Alibaba, and the monopoly effect

Alibaba’s blockbuster IPO last week is a reminder that Chinese tech firms have a distinct advantage as they become more global.

Called the eBay and Amazon of China, Alibaba is poised to move into global markets, as are the two other “BAT” firms, Baidu, the Google of China, and Tencent, which is a social networking firm. They do so with the advantage of having China mostly to themselves.

With the biggest market in the world, China can use its industrial policy to create global winners and losers, as I wrote in a column for today’s paper. Many companies are blocked, or face barriers that advantage Chinese competitors.

I spelled out two scenarios. In one, U.S. Internet firms struggle against powerful Chinese firms in developing markets like Africa, India and Latin America. In another, China becomes more open with commerce dictating internal policies.

That scenario looks unlikely in the short term given that firms like Google are facing a particularly difficult situation in China, as the New York Times reported. Companies in China using Google products and services like gmail and Google Drive are experiencing problems. That has led some to move operations to places like Singapore or ask whether they need to be in China, the article said.

A third scenario may be that Chinese firms themselves suffer from being in a monopoly setting, as described to me by Daniel Sneider, associate director for research at Stanford’s Shorenstein Asia-Pacific Research Center:

For now, Alibaba looks good because they reap monopoly profits inside China. But they are facing increasing competition from Chinese firms. And I don’t see that they have anything to offer in the global marketplace where they have real competition. And when they go global to raise capital, they expose themselves to the scrutiny and legal systems of the West, which they really can’t deal with well. Their foreign investors of course don’t mind making money off Alibaba’s listing — but once the profit taking is over, what happens?

Above: Jack Ma, Alibaba’s founder and chairman. (Mike Clarke/AFP/Getty Images)


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