Tech Firms Continue Losing To Chinese Favouritism

| May 23, 2015

China has started to encourage its domestic customers and businesses to shop chinese it’s products and services. This has come as a theme from the Chinese government that firms abroad are engaging in cyber spying, and malicious data practises, so consumers should keep their interests closer to home. This is already resulting in a number of global business either selling their stakes to their rival chinese firms, or losing market ground to competition.

A Closer Look At The Chinese Tech Policy

A Closer Look At The Chinese Tech Policy

Hewlett Packard

One of the biggest casualties of this Chinese tech cull is Hewlett Packard, which is selling a majority 51% of its stake in it Chinese server and storage unit business for approximately $2.3bn in order to enable it to form a partnership with Chinese company Tsinghua Holdings, which is part of the state owned Tsinghua University. Together they will create a new business entity called H3C. HP plan to maintain the ownership of its other businesses which it operates in China such as its software, Helion Cloud operations and custom business services. The new H3C company will have around 8,000 members of staff, and will generate $3.1bn in annual revenue. HP hopes this will allow it to better serve its Chinese customer base, and also build a level of trust in their brand.

Samsung

Another company facing Chinese backlash is South Korean tech giant Samsung. They have faced a shrinking popularity in China, which is billed as the world’s largest smartphone market. Samsung’s 2014 domination lead of 19.9% has dropped significantly to 9.7% so far this year. Although they have been squeezed from now the dominant player Apple, which is a US firm, the storey between the headlines is the increased market share that the 2 biggest Chinese smartphone makers have quietly enjoyed. Xiaomi has increased its market share by 48% from 9.2% in 2014 to 13.7% in 2015. While Huawei increased its share by 46% from 2014’s 7.8% to 11.4% so far for 2015. With this increased market share from Samsung’s competitors, profits are down by 30% over the same period at Samsung. A result that looks to only increase, as they finally lose their dominance in the world’s most lucrative market.

Expedia

Expedia is another technology firm that is losing to the favouritism policy of the Chinese government. Its just had to sell a stake in its Chinese mobile and online travel service eLong, to several Chinese firms in the travel sector. These firms include Keystone Lodging, Ctrip.com, Plateno Group, and Luxuriant, and for a total purchase of approximately $671m. Expedia’s first quarter profit fell by 31%, which is partly thanks to its loss making eLong venture, however they have vowed to continue spending on marketing and sales staff in a bid to lure the travelers of the world’s most populous nation. Travel commerce commentators have stated that this sell of to Ctrip will be a huge win for them, as they are Expedia’s closest competitor.

Beijing’s Decisions

There has been lots of noticeable shift in the technology sector in China, with companies including IBM and Cisco also reporting a slowing demand from as early as 2013. None of these companies have commented publicly about the political policies. There has also been a government wide ban of Windows 8 with existing domestic computer users being urged to switch to a Chinese branded version of Linux. This aggressive stance from Beijing has come from the Edward Snowden revelations that indicates 5 Chinese computer hackers being guilty of stealing US commercial secret’s, with this crackdown on foreign tech the angry Chinese response. The situation may try to be resolved by foreign companies at the US-China Strategic and Economic Dialogue (S&ED), but it’s unlikely China are in any hurry to do so.

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