that he choose Huawei for its technical expertise, adding that it was "very expensive." Also in October, Interbrand named Huawei to its Best Global Brands list, the first time a Chinese company has made the list, ranking 94th.
If that weren't enough, Huawei plans to best Apple in the global smartphone market within three years. It currently holds 7% to Apple's 12% and Samsung's 25%. Huawei released its Ascend Mate 7 smartphone in September 2014.
Lenovo Group Ltd.
- Headquarters: Beijing
- Description: Lenovo Group is a Chinese multinational technology company that sells personal computers, smartphones, and other electronic products.
- Founders: Chuanzhi Liu
- Founded: January 1, 1984
- Categories: Hardware
- Website: http://www.lenovo.com
Lenovo made waves on this side of the Pacific when it purchased IBM's PC business in 2005; that a Chinese company would purchase such a symbol of American tech dominance caused some consternation, and the $1.75 billion deal attracted regulatory scrutiny. Speaking of PCs, Lenovo is now ahead of HP as the world's #1 manufacturer.
Lenovo recently bought IBM's server business for $2.3 billion and the in-the-red Google-owned Motorola smartphone business for $2.9 billion. Since Q3 of 2013 Lenovo has been the #3 global smartphone maker, behind Samsung and Apple, with 6% worldwide. Lenovo however is aiming higher.
"We definitely want to be number one in smartphones, but it will be a long journey," said Lenovo CEO Yang Yuanqing in an interview with the Wall Street Journal last January.
Lenovo first entered the smartphone market in 2010 in China; since 2012 it has expanded to Russia, India, and Indonesia, where it presently has a 10% market share. Also in 2010 Lenovo launched a team of mobile-app developers. In 2013 it released Qiezi, an app for both iOS and Android that enables two smartphones to share pictures without the internet. Lenovo claims the app gained 30 million users in just four months. At the end of 2013, it opened a 200,000 square meter research facility for smartphones and tablets in Wuhan, China, to the tune of $800 million.
The Chinese hardware maker is also using good old American star power: In 2012 it inked a three-year deal with the NFL permitting it to use NFL trademarks in its ads, and it has hired Kobe Bryant for ads in Asia and actor Ashton Kutcher for ads in the US.
Tencent Holdings Limited
- Headquarters: Shenzhen
- Description: Tencent is a Chinese internet service portal offering value-added internet, mobile, telecom, and online advertising services.
- Founders: Pony Ma, Li Qing Zeng, Chen Ye Xu, Yi Dan Chen, Zhidong Zhang
- Founded: November 1, 1998
- Categories: Internet marketing, mobile, internet, entertainment, media, curated web
- Website: http://www.tencent.com
Not widely known outside Asia, Tencent is actually the fifth-largest internet company in the world, behind Google, Amazon, Facebook, and eBay. The company has not yet started a major global expansion, however. Tencent has an approximate market value of $150 billion and generates revenue from its QQ Web portal, online video games, "PaiPal" auction site, and smartphone apps.
Tencent launched the QQ messenger app. With more than 650 million active users, it beats the Facebook-owned WhatsApp, which has roughly 500 million. Tencent also runs the Dididache Taxi online ride-ordering system, which is China's largest with more than 40 million users. According to The Guardian, "Its sheer financial heft means that, if it flexes its muscles beyond China, it may put car-hire companies such as Uber or Hailo in the shade."
Tencent's mobile messaging app is WeChat, which dominates the Chinese market with 272 million monthly active users. Last year Tencent spent $200 million to promote WeChat in Spain, Italy, South Africa, and India, and the company claims more than 100 million international downloads.
"In handsets or laptops, Chinese tech companies' global expansion has been much more of a hardware story so far, and I think what's fascinating about Tencent is that it's becoming a software and services story," said Michael Reynal of RS Investments in a Wall Street Journal interview.
Sony and Tencent this month announced a music distribution deal that permits Tencent to distribute Sony's formidable music catalog within China on its online and social media platforms. Last month Tencent and Warner Music launched a similar deal. Chinese companies are eager to change the Western perception of China as devoid of copyright laws and rampant with piracy.
