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China was brutal to US tech firms in 2014

Michael Kan | Dec. 17, 2014
2014 was a lousy year for U.S. tech firms doing business in China, and next year may be no better.

The lost business could also be hard to recover, because it gives local firms a chance to build relationships and show off their products. "Once that market share is taken over by domestic products, it will be hard for foreign companies to get it back," Chang said.

A decade ago, Chinese technology companies were far behind their U.S. counterparts, but brands like Xiaomi, Lenovo and Huawei today dominate the home market. Local brands command 87 percent of smartphone shipments and 91 percent of desktop shipments, according to Kitty Fok, an analyst with IDC.

The local vendors have yet to dominate the business market but their presence is growing, Fok said, and the emphasis on cybersecurity could accelerate that shift.

Moving forward, IDC expects local security companies to be "the key suppliers, or maybe the only suppliers" to Chinese businesses, she said. The government could demanding greater security in chipsets and other hardware as well, Fok said.

Amid the mounting challenges, there were some bright spots this year for US vendors. Microsoft is finally able to sell its Xbox in China after the government lifted a 13-year ban on foreign gaming consoles. And LinkedIn entered the market in February with a local site.

In both cases, however, the companies must comply with China's censorship laws. Microsoft will probably be unable to sell its more violent video games, and LinkedIn is already blocking posts critical of the Chinese government for users in the country.

"That's the question you have to ask: what's the price for the access?" said Mark Natkin, managing director of Marbridge Consulting in Beijing. "This has become an incredible dilemma for many global tech companies. They can't ignore the Chinese market, and yet they've seen so many other tech companies struggle here."

 

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