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NetEase Moves into U.S., Vipshop Tries Russia

vipshopTwo of China’s leading Internet companies are taking their first baby steps outside their home market, with word that online game maker NetEase is moving into the U.S. and fast-rising discount e-commerce firm Vipshop is tying up with a Russian partner. The pair are joining China’s “big 3″ Internet firms, Alibaba, Baidu, and Tencent, in making recent moves outside their home market, as each looks for new growth opportunities. All of these companies also want to convince the world that they can compete in the real world outside their own highly protected and heavily restricted home market.

Of these two latest initiatives, I would definitely give the stronger chances for success to Vipshop, which is quickly showing that it’s quite adept in its niche area of discount e-commerce. NetEase, by comparison, has distinguished itself with its ability to develop games that are popular in China; but it has no experience in Western markets where tastes are quite different, and it will also have to compete with extremely strong local players.

All that said, let’s start off this “go-abroad” roundup with Vipshop, which has reportedly signed a new agreement to supply merchandise to Russian flash sales e-commerce site KupiVIP. There aren’t many details in the reports, which cite unnamed sources. But if the reports are true, I wouldn’t be surprised if Vipshop buys a strategic stake in the Russian company, using some of the $700 million it raised through a stock and bond issue earlier this month.

This tie-up would be the latest for Vipshop, which made its first major acquisition last month when it bought a controlling stake of online cosmetics supplier Lefeng.com for $132 million. I like this latest tie-up, as it plays to Vipshop’s strength as a provider of discount merchandise. It also offers a good potential expansion channel into Russia, an emerging market that has many similar qualities to China. I do expect we’ll see more similar moves from this fast-growing company, which could quickly rise to become one of China’s top e-commerce players.

I’m less enthusiastic about NetEase’s U.S. move, which was announced in a very poorly written press release that initially made me question whether it really was from the company. But I checked the company’s website and also saw the press release there, so someone at NetEase clearly authorized the announcement’s release, titled “Blockbuster Games from China: NetEase Games’ Powerful Debut in the U.S.”

Despite the ambitious-sounding headline, there are actually very few details in the announcement about the move by NetEase, which describes itself with the strange moniker of “marvelous Internet company.” NetEase says it announced its formal debut in the U.S. on March 19 over one of the large advertising screens in New York’s Times Square, in a message that simply declared “Hello USA.”

NetEase says it began its global march in the second half of last year by attending a major gaming show and later opening an office in South Korea. It says it is taking part in the Game Developers Conference show happening now in San Francisco, implying perhaps it will soon announce the opening of a U.S. office. As a longtime company watcher, I like NetEase for its ability to develop popular games and form strong partnerships with big third-party game developers like Activision Blizzard. But I have serious doubts about its ability to succeed in the U.S., and would suggest it try markets like Taiwan and Southeast Asia first, which have more in common with China and are far less competitive.

Doug Young lives in Shanghai and writes opinion pieces about tech investment in China for Techonomy and at www.youngchinabiz.com. He is the author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.

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