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- Now is not a great time to be the CEO of an American technology company with operations in China.
- Western tech companies are coming under pressure in the world’s second-largest economy.
- The rise of intense local competition and increasing pressure from the Chinese government have proven difficult.
There was a time when American CEOs looked to China as a land of opportunity. Those days may have long passed.
After years of upward growth, some of America’s most powerful technology companies are rapidly slipping into the new reality of doing business in the world’s second-largest economy.
The Chinese government supports ultranationalism. Meanwhile, sentiment toward Western companies also worsened. This is especially true as domestic companies emerge as a viable alternative. And it all created a dangerous race to the bottom to win over consumers.
No wonder American companies that once hoped this would be the “Chinese Century” are having to learn some very painful lessons about doing business in China.
The battle for technological supremacy
One need only look to high-tech to see how much trouble American companies are in in China.
Apple has struggled to get new iPhones into the pockets of Chinese consumers, with data from Counterpoint Research showing sales plummeting 24% in the first six weeks of this year.
Meanwhile, Tesla’s shipments from its giant factory in Shanghai fell sharply last month, with 60,365 units shipped, Bloomberg reported. This is a 16% decrease compared to January shipments and a 19% decrease compared to the same month last year, according to data from the China Passenger Vehicle Association.
This may not immediately cause panic.
Apple’s net sales in Greater China may have been down 13% in the last three months of 2023 compared to a year ago, but it still generated $20.8 billion in revenue. Tesla is not the only EV company experiencing slumping sales.
But it signals a real decline for two of America’s biggest companies in China. what happened?
iPhone anxiety
In Apple’s case, there are several points. Gene Munster, managing partner at Deepwater Asset Management, told BI that the decline has something to do with “American products losing popularity in China.”
It certainly was. Last year, the Chinese government banned the use of iPhones by officials, making owning one less appealing. Investors responded by wiping $200 billion from Apple’s value.
The ban comes despite export bans preventing the use of industry-leading U.S.-made components for locally produced 5G smartphones, which many considered a breakthrough device that rivals the capabilities of the iPhone. , which coincided with the launch of Huawei’s Mate 60 Pro.
According to research by Counterpoint, sales of Huawei phones increased by 64% over the same period, while iPhone sales fell by almost a quarter. “Both the U.S. and China are becoming more isolationist, which favors domestic brands. With the advent of AI, that dynamic will become even stronger,” Master said.
For Tesla, the broader slowdown in the EV market that took shape last year would have been especially felt in February, given the overall slump in sales during the Lunar New Year festive period.
But more broadly, both declines signal that the battle between China and the United States for technological supremacy is getting more serious.
Chinese companies have long adopted a copycat strategy, trying to build consumer electronics, electric vehicles and other industries from scratch. That meant trying to replicate what Western countries had done, often to an inferior standard.
That’s no longer the case. As Huawei’s Mate 60 Pro shows, Chinese consumers now own homegrown phones that offer an iPhone-like experience.
Meanwhile, local EV makers such as BYD are experiencing rapid growth, luring consumers with vehicles that are much cheaper than Tesla.
According to CarNewsChina, BYD reported a 43% increase in sales in January, but lost market leadership to Volkswagen. The company also cut prices on its best-selling models by an average of 17%, according to Reuters.
This struggle for supremacy is expected to come under great pressure from the Chinese government.
When Premier Li Qiang announced China’s 5% annual growth target at the start of this month’s National People’s Congress, it became clear how important technology would be in driving it forward.
This means the Chinese government is expected to play a more active role in promoting the growth of the domestic technology sector and keeping out foreign companies that get in its way.
According to the Wall Street Journal, a directive known as “Document 79″ is being tightened to exclude Western companies. It requires state-owned companies in a wide range of sectors, including finance and energy, to “replace their IT systems with foreign software by 2027.”
China remains too valuable to let go, so it will be interesting to see how Western companies respond. This was made clear when Suzanne Clark, president of the U.S. Chamber of Commerce, visited Beijing in late February to help normalize business relations.
However, from now on, “normal” will change a little.
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