Essential facts for entrepreneurs looking to invest in China2012-05-01 2
Jason Lim is a writer and Co-founder at TechNode.com. He mainly covers topics in English on Chinese tech startups, entrepreneurship, innovation in China, venture capital activity and emerging technologies. He is also working on his own startup to help foreigners find housing in China.
Before coming to China, he was a management consultant in strategy, operations and marketing as well as an accountant with Ernst & Young in Sydney, Australia.
I recently came across this presentation on Slide Share today titled, “The China Startup Report” by Bowei Gai, a Chinese-born entrepreneur who lived in America. I found it interesting because it highlights the harsh reality for foreign entrepreneurs coming to China for the ‘gold rush’ in opportunity. In many ways it makes me reflect on things I’ve learnt by just being here. I always like to describe China as ‘interesting and exciting, but not easy.’
China – the new gold rush
The astonishing magnitude of China allures people. The presentation shows that there is undoubtedly a huge market size with 1.3 billion people, 485 million people with access to internet, 800 million mobile subscribers to the two largest telecom carriers and 44.5x growth in GDP since 1985.
For many foreign entrepreneurs, this sparks a twinkle in the eye, “The market is so big, I will be rich! How hard can it be?” they often think. So for the brave or naïve, they pack up and move here ready to attack the China beast.
Get cultured quickly
Once here, foreign entrepreneurs have to navigate a tangled web of strange cultural and political factors. I believe most of us have heard stories of things happening, but until you come and see for yourself, you can’t really grasp it. Gai raises some good points that I have been puzzled by before, but over time realized why. Here are some that I have elaborated on from my own perspective:
1. Censorship – a level playing field?
When foreigners accustomed to internet freedom come to China, they soon realize it is no longer like that. Facebook, Youtube, Twitter are all blocked. In my view, the main reason is protectionism from two angles. The first is political, the second is economic. Political because the government wants to control what people see and therefore think. Economic, because if foreign companies were allowed to exist in China, it would hurt the chance of success for Chinese companies.
However I know many entrepreneurs who are grateful for censorship because it presents opportunity to copy an idea from overseas, then adapt it to China. For entrepreneurs in China, it is viewed as a level playing field since everyone has to deal with it. For entrepreneurs outside China, trying to get in, it’s just unfair.
2. Chinese prefer instant messaging over email
When I first was exposed to the internet, I had an email account and ICQ, an instant messaging system. However in China, it seems that Tencent’s instant messenger, QQ, is the key denominator. They should probably give Chinese people a QQ number with their birth certificate since everyone has one, including businesses!
I’ve also experienced slow email response from some Chinese people and I couldn’t understand why until my Chinese friend said people don’t really use email that much here.
3. Ugly, crammed websites are more preferred than clean Web 2.0 ones
This is one of the most mind-boggling cultural differences. To a Westerner, many Chinese websites are incredibly unattractive and poorly designed. They have small almost unreadable font, buried in a sea of other text. Gai’s research says that language and habits are the key drivers why Chinese still prefer cluttered websites.
For many portal sites, I believe making a site cluttered allows them to sell prominent ad space that stands out. Other reasoning suggests that cluttered websites give users all options at once without clicking and more profoundly reflect the everyday chaos that happens in China and other developing countries like India. However I also think that over time, Chinese sites will eventually resemble the simplicity and intuitiveness of Western-style sites.
A major reason is that Chinese excel in copying, down to the design. So over time, they will learn good design principles. Douban.com, is a good example of a well-designed Chinese site.
4. Chinese people don’t like to pay for software
Call it stingy or unethical but get used to it. Chinese people generally do not like paying for software, but as Gai points out, they are willing to pay for physical goods and games. Chinese tech companies bend to this custom so much that they often don’t even bother with trying to monetize from customers, but instead from advertising.
I wrote about this before in the case of online video sites, where I compare American sites like Hulu versus Youku, Qiyi and Xunlei. I was talking to a few Canadian people in the music industry at Transmit China, who were interested in selling their music in China and I told them it would be difficult because Chinese people simply don’t like paying for intangible things and they were surprised.
For start-ups trying to monetize from software, this nuance forces you to think creatively and deliver true value that people are willing to pay for – otherwise your stuff will just get copied or used for free.
There are many more good points in Gai’s presentation that impact foreign entrepreneurs in China. But I don’t want to cover them all in this post. I will elaborate on them from my own perspective in Part 2 of this piece…