Cascading Networks and the Chinese Tech Market
https://techcrunch.com/2016/08/28/can-foreign-tech-companies-win-in-china/
This article talks about the challenges that foreign tech companies have when trying to break into the Chinese tech market. Because of its emergence as the second largest economy in the world, China has become home to the largest share of internet users in the world. Yet, the companies that have been successful in many other countries such as Facebook, Twitter, and Amazon, have been unsuccessful in penetrating the Chinese market. Even those that have been able to do so, such as LinkedIn and Evernote, are facing increased competition from local rivals, competition so bad that it has forced Uber to leave the market.
Part of it has to do with culture; LinkedIn and Evernote were able to get into China by adapting their sites to cater more to Chinese users’ needs and by giving their Chinese divisions increased autonomy over the site. However, another large part has to do with the Chinese Government’s intervention in the tech space. Google refused to abide by the Chinese Government’s demands to censor their results and instead opted to leave the country.
In the meantime, Chinese developers has developed multiple native alternatives to foreign companies with equivalents to Facebook, WhatsApp, Youtube, Amazon, Google, etc.
The proliferation of these homegrown products and the failure of foreign apps can largely be attributed to the cascading effect within networks. Normally in a cascading network model, users will adopt a service or a product if p portion of their neighbors or links adopt is as well. In a set of users that are well connected with each other, a product with a low enough p value will eventually cascade through the entire network with every user there adopting the technology. However, this doesn’t work when there are dense clusters of users, parts of the network that where users are highly connected to other users in the cluster but not to those outside of it. If a technology starts outside of the cluster, it almost always never gets adopted in there will be too few connects to outsiders for members of the cluster to have a portion above the p value. However, if a technology starts in one cluster, it will almost always be quickly adopted by that cluster. If there also happens to be another dense cluster in the same network, it is unlikely that the technology will go to the other cluster as well.
This in essence describes what has happened with the China’s connected populace within the context of the internet. The Chinese Government’s strict regulations on internet companies has essentially created a dense cluster of Chinese internet users that is connected to each other but not as connected to the outside world. Because of this, products from companies from outside the country such as Google, Facebook, Twitter, etc are unable to achieve this p value of neighbors amongst Chinese users. However, because Chinese equivalents start within the cluster, they are able to quickly spread and propagate within the cluster. But the relative insularity of the Chinese cluster acts as a double-edged sword; while it insulates these Chinese companies from outside competition, it makes it hard for them to go beyond their own cluster as the other nations of the world also act as clusters, though not as dense. As a result, the landscape of Chinese tech tends to be one a world apart from the rest of the worlds’.