SINGAPORE--The main difference between the Internet startup scene in China and Silicon Valley in the United States is the lack of merger and acquisitions (M&A) activities in the former. This is because large Chinese companies are not looking to buy out smaller competitors, while entrepreneurs prefer to go public with their startups.
Duncan Clark, chairman of advisory firm BDA China, pointed out that the M&A route is generally not a path oft-taken by Chinese companies. He identified big Chinese companies such as Tencent, Alibaba's Taobao and Baidu as dominant in their fields of games, e-commerce and search, respectively.
However, these large Internet companies are not buying smaller startups, which leads to the lack of an exit route for startup founders, Clark pointed out, adding there are exceptions to the norm. The executive was speaking at The Wall Street Journal's Unleashing Innovation conference here Wednesday.
Another reason why M&A for China's tech industry is not popular is because Chinese entrepreneurs prefer public listing their companies instead of being bought over, he noted.
"For the entrepreneur in China, it's all about the IPO (initial public offering). For them, it's the three letters. It's like LV (Louis Vuittion) [products], you just have to have it," he explained.
This, however, has resulted in some companies which should not have gone public when they did. These businesses still lack maturity, and caused dissatisfaction among certain investors, Clark said.
Asked if large Chinese Internet companies have the potential to go global, he said there is "very little incentive" for them to expand into destinations such as Europe or the United States, given the sheer size of the domestic market.
"It will take a lot for [the overseas market] to have an impact on their revenues," he said.
China has the world's largest population of 1.3 billion according to the World Bank, as well as the biggest Internet user base. In January, China Internet Network Information Center (CNNIC) reported that Web users in the country have grown to 564 million in 2012, which is a 10 percent increase compared with 2011.
By contrast, the total U.S. population is around 315 million, according to its July 2012 population census.
China's "internationalized" successes
However, Clark did note that Tencent is an exception to the rule as "it is a more internationalized company". The Internet company's WeChat mobile messaging app was initially popular in China and emerging markets, but it is now gaining popularity in Europe and in the U.S., he said.
Huawei is another global success story among Chinese companies. Clark said the telecoms equipment giant had to go global in the early years as it was not able to break into the local market, which was then dominated by foreign vendors such as Ericsson and Alcatel-Lucent.
"Huawei was too late into the game. So it went into interesting places like Serbia and, controversially, Iraq because it was the only company prepared to go into these markets. It then scaled up from these emerging markets into Western Europe," he said. Today, some 70 percent of its revenue is from overseas markets, he added.
Clark also said Huawei has too much to lose to be a cybersecurity risk to countries such as the U.S. and Europe. "Why would they risk [this] when it has so much business outside of China," he said.
Huawei, and fellow Chinese telecoms equipment maker ZTE, have faced suspicions in the U.S., Europe and Australia that their equipment might allow monitoring by Chinese intelligence services in recent times. However, Huawei denied the charges and was said it was unfairly singled out because of its Chinese origins.