The Chinese platform business group: an alternative to the Silicon Valley model?

Abstract

The current understanding of platform expansion is based upon the experience of US West Coast firms. China, with its largely protected but enormous internal market, provides an ideal ‘experiment’ for examining how platform business models might develop different evolutionary trajectories in different environments. Based upon a study of the two largest platform firms, Tencent and Alibaba, and the far smaller but dominant Chinese online travel agency platform, Trip.com, we demonstrate that a different business model has emerged in China. In contrast to the West Coast model—in which the expansion occurs through internal development and introduction, acquisition, and venture capital investment—Chinese firms have employed two other strategies. The first is listing some of their existing operations separately on the stock market (what we term a ‘sell off’) but not giving up control. The second strategy is interfirm cross investments. The use of these two strategies has led to the formation of an organizational form, that we term the ‘platform business group (PBG)’, which extends and transforms the existing Chinese business group model. We discuss the environmental conditions that enable PBGs to pursue business strategies in a different manner than their Western counterparts and to identify the key conditions that allowed the PBG model to develop. Our extension of platform studies to China enriches and extends theoretical and practical understanding of Chinese platforms. Finally, we discuss the difficulties that PBG firms face in employing their business model internationally.