M&As would make tech firms globally competitive: expert
Chinese tech giant Tencent has become Asia's biggest company in terms of stock market value, and represents a typical success story in China's booming Internet market driven by the country's huge user base and innovation.
Share prices of the company on the Hong Kong Stock Exchange closed at HK8.40 (.92) on Wednesday, a year-to-date increase of 31 percent. Its market cap reached HK.4 trillion (8 billion), surpassing the US financing service Wells Fargo to become the first Chinese Internet company among the world's 10 biggest companies in terms of market value.
The Shenzhen-based company began as an instant messaging service, and has been catering to the social media market since 1998. It has since diversified its business, and its WeChat platform has become a major growth engine.
As of December 2016, WeChat had 889.3 million active users, a 27.6 percent increase from the previous year, according to the company's 2016 annual report. Its massive user base is its biggest asset. For example, during the Chinese Lunar New Year, users generated 14 billion yuan (.03 billion) in digital red packet transactions, up 76 percent from the previous year.
"WeChat can be considered a fourth-party platform because you can do almost anything on it - from booking a taxi and restaurant reservations to money management. You name it," said Liu Dingding, an independent industry expert.
Considering the country's large number of Internet users, domestic tech companies have been catering to their fast-changing behavior, said Feng Liguo, an expert at Beijing-based China Enterprise Confederation.
"Although U.S. tech firms had been industry leaders for many years, Chinese players now rival their counterparts in Western countries not only in market value but also in applications," he said.
China's economic growth focus has shifted to innovation-driven Internet companies, which are at the forefront of this trend, according to a report published by multinational consulting firm PwC in June 2016. They have been innovating in the synergistic use of mobile technology, social media and commerce to create value in business, the report noted. For instance, the use of the smartphone was the catalyst for the success of mobile-first services like WeChat.
"Domestic tech firms rely on consumer demand. If the user experience is good, consumers are likely to chase after it," Feng said.
"In general, companies that are focused on providing services directly to consumers tend to be rated higher by analysts than hardware-centered Internet firms, which also explains the soaring share prices," he added.
Chinese government support has created a dynamic environment for the development of Internet companies, including the three giants - Baidu Inc, Tencent Holdings and Alibaba Group Holding (BAT) - to grow, Liu noted.
The central government's 2017 work report highlighted artificial intelligence and the digital economy for the first time, and the scale of China's digital economy has reached 22.4 trillion yuan in 2016 or 30.1 percent of GDP, according to the State Council website in March.
"There is no way that BAT can grow without government support," the expert added.
Major Chinese Internet companies have expanded their business, and every company has its own focus. Alibaba focuses on large online transactions while JD.com has been pushing its logistics and finance units. However, experts say US tech firms remain ahead in core technologies.
"For example, Google dominates operating system research while Qualcomm is far ahead in chip-making," Liu noted.
Still, the consumer-driven Chinese tech firms have helped create a dynamic digital ecosystem where manufacturing-based companies put more efforts into research and development. "Tech firms like Inspur, Huawei and Tsinghua Unigroup have made breakthroughs in core technologies in recent years," the expert said.
Chinese tech firms also need to internationalize their business to become more globally competitive, Liu said. "Mergers and acquisitions with foreign tech companies is likely to be a faster way for them to grow overseas," he said.