Is China the right market for your startup? •

Is China the right market for your startup? •

As part of the Covid-19 crisis, Trade war US-China, Huawei, China has been under the spotlight of the international events recently. The world is discovering (or rediscovering) this large country and its roles in the global economy. Below, after a quick retrospective, let’s go forward in detail about the opportunities as well as the challenges.

World’s factory and huge domestic market

Starting as “the world’s factory” in 80’s, China has enjoyed exponential growth since then, and become the world second largest economy since 2010. We still remember its exceptional GDP growing in 2 digits (until 2010), then coming down progressively to 6.1% (in 2019), reaching 14.4 Trillion of USD, or 10K USD per capita approximately.

In the 80’s, Chinese government initiated the economy reform and opened up the country to foreign companies. The tremendous manufacturing capacity, the abundant manpower at competitive cost, the unrivalled road/railway transportation infrastructure and the logistics services in constant improvement, have attracted many MNC in western countries to transfer their production to China over time, boosting by the same way its foreign currency reserve.

As economy flourishes with the export, the China domestic market consumption has also ramped up quickly, especially driven by the infrastructure development and the accelerating interior demand from the emerging middle and superior classes. The latter is estimated currently to 400 million people, or 140 million households, from the total population of 1.4 billion people (1). These consumers, especially those born in the 90’s, are eager to own quality products, even luxury items, and to enjoy new services. This huge market potential and its fast-growing consumer base have attracted many foreign companies to China, to enter this competitive and potentially lucrative market, often bigger than their home ones.

As examples, a study has shown that in April 2017, 728 million iPhones were in use worldwide. At that time, China was the first market with 228 million iPhones, followed by Apple’s home market in US with 120 million only. Most of iPhones, if not all, were built then by Foxconn factories in China (2). However, the situation has changed since 2018. Another interesting example is automotive, in 2019, the world sold around 90 million of cars, of which China took the lion’s share with 25.7 million, followed by 18.3 million in Europe and 17.6 million in US. All big cars manufacturers such as GM, Toyota, BMW, VW, PSA etc. are all present in China. (3)

China, the next market for startup

Now, some may ask, as start-up, would my company still have a chance in China?

The answer is YES, but only if your company fulfills some conditions.

Differentiation

First of all, please make sure that your product(s) and/or service(s) present real interests for China market. Either in B2B or B2C, they need to bring innovation, high added values (technology, functionality, business model etc., to differentiate it from existing solutions.

Nowadays, beside being “the world’s factory”, China is also very competitive in many technical

fields: Artificial Intelligence (AI), e-commerce, e-banking, mobile internet, 5G. Regarding 5G, end of April 2020, China announced to have deployed nearly 200 000 5G base stations, with 50 million of subscribers. On the Contrary, most of countries in the world are still in 4G and are thinking how to switch 5G, and in particular with or without Huawei technology.

Appropriateness to local market

Then, as for any market, you need to ensure that your product(s) and/or service(s) can fit in the local market and the expectations of Chinese consumers, taking into account the consumption habits, social, cultural and even political aspects. For example, some platforms such as Google (so Google Maps), YouTube, Tweeters are not accessible from China. Hence, if you have developed an apps using one of them, you will need to rework and find an alternative for China market.

Partnership

In addition, if you need to find local partners to industrialize the concept and/or to go to mass production, then you will need to pay attention to select them well. You can try to find by your personal network (limited by definition), or can use traditional search engines like Google, Bing or even some special platform such as Alibaba. In the context, you will retrieve a list, could be of variable lengths, and more or less relevant. Anyway, you will need to spend substantial amount of time to assess all these companies by yourself. Alternatively, some new tools aim to simplify these investigations. As an example, Must platform, with its AI powered engine and soon available, will help its users to speed up this search, to identify and match the potential partners in the eco-system of their companies. Note that Must also proposes Virtual Exhibitions (VE) to create further opportunity to help all stakeholders of an ecosystem to meet, for example its VE IoT trends in 2020 dedicated to IoT field in July 2020 (4).

This is a key step, especially when you need to identify the right partners of your eco-system in a foreign country such as China.

IP Protection

Last and not the least, you will need to well protect your Intellect Property (IP), in general and especially in China. For example, if your product embeds a special knowhow, please find a way to protect it, for example by software (e.g. encryption) or hardware (e.g. ASIC), to discourage the reverse engineering and lower the risk of copy. Let’s keep in mind that China is “the world’s factory” where internet is intensively use. Any innovations could be known overnight and a replication in few days, depending on the complexity of the product and its degree of protection. In addition, a cheap copy of your product will also damage your image and jeopardize your future development on this market. Unfortunately, by experience, this risk is real and should not be underestimated, especially if your product is trendy and gains rapid popularity. Kindly be prepared and anticipate this fact as well. You need to identify reliable partners having solid experience and expertise in China business practice to accompany you in your project.

Opportunity from Government Economic initiatives

Chinese government is very proactive in shifting and boosting China economy to match world new challenges. Companies can board these new economic trains to develop their business. Just to quote 3 major economic initiatives launched by Chinese government during the recent years, “Belt & Road” (2013), “Made In China 2025” (2015) and Great Bay Area (2017) (5). These programs have opened the door to extensive economic cooperation with many other countries, and often with full set of aiding measures. Chinese government encourages foreign companies to invest and to set up their subsidiaries in China, in particular high-tech and startup companies.

In a nutshell, China is a huge market. Big or small, companies with relevant products and/or services, able to differentiate strongly themselves will find tremendous opportunities there. As usual, opportunity and risk are 2 sides of the same coin. Many challenges exist and precaution need to be taken to succeed on this market.

About Mext Tech Expo