Shortly after hiring Roland Cloutier as its Chief Information Security Officer from USD 60bn market cap payroll-services juggernaut ADP in March, Bytedance announced this week that it will hire former Disney exec Kevin Mayer as the COO of Bytedance and global CEO of TikTok. This announcement has been greeted with surprise and amazement by many. In his new position, he will oversee a number of corporate-level functions and directly report to Founder, CEO and Chairman of the Board, Yiming Zhang, putting him in a truly unique position.
Image source: TheNextWeb
Bytedance – born global, made in China
Bytedance is the parent company behind the largely successful Chinese news aggregator Toutiao and short-video app Douyin. In international markets, these products go by the names of TopBuzz and TikTok. Beyond that, Bytedance also operates a large suite of other products including the video platform Xigua (China), the social network Helo (India), music-streaming platform Resso (India) and the workplace productivity tool Feishu/Lark (China/International), among others.
Founded in 2012, Bytedance has been on quite a run, growing its global user base to beyond 400 million DAUs across all platforms (roughly 50% from overseas). Relying on a business model based on advertising, revenues grew significantly over the last few years to USD 20bn (2019). Despite the rapid international expansion, it is believed that the vast majority of Bytedance´s revenue comes from the Chinese market where it is now the second-largest ads platform (only second to Alibaba). With all of that, Bytedance became one the world´s highest-valued pre-IPO companies at around USD 80bn with investors such as Sequoia, Softbank, Hillhouse, KKR and General Atlantic.
Chinese tech companies show early signs of international success
Over the last 40 years or so, as China opened up and the economy underwent a once-in-history growth, the skill level of Chinese workers has been consistently rising; so did their international experience and exposure. No longer do foreign talents at the very top have any advantage in terms of education and work experience over Chinese top management talents.
At the same time, overall, the global influence of China Tech in software (and apps) has been growing, as a recent analysis by The Paulson Institute highlights, comparing the share in downloads of Chinese apps in emerging markets 2015 and 2019.
Moreover, the emergence and rising influence of Xiaomi, Huawei, Oppo/Vivo overseas for consumer and enterprise hardware has been spectacular. Last year in Europe, for example, Huawei became the second-largest smartphone maker by units sold.
While the former development reduces the need for foreign execs in China Tech´s c-suite, the latter one might further encourage it. In light of these developments, it is a proper moment to look back and evaluate the role former foreign execs played in the c-level of China Tech as well as the appointment of Mr. Mayer as Bytedance´s future COO in more detail.
Phase 1: Foreign founding teams emerge in China (until 2010)
China´s early internet companies BATJ (Baidu, Alibaba, Tencent and JD.com) started their businesses already in 2000, 1999, 1998 and 1998 respectively. Yet, it was not until around 2005 that internet users overall and 2008 that mobile internet users specifically crossed 100 million for the first time. By now, internet users in China stand at around 900 million in the country of 1.4bn, according to data from CIW. As a result, it is fair to say that the internet reached the mass market only in the late years of the 2000s.
These early days of the Chinese internet saw some foreigners in the driving seat at Chinese Tech companies. Most notably is the example of Dutch Marc Van Der Chijs. Along with his wife and a friend, he was the Co-founder at video hosting service Tudou.com, often referred to as one of the (many) “Youtube´s of China”. He stayed with the company between 2004 and 2010. Tudou went on to IPO in 2011 at a USD 800 million valuation and then in 2012 got acquired by Youku at a USD 850 million valuation. Youku (Tudou) remains to be a leading player in the industry and nowadays is part of the Alibaba Group, after being acquired at a USD 4bn+ price tag in 2016. Then there was also American Fritz Demopoulos, a former early SVP at Netease. He co-founded travel platform Qunar alongside Chinese co-founders in 2005 and went on to leave the company after 6 years in 2011. Qunar got acquired by Baidu in that year for USD 300 million. Years later it got merged with Ctrip (2015). Another example is Gaopeng. On behalf of international expansion partner Rocket Internet, Austrian Raphael Strauch founded the daily deal service in 2010. It was a joint venture between Tencent and Groupon. It went off to a rapid start in January of 2010 but failed to gain significant market share and merged with Tencent-invested FTuan in mid-2012. Eventually Meituan-Dianping emerged as the clear leader in this industry.
While foreign founders were rare even back then, nowadays this type of foreign c-level in Big Tech is impossible to find as China lost its status as a business haven for foreign (tech) entrepreneurs.
