Startup Alert: How to Approach Entry into China

published on 26 Apr 2017
No startup begins with an attitude like "OK, we'll just sit here quietly and do our thing." No, startups have the distinctive feature of coveting growth. For many of them, China is the final frontier, the place where growth dreams come true. However, the Asian economic behemoth is also the wall against which many such dreams have crashed and burned.

There are a number of reasons U.S. startups rarely make it in China, Glenn Leibowitz writes in an article for The top barriers are the distance, cultural differences, the language and the political landscape.

Still, that's not to say U.S. startups can't succeed in China. It's extremely hard work and requires certain strategies, but when done right, a push into this massive country can grow a new business tenfold, maybe even more, according to serial entrepreneur Raymond Chang, who currently serves as managing director of Boston-based NXT Ventures Management.

Chang recently talked to Leibowitz about U.S. startups and China, highlighting five elements that any growth-hungry fledgling business should consider before moving to conquer this country. Here they are:

1. Take care of your domestic business first
According to Chang, the lack of focus is a major shortcoming for many entrepreneurs. U.S. startups should focus initially on their home market. They need to prove they have a sustainable business model before embarking on international expansion. This could take two to three years.

2. Pick the right local partner
China is one of those markets where foreign players just can’t seem to make it alone. Even companies with a strong global footprint often struggle to establish themselves in the country until they bag the right partner. Partnerships can take the form of simple distribution or licensing deals, maybe a joint venture in some cases, Chang says.

3. Heed local tastes
Given the significant cultural differences, U.S. startups must be ready to localize their products. Consumers in China have certain preferences and a foreign company can't expect to succeed there unless it takes them into account. Regardless of how good a product is, local buyers will give it the cold shoulder unless it appeals to them on specific levels. 

4. Prepare for battle with copycats
Registering trademarks is definitely not enough protection, Chang warns. Foreign entrants need to be ready for swift action so that they can still compete locally if their product or service gets copied. This is more likely than not, the window of opportunity to make a local splash typically being a couple of months. Foreign companies can prepare for the onslaught by setting up local production facilities so that they can keep costs low and remain competitive.

5. Stock up on patience 
Startups that expect quick results in China are in for a major disappointment. While other things happen about ten times faster here, the same can't be said for making money. Chang notes. It may be five and seven years before a company begins to collect any dividends. But those who play the long game will be amply rewarded: in some industries and product categories, patience can pay off with business growth of ten times or more. 

Source: Inc.