Silicon Valley has China backwards

We live in a global economy, but the way we understand our world is still colored by national bias. Case in point: In Silicon Valley, people ask when China, the world’s largest consumer market, will open up fully to embrace tech giants like Apple, Google, and Facebook. But those inside China’s tech industry are focused on a different question: How can Chinese tech companies crack Western markets?

Over the past few years, Chinese firms have been on a spending spree, investing in, or buying, firms across all economic sectors. Technology companies are now the third most likely target for Chinese investors. But the press in Silicon Valley tends to view those deals in terms of acquisitions designed to bring Western technology to Chinese markets.

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When a Chinese firm took a stake in Grindr, for example, the press focused on the potential market for dating apps aimed at China’s gay community. What gets less attention is Silicon Valley’s growing interest in replicating successful Chinese products, despite the challenges that strategy presents. Clearly, there’s a disconnect in the way Silicon Valley sees China’s technology industry. But the view looks very different from Israel, which has had a front row seat for Chinese expansion since the 1990s.

China is Israel’s third largest trading partner, and the total economic activity between the two countries reached $11 billion last year (that’s a significant figure for Israel, which has a GDP approaching $300 billion). In the past, China bought our technology because it lacked domestic development capacity. Not anymore. Today, China is developing its own technology and working hard to export that tech.

The current gap is in business and culture, not tech

Writing about a recent visit to China, a tech journalist remarked that it might be time to stop looking for the WeChat of the West. Like anyone who has spent a lot of time in China, I had to nod in agreement. On my own trips to China, I’ve used WeChat to authenticate my identity at public WiFi spots, pay for food, hail a taxi, book domestic travel, schedule meetings, and, yes, chat with friends and colleagues. The technology behind WeChat is good, but the real breakthrough is that, from a market standpoint, the app already does what dozens of Western firms are still trying to accomplish — bundle an array of consumer services into a single app and scale that app to win market share.

When I travel to Silicon Valley — where the mobile payment wars are just beginning — people ask why firms like Facebook and Google haven’t brought a successful alternative to the market. But isn’t it better to ask why Tencent, which owns WeChat, hasn’t brought its solution to the U.S.?

The answer, to be frank, is that WeChat doesn’t have the business and marketing expertise it needs to compete with the likes of Google and Facebook in Western markets (one could say the same about the ability of those tech giants to compete in the Chinese market). There is a cultural barrier, one that can’t be overcome solely through technology, because cracking culture is about working with people who have unique local knowledge. The technology that makes mobile payments work is universal, but convincing an American that her phone is her new wallet is a totally different proposition to making that same case to a Chinese citizen.

How to bridge the gap

Increasingly, the Chinese business community looks to Israel as a bridge to Western markets. Both nations have seen dramatic development in the past few decades, and as a result, we have a lot in common. Equally important, Israel’s tech industry, which was built on the foundation of public sector defense programs, provides a useful model for Chinese firms navigating the often-complex relationship between state intervention and the free market. Put simply, we speak the same language, but compared to China, we have a longer, arguably more successful, history of doing business in the U.S. Not surprisingly, Israel is seen as the third part of a global technology triangle along with the U.S. and China.

Our Chinese partners often tell us they admire the Israeli can-do attitude. Of course, Chinese firms can hire Israelis with that attitude, and many Chinese firms are doing just that. But acquisitions are often a faster and more effective way to bridge the cultural gap because the buyer gets a proven business unit and the local expertise that comes with it. Not surprisingly, the Chinese who come to Israel these days aren’t asking only about our engineers and developers; they want to know about our sales and marketing teams and how we do business in both Europe and the U.S. After all, trade between Israel and China is $11 billion, but that’s only a fraction of the $45 billion we trade annually with America. Given our small local market, Israeli entrepreneurs have always had to think in terms of exporting to global markets; today, we’re actively sharing that expertise with Chinese partners.

Chinese investors are seeking growth in Israel

One predictable byproduct of China’s emergence as a technology leader is the fact that a boom often brings the challenge of overvaluation. The fundamentals of the Chinese technology industry remain strong, but overvaluation underscores the need for Chinese firms to seek growth opportunities abroad, especially in Israel. After all, Israel has an incredibly high percentage of unicorns for such a small nation, and it’s worth noting that Israelis have also had success creating billion-dollar startups in Silicon Valley, which only furthers the Chinese perception of Israel as a bridge to other Western markets.

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Over the next few years, Chinese investors will find the growth they crave in Israel, but over the long run that investment will displace the idea that all technology revolves around Silicon Valley. When that happens, the world will see the Chinese technology industry for what it really is: a competitor and collaborator that participates on equal terms, while bringing unique attributes to the global innovation conversation.

Hagai Tal is CEO of Taptica. He has invested, led and developed companies for growth, continued investment, and IPO/disposal, including Kontera, Amadesa, Payoneer, BlueSnap (formerly Plimus), and Spark Networks (NYSE: LOV). He is a Fellow of the third class of the Middle East Leadership Initiative of The Aspen Institute and a member of the Aspen Global Leadership Network.