China for Startups: 5 Things You Should Know
Startling economic growth, a colossal population with staggering spending power and a large, active and growing investment community are just a few of the reasons why startups are beginning to ponder the opportunities in China.
China’s got money
“In my lifetime we’ll see China double the size of the US economy”, he continued. The Economist backs this view, predicting China will surpass the size of the US by 2024, with most pundits believing it’ll happen before then.
Forbes’ latest China Rich List counts over 370 billionaires. The Chinese investment industry is growing quickly, too, with fundraising reaching $60bn in the first half of 2016 and the launch of 909 new funds.
Much has been made of China’s economic slowdown: 6.9% in 2015, down from a 2005 peak of 12%. A figure over which Western politicians would be doing a celebratory jig, especially when it translates to an additional $790bn in the economy.
Look pretty in Tier 1, make money in Tier 2 and 3
China is big. We all know China is big. But how big? There are 662 cities in China and by some accounts 105 of them with populations over 1m. To make sense of this number Chinese cities are often grouped into tiers.
The obvious choice for any company entering China is to target the Tier 1 megacities: Shanghai, Beijing, Guangzhou, Shenzhen, Tianjin and Chongqing but as Renee Hartmann co-founder of Shanghai-based apparel brand, Eno recommends, “Look pretty in tier 1 cities, make money in tiers 2 and 3”.
It’s not just startup brands that use this strategy. Bo Ji described how Alibaba, who CKGSB counts as an alumni, used exactly this strategy to help become a digital giant. He explained how people living in Shanghai and Beijing were sophisticated consumers with access to a huge range of goods, but by targeting second tier cities there was a huge, under-served population.
Copycat No More
Protecting your intellectual property is a feature of every briefing about Chinese expansion, along with horror stories of copyright infringement and copied designs. Whilst, copyright theft is still an issue requiring careful planning and protection, the rise of China’s own technology giants is changing the landscape.
Bo Ji said, “China isn’t a copycat any more than the US, who copied the UK, or Japan who copied the US. If China really starts to innovate, it’ll be a problem for the UK. They won’t need Western technology. The West will end up copying China.”
In 2015 the Chinese State Council launched the Made in China 2025 plan with the aim of becoming the world’s leading advanced manufacturing nation within the decade. Starting with 50 pilot projects, the plan focuses on 10 sectors including advanced manufacturing, robotics, information technology, new materials and biotech.
Mobile All the Way, Skip the PC
Mobile usage dominates the Chinese internet landscape, with users clocking up a daily average of 4 hours glued to their screens. As Bo Ji explains, “[China] skipped a generation of people using the PC for Internet, instead going straight to mobile. The Chinese treat the phone as a computer, it’s why they tend to go for bigger screen sizes”
China has around 630m mobile internet users with this expected to increase to 664m by 2018, with only around 53% of the population having access to a smartphone. Quite the opportunity when compared with the 43.6m mobile internet users in the UK.
At the heart of this is the growth of mobile apps and the ecosystem built around them. WeChat run by China’s largest tech firm, recently reported 846m monthly active users helping its parent company to a $1.5bn profit. In addition to chat, the platform includes games, a wallet and cab hailing service.
Launching a mobile service doesn’t just mean translating the interface, as Woooba’s Dan Lane explains, “We will have to change feature set for China, we’ll have to go in with a blank mind for the platform and even change the business model. We will hire local UX talent to tailor the product and rapidly iterating”.
Language skills, cultural skills
Chinese is a notoriously difficult language for Westerners to master and was one of the main questions raised in the panel session at the China Venture event.
Fortunately, this might not be as much of a barrier as it used to be, Serge Didenko of Blocks Wearables who are planning Chinese expansion, said, “ you don’t need language skills in China, they’re beneficial but not necessary. What you do need, is someone on the team who understands the [business] mindset.”
Reijo Pold from Silk Ventures, a Chinese-backed VC building links between London and China added, “It’s useful to have done some research on culture and business practice. Have materials ready for meetings, translated into Chinese and pitch ready.”
“After a pitch, typically there’s not a lot of questions, which culturally we expect - queries about finances don’t happen, so pitches need to be adjusted to handle this. The questions happen afterwards one-to-one” added Joshua Bower-Saul, CEO at Cybertonica.
Bo Ji has published a video with 8 practical tips for pitching to Chinese investors.
Chinwag is planning two Digital Missions to China in 2017, one focused on Fintech, the other on digital media, social media and marketing. Register your interest for the Digital Mission China Fintech mission here. Subscribe to the free Digital Mission newsletter for more details and follow @DigitalMission.