I remember a dinner with Derek Shen, LinkedIn China’s first president, when he first started his job. Over Peking duck with a handful of expat entrepreneurs and investors, he carefully explained why he took the role. This venture would be different from all the previous failed Chinese expansions by foreign companies, he assured us.
The company had spent four years studying the market before it hired him, and Derek had painstakingly scrutinized all the pitfalls of those failed attempts to enter the Chinese market. He had built a strong relationship with the global board, who trusted him to run his ship. He reported directly to the CEO — rare for a multinational corporation. His first step was to launch a new Chinese-language app called Chitu, completely designed from scratch and targeted at younger employees. I was impressed. That kind of flexibility, for a U.S. company attempting to crack China, was frankly unheard of.
Sad to say, it wasn’t enough. Almost seven years later, Microsoft-owned LinkedIn is gutting its services in China — the final blow after years of low-value growth, increasing scrutiny in the U.S., and political scuffles with the mainland government. LinkedIn said it will be transitioning to a new, standalone jobs app called InJobs, with no features for posting or sharing content, an aspect that was becoming problematic for the company. So, it won’t exit entirely, but will continue in a way that runs the lowest risk of running afoul of either the Chinese or American authorities. Microsoft has decided to take the path of least resistance.
The fundamental problem is that LinkedIn never managed to take hold in China despite Derek Shen’s drive to localize the product and learn from the stumbles of his peers. While its numbers grew steadily — from 4 million when he took over to about 50 million now — it isn’t widely used in China, except by those with an overseas link. LinkedIn China’s audience is mostly returnees, expatriates, multinational corporation employees, and maybe those who need to sell to or recruit foreigners, such as those in the export-import business.
Nor is LinkedIn the place where Chinese professionals maintain their network or flaunt their achievements. WeChat is where you store your business contacts, and has much better engagement with features like the Moments feed. Maimai, the local competitor to LinkedIn’s social functions, has 110 million users — more than double LinkedIn’s number — and a vibrant, gossipy community, packaged in a superior user experience with a gamified, mobile-native design.
Anecdotally, a fifth of my 4,000+ LinkedIn contacts are in China. I rarely, if ever, see them post updates, except for the few expatriates whose job hinges on selling their China expertise to the rest of the world.
As LinkedIn pointed out, it’s true that the Chinese government’s compliance demands on social media companies have grown tougher. You may remember reports about LinkedIn censoring the profile page of a human rights activist. (LinkedIn later restored the page and said it was “blocked in error”.) More recently, a group of journalists took to Twitter to assert similar moves against the press, which prompted a concerned letter from U.S. Senator Rick Scott to Microsoft and LinkedIn.
The LinkedIn pages of some journalists covering China seem to have been blocked because links to their work cannot be displayed in China. Although this could have been solved with a partial blocking of their pages, would that have made a difference, dampened the public reaction, or prevented Rick Scott’s letter? I don’t think so. Censorship is not a nuanced subject for most people.
Something that’s missing from the discussion is China’s regulatory crackdown. The new data security law is aimed at making sure Chinese citizens’ data stays in China, and strictly curtails what can be shared overseas. Sure, Microsoft certainly has the budget and resources to comply. But with increased scrutiny of Chinese censorship from the U.S., and intensifying regulations from China, LinkedIn is suffering from political risk on both sides.
It means there is no respite. Is sinking more money into regulatory compliance really worth it, especially when the company’s product isn’t really working? It’s easier to just have a complete separation between the two, as ByteDance has done: Douyin for the domestic market, and TikTok for the U.S.
There are reasons to stay in the Chinese market, even with a threadbare presence. Inertia is a big one. Market size is another: even with 50 million users, China is still LinkedIn’s third-biggest market. It would be understandable if the company wasn’t at peace with abandoning existing users.
But the odds already seem stacked against LinkedIn. Remember that recruitment in China is already a tough industry, even without the complicating factor of social media: old-school market leader 51Job is just a $4.6 billion company today. If we look at primarily professional networking apps, then leader Maimai is one of the smaller unicorns. Derek Shen’s ideal result might have been for Chitu to become something like Boss Zhipin, a roughly $14 billion mobile-first recruiting company that recently listed on the Nasdaq.
Derek left LinkedIn in 2017, a year after Microsoft acquired the company. Looking back, was he too optimistic about LinkedIn China’s chances? I don’t think so, actually. He lived through the Thousand Groupon War and managed to sell his group-buying startup, Nuomi, to Baidu, so he knows exactly how incredibly competitive the Chinese business environment is. His logic for the business structure was sound. It was tricky timing that he joined in 2014, just as LinkedIn became more of a social media platform, but even then, he was clearly aware that the chances of a company like that succeeding in China without localizing was very low, if not zero.
But add in all the factors beyond an entrepreneur’s control, and it’s definitely zero. I think that’s the lesson we should take away. International firms can succeed in China, but in addition to careful strategy and good people, you also need a good dash of luck.