Phase 2: Add-on to international expansion (2010-now)
After the early days of foreign founders, the Chinese internet kept developing and the type of foreigner starting successful tech companies growing to significant scale died out. Yet, as Chinese companies went on to IPO overseas and conducted international expansion growth projects, a new type of foreign c-suite emerged.
As Chinese companies liked to IPO in NYSE or NASDAQ, they often were seeking foreign CFOs to handle the IPO process and investor relations. Dutch Reinout Schakal at Luckin coffee is an example. A former investment banker in Hong Kong, he joined the company at the beginning of 2019 and led the following IPO in May that year.
As Chinese companies will increasingly also consider Hong Kong and Shanghai as their IPO destination, this type of foreign c-level might die out over time.
Because Chinese internet companies became extremely sophisticated in product/services, business models as well as resourceful thanks to their success in the hypercompetitive local markets, many eyed an international market expansion in recent years. To that end, they appointed a foreigner to lead their international business.
Brazilian Hugo Barra is an early example of this type. He was a leading product manager at Google who made it from manager to VP within 5 years at a time when Google was still a USD 100bn company. Eventually, he became the VP of Global at Xiaomi in 2013 and stayed for more than 3 years in the Beijing HQ. Xiaomi nowadays has 50% of its business overseas, in terms of revenues. Another example is Canadian Michael Evans, former Vice Chairman at Goldman Sachs. He is with the Alibaba Group as a president since 2015, in charge of strategy and execution of overseas expansion. Alibaba´s share of international revenues now stands at around 10%.
International expansion remains a major trend in the years ahead for Chinese internet companies and it is likely that there will be more foreign heads of international in the years to come.
Phase 3: Encore for the Chinese tech global blueprint (2020-future?)
As we have seen from the previous examples, foreigners took different roles in the c-suite of China Tech in the recent few years. Some failed, some succeeded. Overall though, due to the rising skill levels among the local workforce including haigui (overseas returnees), in the last few years foreigners often played a side-role, focusing on specific projects and units outside of the Chinese core business.
As such, the appointment of Kevin Mayer as the COO of Bytedance, especially with regards to his task of covering overall corporate-level functions such as corporate development, sales, marketing, public affairs, security, moderation, and legal, indeed is a real game-changer. It may mark the beginning of a new era in which the c-suite in China Tech becomes more diverse, in terms of nationalities. Given the fact that Bytedance nowadays is the highest-valued pre-IPO tech company in China, this is in particular significant. But this is not only remarkable for Bytedance. For example, Facebook´s c-suite is notoriously all-American. Furthermore, three out of six FB BoM members hold degrees from Harvard, the remaining three all graduated from Stanford.
It does not come as a surprise that this happens at Bytedance in particular though. It is part of a very special breed of internet companies. The company has been very serious and vocal about its global expansions plans at least since 2018. This year then, CEO Yiming Zhang even announced that he would personally be in charge of global expansion and focus his efforts increasingly there. According to some, it is considered as a global enterprise that emerged from China. Indeed, the company might have the highest number of foreigners among all Chinese Tech companies employed in their Beijing HQ. Furthermore, it has built highly local operations in many markets, with offices in more than 120 cities. Especially India is a success story and case in point. It is estimated that 30% of all app downloads of TikTok come from India. Bytedance has a highly localized offering of services tailored to the Indian market with Helo and Resso, giving the local team a lot of autonomy. The local leadership team has been recruited from top organizations, including Facebook.
Despite all the enthusiasm, many challenges remain for now. As Bytedance continues to expand internationally – including the US, where it reached beyond 150 million app-downloads – scrutiny over the Chinese nature of the business has been increasing. Having a foreigner as part of the core c-suite might help then to ease the concerns of regulators across the globe. Mr. Mayer obviously is a highly qualified hire, but given his lack of knowledge of Chinese language and working culture, it will be a struggle to really access the core decision-making within the company for the corporate functions under his leadership. Not permanently being in Beijing will further make the situation complicated, considering the face-to-face meeting culture in China. Overcoming these challenges will be a major task not only for Mr. Mayer in the months and years ahead – but for the whole company. On top of that, as common in China Tech, he will face immediate pressure to show results within a matter of a few months. As such, it is to be seen how much he will focus on his role as the global CEO of TikTok or his role as the COO of Bytedance.
If there is a place this experiment can work, it might be at Bytedance. Will there be more like Mr. Mayer in the years to come? It also depends on the outcome of his tenure.
All opinions expressed in this essay represent my personal views only.
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