On Wednesday (24 Apr), we conducted another of our regular market insights series, this time focusing on China. The turnout was fantastic, it is always great to see such enthusiasm from our business community in wanting to know more about the China market. Thanks to the support of our co-organisers and partners at Singapore Fintech Association, IMDA, in.Corp and Alibaba Cloud, the audience were able to gain deeper insights, especially on some of the key items to consider when developing their China market access strategy.
China presents a very attractive market. With nearly 1.4 billion potential customers and over 800 million internet users, coupled with high consumers’ appetite for technology and speed of adoption, the market potential is enormous. Targeting China market should not be wrong.
Yet, on the other hand, we often hear about the very high failure rates of foreign businesses in trying to crack the China market, even when they have done very well internationally. These include the giants like eBay and Amazon. Why is this so? If eBay and Amazon were having difficulties in establishing themselves in China, you may ask, what then are the chances for the smaller foreign startups?
Many foreign businesses tend to have too simplistic view of the Chinese market. They could be blindsided by the huge market opportunities, or perhaps too confident due to the successes that they have enjoyed outside of China, and forgetting about the risks and fundamentals of international business expansion. Whereas others could have entered the market without carrying out enough deep research, risks assessment and strategic planning.
No doubt, China is one country and the people speak one common language, but in fact it consists of 23 provinces, 4 municipalities (Beijing, Tianjin, Shanghai, Chongqing), 5 autonomous regions (Guangxi, Inner Mongolia, Tibet, Ningxia, Xinjiang) and 2 special administrative regions (Hong Kong, Macau). In this regard, the consumer preferences, spending patterns and income levels are very different across China. Most importantly, the local regulations, benefits and incentives differ from place to place. It is therefore crucial for businesses to carry out enough research about their customers, competitors, and to identify the right point of entry.
There are other administrative challenges. For example, even registering a company can be quite complex and may take time. The regulations and processes can be challenging to navigate. If this has not been taken into consideration, the company's entry plan can easily be disrupted, wasting precious time and resources. Mr Eric Chin of in-Corp shared that it may take up to 6 months to register the company, and Mr Gavin Liu of Alibaba Cloud highlighted the importance to avoid using certain sensitive words in the company registration name as that may result in the need for additional approvals or rejections. He also shared on the added steps of obtaining an ICP license in registering the CN domain name, which many companies may not be aware of.
Besides the challenges a company might face in the administrative procedures, foreign companies should also be aware of the competitive environment and they must be mentally prepared for the battle. With over 12,000 startups created a day, it will not be of any surprise for one to face with many competitors with similar products, services and business models. Many could even be better, faster, more aggressive and better funded.
Recently I read a book “AI Super Powers” by Lee Kai Fu. In the book, he mentioned “China’s successful internet entrepreneurs have risen to where they are by conquering the most cutthroat competitive environment on the planet. They live in a world where speed is essential, and competitors will stop at nothing to win a new market. Every day spent in China’s startup scene is a trial by fire, like a day spent as gladiator in the Colosseum. The battles are life and death, and your opponents have not scruples.”
He further shared “the only way to survive this battle is to constantly improve one’s product but also to innovate your business model and build a “moat” around your company. If one’s only edge is a single novel idea, that idea will invariably be copied, your key employees will be poached, and you will be driven out of business by VC-subsidized companies.”
The Chinese 996 culture is notorious. Facing with local founders growing up in 996 and market driven culture with a huge hunger to make it in life, foreign founders would often find it too grueling and stressful to continue their venture into China. The need for mental strength, ability to preserve, negotiation, networking and social skills are something that have often been missed out in companies' strategic plans.
In my view, entering China can be akin to jumping into a MOBA (multiplayer online battle arena). One way to survive is to form alliances, partnerships and to hunt in pack. One will need to be fully aware of his own strengths and weaknesses and find the right partner, especially local ones, to make up for one’s shortcomings. The business model will have to be agile and adaptable to cater for changing needs. One will also need to be very sensitive to the environment, risks and competitions, be fast in execution, and be able to constantly evolve the battle strategy. This will then give the business a fighting chance in entering this rich and yet highly competitive market.
In Singapore, the good thing is that the government agencies, trade associations and organisations like ACE are doing some extensive ground work in establishing the relationships at both G2G and private sector levels. Hopefully this could pave the path for our businesses to gain smoother entry into China.
Companies interested in exploring China can join the regular business missions, market immersion and market access programmes put together by these organisations to gain better on the ground understanding of the Chinese markets, and use these platforms to establish connections.
There are also soft-landing launchpads setup in a number of cities to assist and advise Singapore startups entering the Chinese market. For example, businesses can tap on Business China’s connections and the soft-landing pads setup by various Singapore agencies. Some of which include IMDA’s presence in Chongqing, Enterprise Singapore GIA point in Beijing, and ACE International Centre in Nanjing (May 2019).
As a summary, companies looking toward expanding overseas, be it into China or any other countries, it is always important to plan well ahead, do enough research, and gain enough insights before taking the steps. Do it right and entry would be much smoother, and the rewards could be tremendous.
Companies interested to know more are encouraged to reach out to ACE to find out about our preparation, market immersion and access programmes.
by
Edmas Neo, CEO, Action Community for Entrepreneurship
Useful Links:
References:
- http://www.worldometers.info/world-population/china-population/
- https://www.forbes.com/sites/niallmccarthy/2018/08/23/china-now-boasts-more-than-800-million-internet-users-and-98-of-them-are-mobile-infographic/#23dabe417092
- https://www.cnbc.com/2017/05/23/why-foreign-startups-fail-in-china.html
- https://asia.nikkei.com/Business/China-lets-a-million-startups-bloom-and-then-some
- https://en.wikipedia.org/wiki/ICP_license
- https://www.amazon.com/AI-Superpowers-China-Silicon-Valley-ebook/dp/B0795DNWCF
- https://www.imda.gov.sg/infocomm-and-media-news/sg-spotlight/2018/6/chongqing-x-singapore-a-winning-tech-tie-up
- http://www.nas.gov.sg/archivesonline/data/pdfdoc/20171124003/MR05417_Minister%20Heng%20Swee%20Keat%20launches%20Global%20Innovation%20Alliance%20Beijing%20to%20connect%20Singapore%20companies%20to%20tech%20and%20start%20up%20players%20in%20China%20for%20partnerships_2017%2011%2024.pdf
