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.