Seeking Alpha
Foreign companies, long only, tech
Profile| Send Message|
( followers)  

Chinese search leader Baidu (NASDAQ:BIDU) is trumpeting its opening of a new R&D center in Silicon Valley, becoming the latest Chinese Internet company to make such a move in the tech capital of the world. The announcement is obviously full of symbolism, since Silicon Valley is home to global search leader Google (NASDAQ:GOOG) (NASDAQ:GOOGL), which once tried to purchase Baidu but was rebuffed by company founder Robin Li. Company watchers will also be asking if the move could auger a major new step for Baidu, which could see it challenge Google in lucrative but highly competitive western markets.

Baidu said its Silicon Valley move is part of a broader initiative to set up a pure research division, which will have offices in both California and its hometown of Beijing. (company announcement) The new division will be headed by Andrew Ng, a leader in the field of artificial intelligence, according to Baidu’s announcement. Baidu already has an existing R&D facility in Silicon Valley, but this latest move will mark an expansion of that along with consolidation of several other existing locations.

There’s not really any more news in the announcement, besides some background on Baidu’s existing R&D facilities in Beijing and also on Ng, who is a computer science professor at Stanford University. The move looks more like a consolidation and perhaps some expansion of Baidu’s existing facilities. The hiring of a big-name leader so closely associated with Stanford indicates also Baidu intends to move the center of its R&D operations to Silicon Valley, with a focus on improving its search capabilities.

The move looks quite similar to a number of other recent steps by both Chinese and western companies as they try to improve their technology and go global. Ng’s hiring looks strikingly similar to Google’s hiring about a decade ago of Lee Kai-fu, another prominent R&D executive who was working at Microsoft (NASDAQ:MSFT) at the time. Lee went on to lead the expansion of Google’s search business into China, which ultimately ended with his resignation shortly before Google’s high-profile withdrawal from the market in 2010.

The move also looks similar to recent steps by leading Chinese Internet company Tencent (OTCPK:TCEHY) and retailing giant Suning (Shenzhen: 002024). Tencent has a game development center in Silicon Valley, and made headlines last year when it announced it would also open a US office for its popular WeChat mobile messaging service as it explored the market. Late last year, Suning also announced it was opening a Silicon Valley office, as it seeks to transform itself from a traditional retailer into an Internet company. (previous post)

Baidu isn’t exactly known as a pioneer outside of its core search business, so it’s not too surprising to see it following similar moves by other companies with this establishment of a formal R&D unit. The move does seem to indicate that Baidu may be planning to get more aggressive about expanding outside China. That’s because its current search technology is really just so-so, even though its system for monetizing the business has been quite successful in its highly protected and relatively unique home market.

Baidu has already made a few limited moves outside China, though none have been very successful. Its earliest move into Japan is largely considered a flop, and the company is also moving into the developing markets of Brazil, Thailand and Egypt. To succeed in any of those markets, it really does need to improve its search technology, especially in alphabet-based languages that account for nearly all of the world’s countries outside of China. In that regard, this new R&D center looks like a positive move in that direction, and perhaps indicates that Baidu could become more aggressive by announcing a move into one or two western markets over the next year.

Bottom line: Baidu’s establishment of a new R&D center demonstrates a new push to improve its so-so search technology, in a potential prelude to a more aggressive global expansion in the next 2 years.

Source: Baidu Chases Google In Silicon Valley