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This China-based company is one of the most valuable technology firms in the world. They control massive amounts of personal data for billions of the world’s internet users. They also have a widespread global presence in nearly every major corner of the digital economy, and it seems unlikely that a user of the mobile internet anywhere in the world could go through a week—or even a day—without using a product or service backed by this company.
This company is not Huawei, not Alibaba, but Tencent. And in a world where geopolitical tripwires seem to be everywhere for Chinese tech firms, their approach to global expansion may be one that others will emulate.
Tencent flies under the radar, but it’s quietly succeeded in establishing a nearly-unparalleled global business footprint. Crunchbase lists about 150 investments made by the Shenzhen-based gaming and media company outside of mainland China, not including acquisitions. They’ve taken stakes in household names such as Tesla, Uber, Lyft, and Snapchat, as well as Spotify, Reddit, Ubisoft, Activision Blizzard, and 100 percent of Riot Games. They back southeast Asia delivery and mobility giant Gojek and Singapore gaming and e-commerce giant Sea. In India, they own a minority piece of Walmart’s Flipkart, as well as ride-hailing company Ola, among others. Tencent is one of China’s most globally expansive firms and has become so while experiencing very few of the headaches of its peers.
Over the past few years, global Chinese tech firms have found themselves in the minefield of international affairs. While Huawei’s high-profile battle with the US government has drawn the most headlines, it is simply the highest-profile case.
Nations are completely changing their views of the relationship between telecommunications, the digital economy, and their own sovereignty and security. In May of 2019, the Committee on Foreign Investment in the United States (CFIUS) “requested” Chinese gaming company Beijing Kunlun Tech Co Ltd to divest the popular gay dating app Grindr, citing concerns over sensitive personal data of US users. In early 2018, the US government blocked a $1.2 billion acquisition of payments provider Moneygram by Alibaba’s Ant Financial. In 2020, the fortunes of Bytedance’s likely IPO will hinge heavily on how skillfully it manages scrutiny from US authorities and the public, a task it appears to have bungled thus far.
US regulators aren’t the only ones skeptical of Chinese tech firms. As India seeks to create room for its own tech giants to grow, the administrative playing field may be tilting against both US and Chinese firms in a number of ways, limiting their potential for success in what will soon be the world’s most populous nation. As if Bytedance’s hands weren’t already full with its troubles in the US, it spent much of 2019 dealing with Indian courts and regulators in an attempt to prevent its super-popular Tiktok app from being banned throughout the country.
Perhaps the most striking contrast between Tencent’s overseas strategy and those of its domestic peers is the same thing that has set it apart in China’s domestic market: it appears comfortable with decentralized ambiguity, and limited direct control of its own technology ecosystem and financial holdings. Broadly speaking, Tencent prefers to invest and advise, rather than acquire and control.
This approach is a sharp contrast to Alibaba, which is known to take over firms in their entirety and impose its culture and management from the top down. Compare Ele.me, which Alibaba acquired outright in 2018, with rival Meituan-Dianping, in which Tencent held a 20% stake before investing $400 million in the company’s 2018 IPO. As the two giants have expanded their presences into Southeast Asia, Alibaba’s biggest splash was through a takeover of e-commerce firm Lazada, while Tencent has taken minority stakes of Singaporean gaming and e-commerce company Sea, as well as super-app Go-Jek.
According to Matthew Brennan, founder of research consultancy China Channel and co-host of Technode’s China Tech Talk podcast, Tencent’s relatively hands-off approach can be attributed to the experience and personalities of two of the company’s top decision-makers: Executive Director and President Martin Lau, and Chief Strategy Officer James Mitchell. “Both Martin and James think more like investment bankers than operations-focused managers,” explains Brennan. “Much of Tencent’s profit generation still lies in gaming, a sector in which they are known to take more controlling and larger stakes. Yet for the rest of their investments, they seem comfortable trusting existing management and taking a much less active role.”
As of the end of Q2 2019, Tencent reported an investment portfolio amounting to over RMB 417 billion (about $59 billion), including China and overseas.
The two sides of the silo
This has certainly not been without its downsides. In some cases, the firm’s tendency to invest capital liberally, often without taking controlling stakes, has meant that it has fostered its own competition. Domestically, Meituan now challenges Tencent’s own WeChat as China’s most versatile super-app. Internationally, Tencent has a habit of buying into firms that compete with its allies—such as Sea, whose Shopee competes with Tencent-linked JD as it tries to push into Southeast Asia. Sea is also part of Tencent’s vast portfolio of gaming companies, many of whom are rivals not only with each other, but in some cases, even Tencent itself.
Even for parts of the business fully owned by Tencent Holdings, lack of cohesion has proved to be a challenge. In late 2018, the company’s top executives announced dramatic organizational restructuring in an attempt to reform the firm’s “silo culture,” in which small teams competed fiercely internally, while collaboration was notoriously poor. Management believed that this culture, which fostered the development of wildly successful consumer-facing apps like WeChat and QQ, would be less conducive to Tencent’s future goals, centered around cloud services, AI, and enterprise solutions.
Yet when it comes to doing business outside of the PRC, it is precisely those “downsides” which offer an advantage in the current geopolitical climate. Huawei’s top-down control, poor localization, and organizational opacity have led to trust issues, as even their overseas offices are notorious for a lack of local management or control. As India looks to develop national tech champions to compete with those of China and the US, Tencent’s approach of acquiring minority stakes can be seen as a helping hand in achieving that goal, while Alibaba’s strategy of outright takeover will likely see pushback from authorities and the public. As the US government worries about the personal data of American Tiktok users being stored and exploited in China, Bytedance now ponders how it can best de-couple the video app from its China-based organization.
While silo culture may be a downside domestically, the reality of today’s multipolar world is that for global tech giants, creating effective silos is a strategic competency. And that is something at which Tencent has proven to be quite effective.
Where does Tencent make its overseas plays? TechNode digs into the data to find out in a companion article to this story.