Not too long ago I was invited by the French sovereign fund BPI to join a roundtable about the opportunity for foreign tech companies in China.
My perspective came from 10 years in Beijing / Shanghai / Hong Kong running my own consultancy, then with HAX investing in hardware startups and leveraging the Shenzhen supply chain. Others were representing large groups or smaller companies.
TL;DR: it’s not a walk in the park.
Here are the key points — some are a bit generic but still worth mentioning:
- China is not for everyone. Have you identified a need or have existing demand? If not, focus on your key markets and maybe keep China for later. We invested in 200 hardware startups, and about 160 are foreign ones. Only two foreign startups decided to target China. Almost all our Chinese startups begin with China, or are ‘global from day one’ (= often at least USA + China).
- Don’t be too early. If you’re a startup (<50 people?) be careful about how you allocate your management time. Many of our foreign startups will consider China “at some point”, but when you’re small, it’s better to focus on your home market and/or English-speaking markets only.
- If you identify potential, go take a look. There are many study trips or commercial tours organized by private or public organizations that can help you open more doors than if you go alone.
- Plan to visit often. Things progress faster on site and face-to-face. You will solve faster the many misunderstandings that are bound to arise from differences in business practices, cultures, and expectations. Otherwise you might end up saying “the problem is that we can’t understand the problem”.
- China has its benefits. Such as strong government support in some sectors (energy, electric, autonomous vehicles, etc.), as well as often more progressive regulations (e.g. drones).
- Chinese companies are generally pragmatic. They are keen on cost-saving, productivity, etc. You might be surprised that in some cases they might want to try your tech ASAP, or tell you they are already ahead of you.
- You’re rarely alone. Local competition is fierce, and many international players also bump into each other in China. You need a very strong competitive advantage to overcome the handicaps of distance, ignorance, and foreignness.
- China is sometimes ahead. It might surprise or worry you, but it’s also a chance to learn. A recent group of Chinese investors who met French fintech startups said later that China was two years ahead of some of them.
- China is fast. In hardware, we talk about “Shenzhen speed”. It’s thanks to a vast and integrated supply chain (the NYT had a recent article about how little screws count too when making Apple devices). Despite the rise in wages (2.5x in the past 10 years), China remains cheaper, and stays competitive by using more and more robots (cf. Bloomberg and Wired documentaries on Shenzhen).
- It takes a village. You need to find the right partners to localize and distribute your solution, and help them win too!
- Networks matter. “Guanxi”, trust networks from university, hometowns, and former employers. In China, the limits of a company are not its walls.
I hope this helps — comments welcome!
Thanks to the all participants for their insights: Fadwa SUBE, President at Optiva Darna, Yannick LE PRETRE, Fives, Innovation Director at Fives, Gonzague DROMARD, Head of Market Planning & Development at Aperam, Raouti CHEHIH, Chief Adoption Officer at Sigfox, Mures ZAREA, Lead Senior Scientific Advisor at Engie, and Guillaume THIBAULT, Trade Advisor– Tech, Services & Aero at Business France in Hong Kong.