YouTube's Market Entry Strategy in China: A Competitive Analysis

Introduction: China's Digital Landscape

China represents one of the fastest-growing economies in the world and has an enormous population. Although the total number of internet users per capita is far less than in advanced nations, a smaller percentage of internet penetration combined with a gigantic population represents an enormous market for online service providers. Unfortunately, China's online world does not operate as it does in most nations. China keeps many websites permanently blocked and maintains a firewall that allows Chinese internet users to navigate only to a collection of pre-approved sites. This system is commonly referred to as the "Great Firewall of China."

There are many subjective standards in place that can be difficult to overcome when entering the Chinese digital world. Some of these standards require that any news be "healthy" and in the domestic population's "best interest." Although YouTube has been permitted for brief periods, and many Chinese individuals know how to access the site through various proxies, the website is not currently available within China. This analysis assumes a hypothetical scenario in which the Chinese government lifts restrictions on YouTube and allows it to enter the market. Even under that assumption, YouTube would face significant competition from established market players such as Youku and iQIYI. Based on these assumptions, the analysis provides a brief overview of the market conditions YouTube may encounter in China.

YouTube and Innovation in the Chinese Market

The Chinese market has developed rapidly across just a few generations. The rapid rise in wealth among the Chinese middle class has had significant consequences for consumer preferences. Many people in China acquired disposable income quickly and developed shopping habits that were unprecedented in the country's history. Several Chinese generations and demographic groups have shown a preference for Western goods — including individuals in their twenties and the so-called "new generation," both of whom have been exposed to international products through the internet and online networks such as social media (Qui, 2011).

It is likely that a Chinese version of YouTube would be perceived not only as innovative, but also as associated with the West and Western products. There are different ways that restrictions on a Chinese YouTube service might affect the company. For example, YouTube might be subject to the same content restrictions as competitors such as Youku and iQIYI. If that were the case, YouTube's path to innovation would lie in its delivery method rather than in offering novel content. YouTube could focus on distinguishing characteristics of the site relative to competitors — such as site design and search features. YouTube could also provide innovative collections of content through organized channels built around demographic and consumer preferences.

Market Description and Social Media Environment

The online market for social media and social networking in China is substantially different from other markets. There are only a limited number of approved channels for companies operating in this space, and many of these mediums are owned by domestic companies. McKinsey & Company (2012) provides an excellent overview of the Chinese online market:

"No Facebook. No Twitter. No YouTube. Listing the companies that don't have access to China's exploding social-media space underscores just how different it is from those of many Western markets. Understanding that space is vitally important for anyone trying to engage Chinese consumers: social media is a larger phenomenon in the world's second-biggest economy than it is in other countries, including the United States. And it's not indecipherable. Chinese consumers follow the same decision-making journey as their peers in other countries, and the basic rules for engaging with them effectively are reassuringly familiar (Chiu & Silverman, 2012)."

McKinsey (2012) points out that despite the inherent differences found in this market, there are also many similarities in the ways consumers make decisions about social media options. Understanding both the differences and the similarities is essential to any market entry strategy. China's social media ecosystem is uniquely shaped by government policy, domestic platform dominance, and a highly engaged user base.

References

Bloomberg Business. (n.d.). Company overview of iQIYI.com Inc. Retrieved from Bloomberg Business: http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=98904258

Chiu, C., & Silverman, A. (2012, April). Understanding social media in China. Retrieved from McKinsey & Company: http://www.mckinsey.com/insights/marketing_sales/understanding_social_media_in_china

Qui, Y. (2011, July 1). Understanding Chinese consumers. Retrieved from China Business Review: http://www.chinabusinessreview.com/understanding-chinese-consumers/

YouKu. (n.d.). Corporate profile. Retrieved from YouKu: http://ir.youku.com/phoenix.zhtml?c=241246&p=irol-homeProfile