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What will happen to TikTok? The Chinese tech giants’ growth playbook holds clues

The way the Chinese tech titans supercharge their growth reveals how Bytedance and Tencent might maneuver around Trump’s bans of TikTok and WeChat.

What will happen to TikTok? The Chinese tech giants’ growth playbook holds clues
[Photo: Solen Feyissa/Unsplash]

Donald Trump’s executive orders to block TikTok and WeChat from the U.S. market have set off legal battles and debates over the openness of the internet. But how will these apps’ Chinese parent companies, which have grown rapidly behind a walled garden for many years, maneuver around the bans now that the U.S. government is taking a leaf out of China’s playbook?

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I am an American who’s lived in Asia for a decade now. As a venture capitalist based in Singapore, I’ve learned that major tech firms in these two countries share a common goal—megagrowth—but they come at it from different directions, often with contrasting methods. These tactics can help inform how American bans might play out for TikTok and WeChat and their parent companies, ByteDance and Tencent.

How Chinese and American tech titans differ

In the U.S., many of the big online tech firms gained dominance over the past 25 years by displacing legacy dinosaurs—Netflix versus Blockbuster, Amazon versus Borders and Barnes & Noble—or inventing entire categories of technology, such as Apple and Google. In China, which was a less developed market, the largest tech companies grew without the need to displace established players. In China, the first-mover advantage was very valuable, followed by who could raise the most money—thus creating the first generation of Chinese tech titans such as Baidu, Alibaba, and Tencent. Meanwhile, in the U.S., companies such as Netflix, Amazon, Google, and Apple won through world-class software engineering and user interfaces, out-innovating their competition.

We’ve seen further differences in cultural DNA play out as American and Chinese tech firms competed in other markets. Uber and Amazon pushed their way into Asian countries with product and engineering headquartered back in the U.S. Tencent and Alibaba expanded out of China across nearby parts of Asia with a playbook of minority investments and full acquisitions, similar to a real-estate land grab. Alibaba’s AliPay is known by a dozen different names throughout Asia, such as GCash in the Philippines. Tencent, known for its chat, mobile gaming, and payment apps, invested in Southeast Asian giants such as SEA Group and Indonesia’s GoJek.

Unlike American big tech companies, Chinese tech titans tend not to force their products (or their brands) into new markets. They’ve also been more willing than U.S. firms to enter foreign markets via joint ventures. There are dozens of examples of Chinese tech companies launching joint ventures with home-country brands in markets from Indonesia to the Philippines.

But there’s another big difference between how American and Chinese tech companies have grown. China has been blocking dozens of global services from operating within its borders, including Google, Facebook, YouTube, Instagram, and Twitter. Even Visa and Mastercard were blocked until recently, which gave rise to AliPay and TenPay. By enjoying a walled garden within China, many Chinese apps and services have grown to a size where they now compete globally—which makes them more of a geopolitical threat to American economic interests.

In one sense, Trump’s threat to block Chinese sites such as TikTok and WeChat is not a new stance, but a continuation of his positions on trade, immigration, jobs, and his recent war with Huawei. The ban orders are due partly to concerns of exposing personal data on Chinese networks, and partly to concerns of economic competitiveness.

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However, the current global economic outlook is not rosy. While many online tech firms have prospered during the pandemic, a rise in political tensions is curbing growth for the Chinese titans, as seen last month when India banned TikTok, and now in the U.S. with Trump’s executive orders. Business tensions between the U.S. and China will continue to get worse before they get better.

Chinese internet giants need to prepare for a future with more intricate geopolitics in order to operate globally. And within this context, TikTok and WeChat present themselves as test cases. This is the first time that immensely popular Chinese consumer products—or in the case of TikTok, their Americanized versions—are about to be barred from the world’s most prominent consumer market.

What lies ahead

How will the parent companies respond? As the Chinese playbook has shown elsewhere, you can achieve market penetration and growth by sitting behind another player. That is exactly what we’re seeing with TikTok’s rumored sale to Microsoft. TikTok’s parent company, ByteDance, may happily sell the brand and product, but it could still own the IP and monetization models underneath. Or, it could just shift to being a minority shareholder, with the intent to purchase back in the future.

WeChat is a little more difficult for Tencent to remove itself from, as it’s the king of all super-apps. If WeChat is blocked in the U.S., we might see Tencent do a business development partnership with a second-tier chat app in the U.S., such as Line. This hypothetical partnership could allow a user of Line to send messages to a WeChat user and vice versa, just as a user of Hotmail can exchange emails with a Gmail user.

Furthermore, it wouldn’t be far-fetched to imagine Tencent launching a new chat app as a joint venture (of which it would be a minority shareholder) with a company such as Amazon. While most other large-cap tech companies such as Facebook, Google, and Apple have a social or chat component, Amazon doesn’t. In addition, Amazon and Tencent share a common enemy: Alibaba. We’re all familiar with the Asian proverb: The enemy of my enemy is my friend.”

The reality is that there are many ways for a Chinese company to operate in the U.S. that would circumvent any short-term blocks—just as non-tech-based U.S. companies operate in China despite restrictions on foreign ownership. Many global corporations skirt these restrictions through creative commercial contracts that still allow revenue sharing and decision-making to sit outside China.

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The tech giants of the United States and China share one core value: growth at any cost, in order to dominate the market. They just have different philosophies on how to get there. With TikTok and WeChat, we’re about to see Chinese business philosophies meet and perhaps merge with those of the U.S. It promises to be a dance with repercussions throughout the tech industry and the global economy.


Vinnie Lauria is a Silicon Valley entrepreneur turned investor. He is a managing partner at Golden Gate Ventures, a Singapore-based VC fund.

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