A series of recent headlines has confirmed a looming trend – American tech businesses are giving up China for good. LinkedIn, Yahoo, Airbnb, and most recently, Amazon’s Kindle, have all officially announced their departure.
To me, this trend feels irreversible and not a temporary reaction to the deterioration of bilateral relations between the two superpowers. If and when the US-China relationship does improve, I don’t see any of these companies reviving their China business, because the Chinese tech industry is now quite mature. For every LinkedIn and Airbnb, there are two or three local alternatives with better products and services that cater better to domestic Chinese consumers anyways.
(For more on LinkedIn’s China departure, see our premium content: “Why LinkedIn (Mostly) Left China?”.)
While this trend may be irreversible, if not inevitable, America’s tech presence will not disappear completely. The more interesting question to think about is what parts of “American Tech” will stay in China and why.
There are three reasons why maintaining a China presence is still valuable: the “going overseas” business, software development (or Bits and Bytes), and hardware manufacturing (or Atoms).
The “Going Overseas” Business
Whether you are a Chinese consumer or a Chinese company, the need to “go overseas” is still strong. This need has been distorted in the last two-plus years due to the coronavirus and China’s aggressive “dynamic zero Covid” policy.
Typically, during major Chinese holidays like the May International Labor Day break that is a week long, you would see bus-loads of Chinese tourists around the world. That has not happened this year, last year, or perhaps even next year. But it will happen eventually.
When Chinese people are finally allowed to travel internationally, they will do so aggressively – booking up hotels and Airbnbs in LA, Tokyo, Seoul, Paris, and everywhere in between. But internally, these revenue numbers will be reported as coming from the US, Japan, Korea, and France, even though they are generated from the pockets of the wealthy Chinese upper and middle class. That’s why Airbnb still plans to maintain a Beijing office with hundreds of employees to continue marketing and providing its services.
Beyond the Chinese consumers’ demand, Chinese companies large and small still need services and infrastructures to expand their overseas presence.
AWS and Azure both have sizable operations in China, even though their cloud offerings are less competitive against domestic vendors like AliCloud and Tencent Cloud. Why? Because Chinese companies and even state-owned enterprises, who have (or want to have) a global presence want American clouds as their overseas backends. CCTV 4 wants to use AWS’s cloud infrastructure and content delivery networks to stream its content around the world, just as much as Netflix does.
This demand means maintaining a solid number of sales reps, solutions engineers, and customer services employees. You still have to meet where your customers are, even if that place is inhospitable to your other businesses.
Software Development (Bits and Bytes)
Beyond continuing to make money from China’s “going overseas” business, I suspect most American tech firms will continue to keep and grow their software R&D centers in China. Even though the stock market has not been kind to tech companies anywhere in recent months, and news of layoffs are dropping left and right, acquiring technical talent is still a big need and challenge. China’s own tech crackdown has led to months of layoffs in many sectors, which makes its labor market an attractive place for American companies to hire top-tier talent, especially in one of the hub cities – Beijing, Shanghai, Shenzhen, Hangzhou. This appeal applies to not only tech companies, but even non-tech companies who want to improve their technical capabilities. Case in point, Nike is currently looking for a Director of AI & Machine Learning Engineering…in Shenzhen!
Even though most American tech outfits have left the Chinese market, they have all gone through the trouble of setting up a proper local business entity to hire, issue payrolls, pay taxes, etc. The market may no longer be compelling, but there is no reason to waste the legal entity and not soak up the local software development talent in China, which boasts some of the best engineers in the tech industry.
Shipping the bits and bytes out of China that go into a digital service is relatively easy, even if selling the same service into China is not.
Hardware Manufacturing (Atoms)
The best example of an American tech company planting roots in China in the form of hardware manufacturing is Tesla’s Gigafactory in Shanghai, which not only supplies the domestic Chinese demand for Tesla’s, but also overseas as that factory continues to ramp up its capacity. (For more posts on Tesla’s relationship with China, see our previous post “Tesla, China, the ‘Tech Cold-War’”.) Apple’s reliance on China-based manufacturing is another well-known example. Even though there have been recent reports that Apple is trying to diversify its manufacturing away from China, some to India, some to Vietnam, the cold hard fact is more than 90% of iPhones, iPads, and Macbooks are still manufactured in China right now.
During the early days of the pandemic in 2020, when there was a lot of chatter and discussion around decoupling from China, particularly Apple, I wrote about how difficult it would be for another country, like India, to replicate the cost-quality-efficiency ratio that Chinese manufacturers can offer. China is not the cheapest, but its decades of manufacturing experience afforded the country a lot of leverage and competitive advantage.
Two years ago, the desire to decouple had more to do with geopolitical tension and technology sanctions than Covid. Now the dynamic has shifted, because China’s staunch commitment to “zero Covid” has caused massive and unpredictable disruptions to the global economy and supply chain. These consequences have forced companies like Apple to speed up its pace to diversify its manufacturing sources, even though it would likely have preferred to stay with China for a while longer.
What is uncertain and remains to be seen is whether “dynamic zero Covid” will erode China’s leverage in hardware manufacturing over American tech. What is certain, however, is that even if this leverage does erode, replicating what China has to offer will take a long time. The skills and expertise developed to work with atoms are much harder to transfer than bits and bytes.
American tech may cease to operate in the Chinese market, and for good reasons. But much of American tech will also stay in China for a long time, and also for good reasons.
最近的一系列头条证实了一个迫在眉睫的趋势 – 美国科技公司正在永远放弃中国市场领英、雅虎、Airbnb，以及亚马逊的Kindle，都已正式宣布离开。
有三个原因证明在中国保持一定的运营和存在仍然是有价值的："出海"业务，软件开发（或Bits and Bytes），和硬件制造（或Atoms）。
无论你是一名中国消费者还是一家中国公司，"出海" 的需求仍然强烈。在过去两年多的时间里，由于疫情和 "动态清零" 政策，这种需求被扭曲了。
软件开发(Bits and Bytes)
除了继续从中国的 "出海" 业务中赚钱外，我怀疑大多数美国科技公司将继续保持和发展其在中国的软件研发中心。尽管最近几个月股市对任何地方的科技公司都不太友好，裁员的消息也是源源不断，但招聘技术人才仍然是一个很大的需求和挑战。国内的科技行业镇压已经导致许多行业裁员长达数月，这使得其劳动市场对美国科技公司极有吸引力，特别是科技界一线城市 – 北京、上海、深圳、杭州。不仅是纯科技公司被吸引，也包括想提高技术能力的非科技公司。Nike目前正在深圳招聘一名人工智能和机器学习工程总监。
将一款数字化服务中Bits and Bytes “运出” 中国相对容易，即使将同样的服务卖进中国并不容易。
两年前，想“脱钩”的期望更多是与地缘政治紧张和科技制裁有关，而大多不是疫情。现在，情况发生了变化，因为中国对 "清零" 的执着已经对国际经济和供应链造成了大规模和不可预测的扰乱。这些后果迫使像苹果这样的公司加快步伐，把其制造来源多元化，尽管它可能更愿意在中国多呆一段时间。
不确定且有待观察的是，"动态清零" 是否会削弱中国在硬件制造方面对美国科技公司的影响力。然而，可以确定的是，即使这种杠杆作用确实被削弱了，复制中国提供的硬件制造能力还是需要很长时间。为处理Atoms而开发的技能和专业知识要比Bits and Bytes更难移交的多。