The evidence is overwhelming: It’s beyond tough for U.S. technology companies to do business in China. Tough, but not uniformly tough, as a nuanced article in The New York Times this weekend explains. Apple has crushed it for several years in China, a beneficiary of the rapidly growing upper middle class there. In days gone by, tech stalwarts like IBM (IBM, -0.74%) and Motorola built meaningful businesses there too.
The worst thing for an American tech giant to be in China is in the information business. Google (GOOGL, -2.63%), Facebook (FB, +0.29%), and Twitter (TWTR, -0.55%) are nearly non-existent. As The Times carefully explains, LinkedIn subjected itself to the government’s information-control conditions—and still hasn’t been able to succeed. Uber famously flamed out in China, though the government wasn’t a factor in its demise. (Competitors with deeper pockets and a better understanding of mass consumer markets were.) And even Apple (AAPL, +1.02%) is moving in the wrong direction in China as it no longer has a lock on the highest-echelon of smartphones.
Two factors are at play here, and it’s important to consider both. Yes, the Chinese government makes it difficult for a Western company playing by Western information-exchange rules to succeed. But the other factor is how different this giant market is. The simple fact of dominance in messaging usage by WeChat is a barrier for services like LinkedIn or Facebook that are predicated either on email or their own messaging features. WeChat, owned by Tencent (TCEHY, +2.06%), is an obstacle for Apple too. If WeChat is the most desired feature on a smartphone in China, there’s no need to own an iPhone.
U.S. and Chinese government and business leaders met last week to discuss ways the two countries can work together. That’s a good thing. U.S. businesses need access to China’s market. Despite recent turbulence, Chinese companies crave quality investments for their capital. The way forward will be neither easy nor uncomplicated.