Mind the Gap
by

China never really stopped being a copycat, and that’s why its tech companies aren’t changing the world

Copying and reverse engineering accelerated new product launches, but eroded China’s competitiveness

PUBLISHED : Sunday, 10 April, 2016, 9:00am
UPDATED : Monday, 16 January, 2017, 10:26am

Western technology businesses struggling to enter China are often accused of displaying a self-serving, haughty “singular thesis or lens.” But Chinese technology companies equally suffer from a blurred world view.

In a recent CNBC interview, Michael Moritz, Chairman of Sequoia Capital, one of Silicon Valley’s top venture capital firms, stunned viewers by saying, “The reason that most Western companies fail in China is because of their own doing. It’s got nothing to do with the Chinese government or regulation, it’s a whole series of Western imperial arrogance that brings about the downfall of many of these companies in China.”

Security experts will tell you that mainland Chinese don’t fear personal reputation risk when committing fraud

Moritz is one of the most successful VCs whose investments have included Google, Yahoo and WhatsApp. But, his unsubstantiated and inaccurate remarks demonstrate that he has little to no experience about the hurdles that face foreign technology enterprises in China. Or that he is trying to curry favour by spreading his own type of propaganda.

Complying to local Chinese laws and localising products has particularly odious implications for international technology companies. Sequoia’s China office should tell him that, for example, foreign payment transaction firms are barred by law from operating in China. UnionPay operates a government sanctioned monopoly. The supposed “arrogance” of foreign competitors is irrelevant.

The biggest objection for technology firms is that the Chinese government demands to see their source code- their most valuable secrets. It is probably the number one impediment to selling technology systems and services.

Moritz ought to talk about the risks of a Chinese partner defrauding a foreigner or misappropriating their intellectual property. It’s considered okay in China to rip off foreign corporations.

In fact, security experts will tell you that mainland Chinese don’t fear personal reputation risk when committing fraud. And in a perverse way, Chinese employers value new employees who possess foreign intellectual property even if it is stolen.

Moritz ought to ask his colleagues about the obstacles that stifle the kind of true innovation he discovered in Silicon Valley. Innovation and creativity are not rewarded in the Chinese commercial or educational sectors, which emphasise rapidly monetizing activities and rote learning.

Obeying authorities ensures stability and eventual success. Gaining favours from regulators and party elites are the surest path to good fortune. Unfortunately, it is precisely this type of closed minded thinking coupled with cronyism and exclusive capitalism with Chinese characteristics that will continue to kill innovation and stifle creative thinking across China.

That explains why China’s big internet companies are basically copies of their western counterparts. It also explains why their tech giants aren’t changing the rest of the world. The US and Europe had online shopping, video and search many years ago.

Copying and reverse engineering accelerated new product launches, but eroded China’s competitiveness. Stealing intellectual property has enormously benefited Chinese companies. But, it has crippled their ability to develop the next version or innovate.

Just look at almost every important technological innovation in hardware, software, and the internet. Without sounding arrogant or imperialistic, they are with few exceptions to made in America.

Chinese internet tycoons and entrepreneurs ought to think of the reasons for this. It might provoke some controversial and creative reflection. But, playing the Chinese patriotic, superiority and victim card is both misguided and arrogant.

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