We all know that the Internet has become a significant part of our daily lives here in North America. But did you realize that China has the second largest number of Internet surfers in the world only after the United States? With just over 100 million people surfing the Web in China, it should not be a surprise that foreign companies are trying to establish a major presence in the country.
The growth potential in China is astounding, as less than 10% of the total population currently surfs. But then the maximum market potential in China may only be 30%, as the many little villages and low-tech communities that populate China are not realistically potential markets. Nonetheless, the potential market is significant and still at its infancy versus that of the United States and Europe.
Those who establish a major presence in China today can benefit if the Internet boom continues. This opportunity allows foreign companies to diversify their revenues and access a growing market.
Many of the major U.S. Internet companies have already established a significant presence in China, expecting an Internet revolution to take place, but, even if it does not, which is unlikely in my view, Internet companies want to make sure they are firmly set to go in China.
Buying key U.S. Internet companies with an established or growing presence in China’s Internet space can be viewed as a play on China. Companies such as eBay Inc. (NASDAQ/EBAY), Yahoo! Inc. (NASDAQ/YHOO), and Google Inc. (NASDAQ/GOOG) are prime candidates if you want exposure to China. Versus Chinese companies, U.S. companies offer less risk for investors.
Yahoo! currently operates Yahoo! China and acquired 3721.com — a Chinese search engine — in 2004 and is speculated to be looking seriously at increasing its Internet presence in China via a stake in Alibaba.com — a major Chinese on-line commerce site. Forbes magazine and Sina.com suggests that Yahoo! would be willing to pay as much as $1 billion for a 35% stake in Alibaba.com. Yahoo realizes the stakes are high, and it clearly wants to solidify its presence in China.
Do you blame it? I don’t. If you want to play with the big boys, you have to act like one. China’s potential is real, and the growth potential is immense if everything falls into place, and companies like Yahoo! and eBay understand this.