The Penguin is ready for the Dive

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Pony Ma, the man at the helm of Tencent, the biggest Internet company in China, admitted in a recent interview that his company has plans to expand its overseas presence through mergers and acquisitions.

If reports are to be believed, Tencent’s first target would be Activision Blizzard, the gaming giant. While nothing substantial has resulted from all the talks, it is believed that Tencent is one of the cash rich companies being sounded out by Vivendi, the French media-to-telecoms conglomerate that owns a controlling stake in Activision Blizzard.

This shouldn’t come as a surprise. In China, achieve growth through buying seems to be the trend of the future. All the big companies do it, and Tencent is the biggest company to come out of China. Yet for Tencent and the Chinese Internet industry, this is still gigantic news. To paraphrase Neil Armstrong, this may be a small step for Tencent, but it is a giant step for the Chinese Internet industry.

This is because Chinese companies rarely step outside of their zones of comfort, and their zones are not that big to begin with. In a land that’s still trying to build up social capital, most companies are content to rely on friends and relatives instead of weak social ties. In addition, The Chinese market is attractive, so people usually don’t venture far if there is already someone good going on closer by. Even for those daring enough to make the leap, problems remain. Chinese population is rather homogeneous; most people do not have experiences when it comes to dealing with foreigners.

Even though history has shown us that as soon as the domestic market becomes saturated, companies must go beyond their comfort zone, it doesn’t mean they want to. Having the ability and the resource to achieve certain goals doesn’t necessarily mean you have the correct mindset, and like the great Yogi Berra once said, “ninety per cent of the game is half mental”. This would explain why it took the United States TWO world wars to recognize it’s time to step up and take over the throne.

Similarly, the rise of China would take time. So far, any and all threat and expectations are premature. China needs to learn the ropes and pay the dues, and the lessons could turn costly. The data backs this view up as well: for Chinese companies, investing overseas has hardly proved to a lucrative choice.

So for Tencent to make the leap of faith, the symbolic value is much more significant. Practically speaking, if Tencent aim too high, it will probably fail. If Tencent sets its goal with moderation, it still wouldn’t hurt to bet against them, since the learning curve for this sort of thing is extremely long. Yet in the long run, is this move necessary for Tencent? The answer is affirmative. Beyond Tencent, other Chinese companies will have to do the same thing. For them, Tencent will set an example they should well follow.

The ironic thing is, Tencent is known for jumping on other’s backs, but as the number one company in China, there is no one left for them to copy. They need to take the plunge themselves, For better or worse.