Bottom line: Baidu’s withdrawal from Brazil reflects a broader inability of Chinese companies to succeed overseas due to their different practices and local wariness about their ability to protect user privacy.
In what is probably coming as a surprise to no one, media reports are saying that search leader Baidu (Nasdaq: BIDU) is pulling out of Brazil. This would represent the company’s latest failure abroad, and is really part of a broader string of failures not only for the company but China’s internet sector in general. This particular group is quite good at milking the China market for all it’s worth, but then being unable to replicate its success in other markets.
There are lots of reasons for the inability of China’s Internet companies to succeed outside their home market. One is simply inexperience. But another is really the direct result of Beijing’s determination to set up what almost amounts to a parallel Internet in China that in some ways is identical to the global Internet but in others is very different.
That strategy has helped to keep out most of the major global competitors in any meaningful way, allowing Chinese companies to thrive on their home turf thanks to their booming local economy. But that approach has also made these companies quite unprepared to compete globally, since they engage in many practices that are either unacceptable outside or simply undermine trust of local people.
In the former category, we can look at practices like piracy and tactics like loading trojan horses into their software as things that would meet with big resistance outside China. In the latter category is the self-policing that all Chinese companies have to do for their own content, and also the sharing of content they are sometimes forced to do with government authorities. The fact that they do such things automatically undermines the trust of people in other countries where such practices are seen as egregious violations of privacy.
All that said, let’s look at this latest Baidu withdrawal, which has the company reportedly slimming down its Brazilian operations to just a handful of people from a previous total of several hundred. (English article; Chinese article) Much of Baidu’s Brazilian operations were the result of its 2014 acquisition of Peixe Urbano, a local e-commerce company. Baidu had also launched a Portuguese version of its search engine for the Brazil market, though it’s a bit unclear if that was still operational until recently.
The company has been retrenching quite a bit over the last couple of years, selling off a number of major assets at home including its Qunar online travel unit as well as its takeout dining service. So this disposal is certainly in keeping with that broader strategy of divesting non-core assets, though it’s obviously nowhere near as large. But this disposal does seem to indicate that Baidu doesn’t have any global aspirations, at least for now, as it previously shuttered its handful of other similar initiatives, including an Arabic search engine in Egypt.
Interestingly, one of the English reports I read on the Brazilian closure cites several reasons similar to what I wrote at the outset of this post. It says Baidu’s business in Brazil at one point reached up to 40 million users, mostly through the Peixe Urbano purchase, which it later sold to US group buying company Groupon last year.
But it adds that Baidu’s other products, including its Hao123 online listings portal, didn’t have a very good reputation among local Internet surfers. The report, along with several other sources I checked, said the portal installed Baidu’s software onto users’ computers and smartphones without asking permission, and then made it very difficult to uninstall. As someone who lives in China, I can say that kind of practice is quite common here.
There’s probably not too much more to say about this withdrawal, which will inevitably be nothing more than a blip for Baidu overall. But it certainly does show how Baidu and other Chinese Internet companies will need to clean up their act a bit more and conform to international norms if they want to be taken seriously by web surfers outside China.