Chinese tech companies forced to spend more to maintain high growth rates
May 10, 2019 (China Knowledge) - Chinese tech companies are expected to report an increase in quarterly spending as they continue to develop new technology and venture into new markets to maintain high growth rates.
As current growth drivers start to slow down, Chinese tech giants are now having to spend more on customer acquisition and hiring new talent in order to generate new high growth revenue streams and remain competitive.
Among these companies, gaming giant Tencent, search engine provider Baidu and e-commerce major JD.com are expected to report a more than 40% increase in operating expenses for the first quarter this year.
High quality users are now increasingly difficult for companies to acquire and newer users tend to spend less initially. At the same time, wages are also increasing in cities such as Beijing, Shanghai and Shenzhen resulting in significant increases in operating costs, leading to some companies undergoing workforce restructuring.
Tencent is now diversifying its business towards the fast-growing cloud services industry away from its core gaming business which has been plagued with regulatory hurdles in recent times. Similarly, Baidu is also trying to reinvent itself as an artificial intelligence developer as its core search business declines.
While companies could target customers such as the older generation and people in rural areas, returns from these investments take time and the profits from these segments will be slower as the purchasing power of these groups of people tend to be lower.
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