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A Key Difference in How Chinese and U.S. Tech Cos. Approach Deals

Here’s a riddle. Why do the biggest Chinese tech companies prefer to invest in companies strategic to their businesses while U.S. tech leaders prefer to acquire such companies outright?

Tencent and Alibaba, for example, have bought partial stakes in everything from on-demand cab companies to peer-to-peer lenders to games. Mobile phone maker Xiaomi has invested in around two dozen companies, including several whose products it sells under its own brands. 

The fitness band it sells is one example. It is built by Huami, a company in which Xiaomi is an investor. And just this week Xiaomi told press about new product plans with one of its newest portfolio companies, the commercial air-conditioner maker Midea. The company also invests in products it helps distribute under their original brands, like Misfit Wearables, which makes the Shine. (This blog post from the company about their recent investments is worth checking out.)

That’s a very different strategy than at Google, which spent billions to own Nest and before that Motorola. Or Facebook, which bought Oculus Rift for $2 billion. 

Imagine instead if Google had given Nest some capital and made its thermostats run on Android—which is what a Chinese company would do. Instead, it bought the whole company and just this week put Nest CEO Tony Fadell in charge of an existing Google hardware product, Google Glass.

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At the end of the day, I think each group will have to learn the other’s game if they want to play on their turf. Rumors that Facebook pondered an investment in Xiaomi suggest they may be already.

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Chris Evdemon, Hendrik Laubscher and 1 other commented on this article.
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I also think the Chinese investment approach is based on a quid pro quo that U.S. companies just aren’t comfortable with.