Already in the third quarter of 2018, ten China based tech companies have filed IPO, while only four in North America have. Yet, are startups from around the world China-Ready?
I recently attended the ‘China-Ready’ startup contest semi-final, held in San Francisco, to find out more. This contest was co-hosted by IoT accelerator Brinc.io and THero. Startups have the option to compete in 10 cities around the United States, Europe, and the Asian Pacific regions. Winners from the semi finals win a ticket to China and then join the final round in Guangzhou.
Even though China has a huge market, when people talk about China they are fearful due to many companies having failed there. Therefore, at the ‘China-Ready’ startup contest I asked two experts with history of doing business in China for their suggestions on what companies should look into when they are wanting to enter the Chinese market.
The first was Bay McLaughlin: CEO and co-founder of the IoT accelerator company, Brinc.io. McLaughlin, who has many years of experience supporting startups both in Silicon Valley and Asia.
McLaughlin first suggested that companies should start with a clear reason for entering the market. It could be in order to have a clear partnership with a large corporation, or instead they may have a strategic investor that is bringing them over. It could also be that the company already has consumers in the US or Europe that are buying their product that have similar taste as the Chinese market. Therefore, they see an opportunity to expand to China.
Since the Chinese market is very different from US and Europe, McLaughlin stressed that one should look at it as a multiple economy. “You have to look at it by tier one cities, tier two cities and then break it down more specifically,” he said.
He also suggested to assume that it will take a long time to understand the market because it is not a market where you see rapid traction. Therefore companies need to be patient.
“It’s probably a better strategy to take the time to develop partners with larger companies, such as tech companies, old economy companies, or strategic investors that will be beneficial when entering the market,” he suggested.
McLaughlin also shared that there shouldn’t be anyone who enters the market due to just having a feeling or only having read an article. Instead, it is a market that you need to come to test to see if there is a positive reaction to your product. Thus, going to China directly is highly recommended.
He then shared a trick to test the Chinese market, even while in the US or Europe, to see whether or not their company can target Chinese Americans or Chinese Europeans, and what their buying patterns may be. This is because these consumers are originally from mainland China.
It is also possible to do customer development in those markets where you are comfortable and strong first, but with an audience who originally came from your desired market.
After this, companies need to make sure that they understand the competition locally in China. “Whether or not you can imagine there would be a lot of people that would want to compete with you, or you can find a small enough market inside China that you think wouldn’t necessarily raise flags (such as the DiDi and Uber concept), you don’t want to go head to head with a very large tech trend or competition in the market,” he said.
His last suggestion was that if you are trying to bring AI or autonomous driving where there are government initiatives, you will probably face an uphill battle due to the government wanting to make sure those are made in China first.
I was also able to speak with Robert Brakerman, partner of Amphibian Global, and one of the judges of the ‘China-Ready’ contest. He has had extensive experiences working in the Chinese market, specifically in the construction industry.
While speaking at the contest, he stressed that experience working in the US market cannot be transferred directly to the Chinese market. Therefore, before anyone brings a product to the Chinese market, they need to physically visit China. He used the construction market as an example.
“Go to [Chinese] construction sites and understand the way they are managed and what their needs are before you assume that a product you make for the US construction market will just immediately transfer to construction in China,” he said.
Brakerman also suggested that startups wanting to enter the Chinese market should first understand the demographic and the consumer spending habit. China has the largest and fastest developing consumer middle class in the world, and to understand the way that their market is developing is important when looking at how products should be brought to the market.
“I think you need to start looking at the people that have been successful selling products in that market and how they did it, and not just assume that the US marketing and distribution techniques are going to translate,” Brakerman suggested.
Brakerman also shared that just learning about the market is not enough since China and the Western world are so different, both culturally and politically. Thus, a strong partner is needed if one is to start a business in China successfully.
“With the he culture, the politics, and the way things have been, I don’t think western companies can really prosper significantly in China without strong Chinese partners. That’s a key critical piece; not just for distribution, but for being able to navigate licensing regulation. Just setting up a fully western owned company in China is a lot of work.”
Brakerman continued by sharing that western companies need to partner with companies that have been working with the government to successfully initiate projects and and get them completed.
“If you’re selling construction related equipment you’re going to have to piggyback on a company that is already established and is able to sell products into those construction organizations that have access to the regulatory authorities to get construction approved.”
While at the contest, I was also able to speak with one of the winning teams, Audiology Unlimited. They explained that they wanted to enter the hearing aid market in China early so they attended this contest.
Audiology Unlimited uses real time EEG brain scans to augment the way the audiologist calibrates and tunes the Cochlear implant for the profound deaf. It’s co-founder Henry Peck is still in his fourth year in Carnegie Mellon University, studying mechanical engineering and biomedical engineering. Peck told me that cochlear technologies are really booming in China now. Some big manufacturers such as Cochlear Limited had just moved their large manufacturing facility to China. There is also a lot of competition sparking up from local Chinese companies now to make and manufacture better cochlear implants.
Audiology Unlimited was able to win the airplane ticket to China through this competition, after which Peck shared they will use it to be in touch with the audiology community in China. Peck explained that China has a large population and a growing deaf community. Overall, he wants to fill the market with their technology, “There are not enough audiologists to care for such a large body of people so we want to show that we are in touch, understand their needs, and are building credibly user friendly products. This allows us to enter into into that market much earlier,” Peck shared.