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I was pleased to be interviewed by @CCI France Chine in their Connexions magazine No.85 on how to best approach entrepreneurship in China, specially in Tech market. The French article can be found here English translation bellow.
China has been on an exponential growing curve in high-tech industries multiplying acquisition, expansion, innovation, and investment. For whomever which has been visiting this country they must have been impressed by the penetration level of technology within citizen everyday life and most likely envisioning high potential opportunities for disruptive businesses in digital area.
However, what is less visible on the street is the market competition, regulatory tightening and commitment which is needed to successfully develop within this complex ecosystem.
Every company evolving in digital industry (i.e. web agency, marketing agency, software development company, program manufacturer, services company, hosting company, telecom company, …) may be tempted, before implementing operations in China, to settle a business partnership, or having a joint-venture, or having a pilot contract, … to have a kick-off in unchartered territory.
That will most likely be a failure in China, for multiple reasons which can be divided in three parts, China digital ecosystem, non-localized operations and/or knowledge and underestimation of cultural differences.
China is one of the fastest Information and Communication Technology (ICT) regulatory environment in the world. In five years they have published dozens of texts in addition to older regulations. Nowadays, not only your website requires an ICP license, but you also must be compliant with China Cyber Security Law, Personal Information Security Specifications, Cryptographic law, Payment System regulations, Hosting regulations, hardware certifications, …
It is not expected to slow, and these regulations are expected to be massed enforced through systemic controls. However, for foreign high-tech company, such regulations imply strategic choices. Chinese government, under Xi President impulsion and the creation of the CAC (Cyberspace Administration of China), as confirmed their wish to have sovereignty rights and governance of connected systems across all industries.
To comply with above regulation, important choices will have to be made, including your position on China market. To comply, you may need a Chinese software distributor since your brand, as a Foreign Invested Enterprise (FIE), may not be allowed to publish, by itself, your technologies. You may simply be forbidden to manufacture by yourself a connected sensor and force to share IP with local authorities for licensing your device; Not being capable to disseminate your SAAS service as it is restricted activity; or you may have to declare your encryption key to authorities if you are providing encryption software.
This will impact price tags, marketing strategies, business models, recruitment and much more.
On top of that it is of upmost importance to realize that China is one of the most digitalized country in the world with specifics mechanisms that you must learn to work with.
Forget about Slack, Google, and other US top brand, they most likely either aren’t accessible or illegal in China. Chinese enterprises develop an autonomous eco system which is lead by top 3 Chinese player in High Tech, also known as BAT (Baidu-Alibaba-Tencent) amongst many others…
It is very tempted to think, specifically in High-tech businesses which are increasing fast, that catching a significant market share by just being online is more than possible. However, within consideration of above points and Chinese copycat history, this would be a critical risk to adopt such strategy. Not only because the huge numbers of competitors need to deploy important marketing fees to exist on the market, but also because some of them are willing to have loss to win the “market Share” battle. (i.e. as it has been seen with dock less bike rental)
China is fierce market where promotional activities are above quality; Low price (if not free) above sustainability; Quantity above operational capabilities. In other words, lots of company, despite reasons, will challenge your business model and put a threat on your implementation. Being disruptive and innovative are few factors that can make a difference.
Once again, do not misjudge culture impact on your product, innovation and gap edging maybe not be true within Chinese hands.
In consideration of all above mentioned points, specially for tech companies, it is of upmost concern to come in China well prepared, with multiple partners ready to guide you on various topics such as digital regulations, market analysis, technology environment, system guidance, experts, and consultants.
Above most of it, everyone startup, and multinational companies, willing to come must have deep commitment to integrate and exist on the Chinese market.
Original post: How to start a successful project in Chinese high tech market.