On the heels of Didi announcing the deal to acquire Uber China, The Economist reflected on some of Western media’s historical pride and prejudice against Chinese internet firms in its cover article – “China’s tech trailblazers”. China’s internet market has many unique characteristics – the Great Firewall, government censorship, unique and complex culture, and some local firm’s unconventional (or highly questionable) competitive tactics. To many Western media, it is easy to conclude that local firms flourished because of protectionism. To me, this inference is more level-one thinking. Would the competitive outcome be different without the above constraints against foreign firms? The answer is No. Let’s first tally the scores of some of the well-known internet wars:

1. Yahoo vs. Sina, Sohu, Netease
2. ICQ, MSN, Skype vs. QQ
3. Ebay, Amazon vs. Taobao
4. Yahoo China, Google vs. Baidu
5. Whatsapp, Facebook vs. WeChat
6. Twitter vs. Sina Weibo
7. Linkedin vs. Zhilian, 51 Job, Liepin
8. Groupon vs. Meituan
9. Uber vs. Didi

Though the specific context of each war is different, so far, Chinese internet firms have yet to lose a major battle (and Didi’s acquisition of Uber China is a great outcome for Uber). In a world where U.S. internet firms have swept up most markets on the planet, China is one of few countries that have the key ingredients to compete against the U.S. internet giants:

• A non-English speaking, non-Western culture
• A large enough domestic market
• Abundant supply of local tech talent
• This one is particularly true for China – a hungry/hard working (vs. enjoying life) mentality that permeate throughout the country

Taking search for example, Google dominates much of the world. But in Japan, the leading search engine is Yahoo Japan, owned by Masayoshi Son of Softbank so a Japanese company. In Russia, it is Yandex. In Korea, it is Naver. None of these countries block Google search. When Groupon entered China, it partnered with Tencent, but even partnering with a local giant could not help Groupon effectively compete against a swarm of local start-ups. Facebook was not blocked in China initially, Whatsapp still roams freely today, yet neither achieved much scale in absence of the Wall. CULTURE matters. Being NIMBLE matters. Remote controlling Chinese teams from overseas headquarter just cannot work against fast moving competitors, a lesson that Uber has learned and applied well in China. Amy Gu from Hemi Ventures penned an excellent post detailing her observations on the ride sharing war – “Why the Didi-Uber-China merger is a success for Uber.” What about Apple and Microsoft, who have achieved leading positions in China with their products, I think they are in a different category, as hardware and tools (Office Suite) without inherent social elements require less sensitivity to cultural nuances.What about government support? When BAT (Baidu, Alibaba, Tencent) were budding ventures, were there any government support? Things changed only after they had achieved success.

The Great Firewall and censorship are barriers for foreign competition, but they are not the ultimate determinants of the competitive outcome. In a way, they may actually have created complacency among Chinese internet firms, dis-incentivizing them from competing overseas.

Spencer Liu, CEO at KTplay: “As much as western companies try to make great products for the China’s consumer market, it is simply impossible when you don’t live here, breath the air, speak the language, and decide to go through life as one of the locals. So much innovation is happening in this country at the speed of light both in successes and failures and I encourage more Silicon Valley entrepreneurs to come and experience it, we can all learn much from this place.”

Today, China finally has a group of world class tech firms and serves as a counterfactual to the U.S. – “China’s WeChat shows the way to social media’s future.”However, one important distinction to make here is what type of innovation China is leading the U.S. and where it is trailing:

• China is excellent at improving product form factors, customer experience, business model, and the technologies applied in existing use cases, and by and large have surpassed the U.S. in these areas. In-app purchase of digital goods in games was invented by a Chinese gaming firm. Free anti-virus software was championed by Qihoo 360.
• However, in undiscovered use cases (e.g. inventing the smart phone category, discovering need for ride hailing app etc.) and core technology theorems, China still trails the U.S. After all, the entire internet protocol suite is invented by the U.S.

Nonetheless, open competition is a good thing for the Chinese internet firms, forcing them to improve and mature up. Uber China has shed the pride and prejudice of its U.S. forbearers and fought valiantly against Didi. This battle will sure go down as a classic business school case study. Now without formidable competitors at the gate, hope Chinese internet firms do not become too complacent, and Chinese internet firms seek to expand overseas, hope they could avoid the same pride and prejudice once applied upon them.