Wednesday, March 28, 2007

Baidu (BIDU): Applying Chinese skills to Japanese market?

In December last year, Baidu (BIDU) has announced its plan to expand into Japanese market.

In February’s conference call, Baidu Chairman Robin Li said :

"..Another exciting initiative for Baidu is our upcoming interest into the Japanese search market. We believe that with our proven strength in Chinese language search and our focus on delivering the best user experience, we will be able to provide Japanese users with a quality alternative to existing search engines.."

I have problem to understand what is his so claimed advantage. At most I would agree that Japanese characters and Chinese characters look similar, so? Is that the critical success factor to run an online search business?

Now the Baidu Japanese site has officially launched.

To win a market in today's online world is all about marketing muscle and capability to understand local culture. What advantages does Baidu possess in Japan? I just know Chinese and Japanese culture are totally different, so is the way to do business in these two countries. Japanese market is not a easy market to crack, just look at Ebay's failure there.

In general I am not too impressed to see a young company like Baidu to expand overseas too quickly. The first question I would ask is “Have you fully explored your local Chinese market?” Chinese internet population is still growing at over 34% a year (based on the China Telecom 2006 annual report on broadband subscriber growth), how much is that in Japan? Why is Japan a more attractive investment to BIDU from ROIC (return on invested capital) perspective?

There are so many examples in which local Chinese companies failed miserably in overseas expansion. Lenovo’s acquisition of IBM PC unit (yes, this is not a proven failure yet), TCL’s acquisition of Thomson Electronics Corporation, just to name a few.

Baidu has not announced any acquisition in Japan or in any overseas companies yet, if that happens it may be good chance to short.

Disclosure: I have no position in BIDU

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