Wechat Strategy in China

WeChat is a company in a relatively new industry in China: an electronic platform that basically is a multi-provider of social technological solutions services to a large number of consumers. Till now, the company doesn´t have any strong competitor in China. What is WeChat doing to defend its economic profits? Firstly, they make sure to differentiate (innovate) continuously providing multiple attractive services that create new social-tech necessities among the Chinese population. Importantly also, it has a very close relationship to the Government that has supported the grow and building of big Chinese tech companies that may be able to compete in the future with global tech players. The relationship between WeChat and the Chinese Government has consisted in the establishment of an artificial barrier to the entry to foreign players, which has been a major mechanism of WeChat to defend its profits.

Another strategy of WeChat has been its offer of “bundled” products, which also the Chinese Government has supported (meaning, not blocked) to allow this tech company to grow. This support has been central for WeChat to establish the huge and comprehensive social network environment that it represents nowadays, giving form to a solid network externality that make it uncomfortable for consumers to leave. So, WeChat, with the Government´s back up, has built a strong market position that has also locked-in consumers, making it difficult for other companies to try dispute WeChat’s market share. They would need a very strong financial base to spend re-educating WeChat’s consumers.

We believe that WeChat’s strategy, in what involves the Chinese Government support, is not sustainable in the long term: nor can it forever request the Government to forbid foreign tech companies to enter the Chinese market to compete, nor can it maintain the possibility of offering legally “bundle” products for much time longer, considering that in international modern competition law, bundle products are not allowed for strong market power firms, as WeChat for sure would be categorized. However, in this stage of the development of WeChat, the network externality and consumer lock-in strategies could be maintained even if the Government finishes the support to WeChat. These are already strongly consolidated in the Chinese society.

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