China’s tech companies are taking a more American approach to international expansion

Shanghai-based artificial intelligence company Yitu Technology announced this month that is launching its first R&D center outside of China in Singapore. The move is part of a larger trend among Chinese tech companies hoping to achieve two goals: Access top foreign engineering and scientific talent by setting up R&D centers in key global knowledge hubs, and embed themselves deeper in local ecosystems to spur new long-term growth engines — most notably in Southeast Asia.

The ultimate goal for many of China’s leading tech companies is to become true multinationals. Their strategy is to build a significant presence in their huge home market and then leverage that to branch out internationally. However, they face a steep learning curve: The free-for-all ethos and Darwinian natural selection that guide their modus operandi in China often prove to be counter-productive in smaller, more insulated markets.

Huawei is already an established consumer and telecom equipment multinational, despite pushback from the US, with its products and services deployed in more than 170 countries. In 2018 it beat Apple in full-year smartphone sales for the first time and took second place in the global market, with more than 200 million units shipped. It is unclear to what extent the next wave of Chinese global tech players is learning the lessons from Huawei’s pitfalls, but there’s no doubting their determination to compete with Western counterparts and with one another.

Yitu’s Singapore center will initially employ 30 researchers and engineers, but the team size is expected to grow to around 100 over the next three years. The company, known for its facial recognition software, views the move as more than just a means of churning out new AI solutions for smart buildings and medical diagnostics. It is a bridgehead into the Southeast Asian ecosystem, a means for Yitu to “tap into the potential of Singapore and Southeast Asia as key drivers of global growth,” according to the company.

Examples of Western tech companies becoming multinationals abound. For decades Intel has been operating manufacturing and assembly plants outside of the US for its chips and microprocessors in China, Ireland, Israel, Malaysia, Costa Rica, and Vietnam. Intel hopes Israel-based MobilEye, which it acquired in 2017 for $15.3 billion, will emerge as its global center for AI and computer vision research in the smart mobility sector.

Uber, a privately held unicorn and a more recent participant in the global competition for talent, runs R&D centers in Bengaluru, Ho Chi Minh City, Beijing, and Jakarta. Uber, like Yitu, views its Singapore R&D center as a springboard into high growth regions in Southeast and South Asia.

But adopting a complex global perspective is a newer phenomenon to Chinese tech giants and unicorns. For a number of years China’s two supreme rulers of the digital space, Alibaba and Tencent, have been investing aggressively in dozens of startups in India, Thailand, and Indonesia. But like their Western counterparts they realize that achieving desired growth goals in global markets requires deeper local presence.

A focus on transactions, such as Alibaba’s 40 percent stake in Indian mobile payments company Paytm and Tencent’s $1.2 billion fundraising round in Indonesia’s motorbike on-demand startup Go-Jek, may not be enough even for these two champions to become long term players in overseas markets.

Alibaba’s move in October 2017 to create an international “academy dedicated to innovation and technological collaboration” dubbed DAMO, standing for Discovery, Adventure, Momentum and Outlook, was one of the first to signal the departure from a mere transactional approach to foreign markets. By spending $15 billion in 2018-2020 on research laboratories in Beijing, Hangzhou, Moscow, Singapore, Tel Aviv, California, and Washington (state), Alibaba is taking a more refined attitude to its new role as a global player.

In Israel, Alibaba is hiring 40 R&D engineers to develop the company’s next generation of smart retail technologies. The research revolves around some of the most advanced versions of artificial intelligence — automated machine learning (AutoML). Alibaba leased office space in Herzelyia, outside of Tel Aviv, that can accommodate a much larger team, fueling speculation about its greater designs for Israel. Itamar Friedman, the head of Alibaba’s R&D center in Israel, said the operation will also serve as a stepping stone for local startup scouting and research projects in collaboration with academia.

So what does it all mean? American tech companies vying for share in international markets will begin to see Chinese competitors everywhere. They are hyper competitive and Darwinian; they operate differently from you. Expect the unexpected.

Rami Blachman is founder of China Israel Innovation Accelerator (CIIA) in Shanghai and Hangzhou. He is also an advisor for international business development at AgriNation VC. He was previously Partner at Giza Venture Capital in Tel Aviv and Shanghai and led international business development for the financial services arm of Zhejiang Zhongda, a Chinese state-owned conglomerate.