Xiaomi Technology Co., Ltd
- Headquarters: Beijing
- Description: Xiaomi is a privately owned company that designs, develops, and sells mobile phones and consumer electronics.
- Founders: Lei Jun, Hong Feng, Liu De, Huang Jiangji, Zhou Guangping, Li Wanqiang, Lin Bin
- Founded: April 4, 2010
- Categories: Mobile
- Website: http://www.mi.com
Xiaomi garnered its share of international press in August 2013 when it hired Hugo Barra, then head of product management at Google Android, to lead its global business development. Not unlike Apple, in China Xiaomi has a loyal consumer smartphone following, who eagerly wait each new arrival. In April 2014 the company bested Samsung for the second time in monthly smartphone sales in China. In India smartphone sales are booming, and Barra has announced Xiaomi is headed there.
Yet despite the media attention, how Xiaomi is structured and operates is not well understood. The Wall Street Journal points out that Xiaomi is not one company: At the top of the organizational chart is Xiaomi Corp., which is incorporated in the Cayman Islands and oversees both Chinese and offshore businesses. Lo and behold, Alibaba and Tencent are also listed in the Caymans, since the Chinese government restricts foreign investment in technology and internet companies. The Journal was also able to uncover Xiaomi's revenue sources --hardware sales, including mobile devices, accessories, set-top boxes and television sets, and "value-added services," like games and advertising, totaling 27 billion yuan, or roughly $4.3 billion.
Xiaomi is apparently seeking its fifth round of funding. If the $1.5 billion amount is both accurate and successful, that would be the most venture capital ever received by a Chinese company. The British investment firm DST Global is said to be involved; it is also invested in Alibaba and Facebook. In October 2014 Xiaomi said it plans to invest in its internet TV, which will up the rivalry with Alibaba, Tencent, and Baidu in that space.
Its net profit has reportedly doubled over the last two years, based on the above-mentioned WSJ report, and Xiaomi is projecting 75% growth in net profit this year. In the first nine months of 2014, it shipped 44 million smartphones, which according to IDC places it on the top-five vendor list for the first time. If it secures that $1.5 billion, its market valuation will top $40 billion.
- Headquarters: Shenzhen
- Description: ZTE is a global provider of telecommunications equipment and network solutions and is currently the telecom firm with the most market capitalization and revenue in China's A share market.
- Founders: Hou Weigui
- Founded: 1985
- Categories: Telecommunications, network systems
- Website: http://zte.com.cn
ZTE manufactures network equipment, along with accompanying devices and software. It is among the top 10 smartphone global vendors according to IDC, which means it's rubbing elbows with fellow Chinese companies Huawei, Lenovo, and Xiaomi. It has faced suspicions similar to Huawei's from Western governments, which, like Huawei, it has regularly denied. ZTE is building a smartphone that runs on the Firefox OS, which should be quite inexpensive and a potential top-seller in emerging markets.
ZTE is at present the second-biggest filer of patents worldwide after Panasonic, and that's because it's on a mission similar to other Chinese tech firms. This year the company is starting to put its own brand on mobile devices in the United States, as opposed to the white label phones it has offered previously. ZTE was in fourth place in Q3 2014 in the U.S. smartphone market, behind Apple, Samsung, and LG. Now it is seeking consumer awareness. With a sponsorship already in place with the NBA's Houston Rockets, its adding similar deals with the New York Knicks and the Golden State Warriors.
ZDNet reported that ZTE filed financial statements in October 2014 with the Hong Kong Stock Exchange. For Q3 2014, the company had operating revenue of $3.5 billion, up 24 % year on year. That makes year to date revenue roughly $9.5 billion, close to an 8% increase from 2013. Net profit for Q3 2014 was about $113 million, up 191% year on year, with profit for the year to date rising 232% to roughly $290 million. ZTE enjoyed a 40% jump in handset revenue, due to growth in the US, China, and Japan, and a 12.8% increase in revenue from its networking equipment business.