INTERNET: WeChat Probed, Faces Eviction in Taiwan
Bottom line: A probe against WeChat in Taiwan is likely to see its local offices shut down and Tencent evicted, reflecting the many challenges Chinese tech companies will face as they try to expand abroad.
Taiwan may share many cultural traits with China, but its government certainly doesn’t seem to have much love for Chinese technology. The list of Chinese firms running into trouble on the island has just gained a new member, with word that Tencent’s (HKEx: 700) hugely popular WeChat is facing eviction from Taiwan for possibly violating local investment rules.
This brewing setback is interesting mostly for political reasons, and also because it reflects the troubles that WeChat has faced in its fledgling global expansion. From a practical perspective, Taiwan looks like an easy market for Chinese tech companies due to the shared language and culture. But the fact is that Taiwanese preferences are often quite different from China’s, and in this case the reality is that Japan-leaning Taiwanese far favor rival Japanese product Line to WeChat.
According to the latest headlines, WeChat is being probed by the economics ministry over whether its local operations violate rules that strictly control Chinese investment on the island, especially in sensitive sectors like the Internet. (Chinese article) The report, which comes from a local Taiwanese media, points out that Tencent could be forced to leave if the ministry determines the company broke the rules.
It also points out that e-commerce giant Alibaba (NYSE: BABA) ran into similar problems when it tried to open a Taiwan office to oversee local versions of its popular online shopping platforms. It says Alibaba was ultimately found to have broken similar rules and was evicted, though I checked the Internet and Taiwanese versions of its popular Tmall and Taobao online shopping platforms are still operational.
Tencent and Alibaba in Taiwan
Tencent and Alibaba aren’t the only China tech companies to hit resistance in Taiwan. Smartphone sensation Xiaomi also ran into headwinds on the island last year, when it was fined by one of Taiwan’s consumer watchdogs for making false sales claims. (previous post) Another notable case saw China Mobile (HKEx: 941; NYSE: CHL) ultimately scrap a high-profile deal to buy 12 percent of Far Eastone (Taipei: 4904), one of Taiwan’s top 3 mobile carriers, due to investment restrictions.
For Tencent, this particular development reflects the company’s inexperience at operating internationally, and probably isn’t a huge setback for WeChat. Many web companies and app makers operate successfully in markets where they have no physical presence. But lack of such a presence makes it harder to provide local technical support, or to engage in local promotions and other marketing activity.
The Taiwan setback also isn’t that big a deal because most local people prefer Line, and US-based WhatsApp is probably a distant second in the market. Only Taiwanese with lots of mainland-based friends tend to use WeChat, and many Taiwanese are slightly skeptical about censorship or being monitored due to Tencent’s Chinese roots. Similar conditions were responsible for Tencent’s big flop in the US last year, where it was met with skepticism and also an entrenched local rival in WhatsApp. (previous post)
At the end of the day, Tencent is learning a similar lesson in Taiwan that many of China’s Internet and app companies are also learning as they attempt to expand beyond their home market. They are finding that the global Internet is far more competitive and filled with bureaucratic and other obstacles than their highly protected home market. Accordingly, anyone hoping for fast returns from a global expansion might need to reconsider that forecast.
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