This Chinese tech investor carries no cash and no credit cards and he says it's a sign of why American startups have fallen behind (GOOG, GOOGL, MSFT, AAPL)

China, Google, flag, I/O 2018

Kai-Fu Lee has a lesson to offer US tech execs about doing business in China, a market where success has eluded most of them for decades.
US managers operating in China need to adopt more of the local businesses practices, or else homegrown rivals will outmaneuver them at every turn, Lee said.
An added benefit of studying Chinese entrepreneurs is that they might teach US counterparts something that can help back at home.
After all, China has succeeded in a couple of tech segments where Silicon Valley has failed.

US internet services and tech products have largely failed to catch on in China. The causes are many but those American technologists interested in spotting one of the bigger ones need only stare into a mirror, according to Kai-Fu Lee.

Speaking at the Artificial Intelligence 2018 Conference in San Francisco last week, Lee, a longtime US tech exec working in China, showered all kinds of criticism on the efforts of American tech companies operating in that country.

“American companies tend to treat China as just another market,” Lee told conference attendees. “The local team isn’t empowered with full resources and ability to build new product suites targeted and customized for local customer needs.

“Secondly because the people who are sent by American companies are professional managers whose next aspirations is to become the senior VP of sales,” Lee continued, “they will behave by corporate standards and achieve (the results) that gives them the promotion, and not roll up their sleeves and work 24-7, and fight the competitor."

But the problem with this, according to Lee, is that “everyone else in China is doing that.”

This is how we get rid of this parasite on society.' Credit cards are adding no value to our lives

He said what this means is “you’re going to be a foreigner, who doesn’t speak the language, who doesn’t work as hard, who doesn’t (understand) local customers, who don’t get all the resources, who is afraid to make your boss unhappy. So how can that possibly succeed?”

A lot is at stake in China for US companies. The country has a population of 1.4 billion people. The number of Internet users is 770 million, more than twice the total population of the United States. Income has risen steadily, so China is a rich and growing market that US tech companies have largely failed to penetrate.

Among the top 50 websites in China, only a handful are American, and none are in the top 10.

Just next door in India, another populous country where internet use is growing, the story is much different.

“American companies dominate the internet (in India),” the New York Times wrote last month. “Facebook’s WhatsApp is the most popular app on phones. Virtually every smartphone runs on Google’s Android system. YouTube is the favorite video platform and Amazon is the No. 2 online retailer.”

'Credit cards are adding no value to our lives'

American companies face tough challenges in China, some involving politics that are largely are out of their control. But US execs operating there can improve their position, said Lee, who has a lot of experience in this area.

Read more: Underneath all the AI hype is the likelihood it threatens the poor, says this former Microsoft and Google exec

After working as a researcher for Apple, Lee helped set up a Microsoft Research division in Beijing. In 2005, he tried to jump to Google but Microsoft sued to stop him, citing a non-compete clause in his contract.

Eventually, Lee became president of Google China. He stayed until September 2009, leaving not long before Google pulled out of the country over the government's demand that it censor information. Since then, he has become a well-known technology magnate in China and a respected expert in artificial intelligence.

Chinese factory shengzhou

At the conference, Lee said Chinese technologists have a thing or two to teach American counterparts and not just about how to operate in China. Lee says Chinese “gladiator” entrepreneurs know how to build “impregnable business models.” They have also succeeded in a couple of tech sectors where success eluded the Americans.

The first one he cited was video-based social networks. Sure enough, excluding YouTube, there is a long list of defunct or all but forgotten US startups in this category: Vine, Chatroulette, and Airtime. The other segment was mobile payments. According to Lee, America has clung to the idea of paying with credit cards, while electronic transactions in China are much easier and more efficient.

"Paypal is too afraid of the credit card companies," Lee said. "What if (PayPal managers) just said, 'Sorry shareholders, we’re going to see our share price drop, but we’re not doing credit cards anymore. We’re going to do direct transactions for you. Connect us to your banks and you’ll save transaction fees. For the time being, we’ll lose a bunch of business, but this is how we get rid of this parasite on society.' Credit cards are adding no value to our lives."

"I carry no cash , no credit cards and I probably save five minutes a day not doing all the transaction (process)," Lee continued. "I’m now buying things so much more easily and no one is making 3 percent. Think of all the small and medium businesses that survive on a 3-percent margin and that’s all just taken by the credit card companies. They served a great purpose for America. They pushed us forward to become a spending society, but their historical purpose is over. It’s time to accept modern payment, a real mobile payment.”

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