Who will win the battle of the tech firms – America's west or China's east?

Will America’s west coast or China’s east win the battle for tech firm supremacy? It’s still all to play for, says Matthew Lynn.

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Will America's west coast or China's east take the economic prize? It's still all to play for.

The intense concentration of major tech firms becomes more and more startling with every year that passes. According to a new analysis in the Harvard Business Review, nine of the top ten web companies and 18 of the top 20 are from just two regions the western seaboard of the US (Silicon Valley and Seattle) and the east coast of China. The biggest firms in online search, social media and online shopping are all based in those two places.

Over the past two decades they have given rise to a classic cluster effect, with entrepreneurs and venture capital and universities all gathering in the same area, creating networks of expertise that allows businesses to grow quickly. There are 148 firms in the US started after 2003 that have reached a valuation of $1bn or more (the so-called unicorns) and two-thirds of those are based in California. China has 69 unicorns, twice as many as Europe, and most of those are based on its east coast.

Sucking in the talent

This means that wealth and opportunities are concentrated there as well. Three-quarters of Google's staff are in theThe same is true of Facebook. The Chinese web giants such as Tencent, Alibaba and Baidu are even more dominated by their home region for all three companies, 95% of the staff work in the home region. In effect, the best jobs are going to be in those two places. It's too late for even the closest rivals such as London and Tel Aviv to catch up. The big question is whether eastern China can challenge the dominance of the western US.

California and Washington state still have a decisive lead. The top four tech companies are all American, and the biggest Chinese competitor Tencent with a market value of $335bn at the end of 2017 is less than half the size of Apple, the biggest US firm. So far, the Chinese web giants have mainly focused on their home market. And with web penetration still relatively low in China, there is huge amount of expansion ahead, so they can keep growing at a formidable pace without having to worry too much about their presence in the rest of the world.

That is going to change, however, and very soon. Increasingly those companies are pushing out of their home market.of China, but it is targeting 50% by 2025. Its major rivals will not want to be left behind. Once a couple of the Chinese web giants start going global, the others will quickly follow. They have the resources and the expertise to make an immediate impact, either by pouring money into expansion or else through acquisitions.

You can already see that happening in mobile phones. A few years ago, nobody in this country had heard of Huawei. Now the Chinese company's phones are everywhere. If it can expand that quickly, so can lots of the e-commerce and social-media players expanding fast in China.

The tale of the tape

True, the American giants have some huge advantages. They were the first into the market, they have immense resources and a huge pool of talented engineers, designers, and marketers to draw upon. With the sole exception of Apple, they are still all controlled by their founders, which means that companies such as Amazon and Google are still driven like start-ups, even though they are among the biggest companies in the world. Against that, their Chinese rivals have what will inevitably be the biggest economy in the world right on their doorstep, and it is a protected market. And they have the deep pockets to expand overseas as soon as they are ready to do so.

One thing is clear. With technology growing in importance all the time, the battle between America's west coast and China's east is the key one for the 21st-century economy and the outcome is still in the balance.

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