In 2017, China facilitated the creation of some 4,000 technology, media, and telecoms startups. China’s is becoming a hub for the UK’s startups.
Here’s why fledgling tech companies that want growth should make China their next destination.
Timeline for Comment wire
- August 9, 2018
Of these 4,000 startups, 10% have been pegged for high growth. With odds of this scale, it’s perhaps little wonder that the UK’s tech businesses are reviewing their Brexit-coated future.
And while their outlook has been traditionally and immovably western-facing, the lure of the East is turning heads.
This relentless pace of growth is in fact sweeping across the board, from successful seed rounds to the establishment of new funding organisations: last year, 502 deals were recorded in seed round, with 2,016 in the angel round and 4,441 in pre-A to A+ rounds.
In addition to that, the number of investment institutions, including venture capitalists, private equity, and funding institutes, almost hit 15,000, with a combined employee total of more than 25,000.
This, combined with the fact that UK-China collaborations are heading into what’s been called an intensified golden era, means the timing for tech businesses seeking to attract support from beyond the EU couldn’t be better.
While each tech sub-sector is championing its own success stories, artificial intelligence (AI), cloud computing and green energy are the real heavyweights, with 2017 marking an important first for China as it received half of all AI investments.
China’s sizeable population has been a driving force behind the rise in AI progression as many companies are relying on the latest AI and big data solutions to achieve the most accurate and tailored marketing strategies.
Support from the government is equally prolific, with each district being allocated funds from the central government to support their chosen industry.
The country’s immense geographical size engenders a real propensity for diversification, and so no tech sub-sector is left without a base.
While the up-and-coming city of Shenzhen is a hotbed for robotics and AI, Hangzhou is emerging as a magnet for tech startups. And having evolved from humble beginnings, Guiyang in the Guizhou province is climbing the ranks as China’s centre of cloud computing.
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The traditional giants of China still have their own pulling power, with Shanghai flagged as the city of choice for multinational major players and state-owned companies.
Meanwhile, Beijing – home to a host of technology, media, and telecoms leaders in the culture and entertainment space – is a thriving metropolis for startups in these fields.
With the UK tech scene sharing a similar commitment to technological diversification, China’s landscape presents businesses with quality options for both location and much-needed talent; opening doors to just about every tech sub-sector on the market, China’s cities can collectively satiate the full spectrum of the tech community’s needs.
Avoiding an impasse
Back on home turf, the growth opportunities that lie ahead for UK tech businesses are not just speckled with challenges, but could be heading towards a potential impasse.
A change in availability of funding from the EU; a lack of clarity around how financial cooperation between the UK and Europe will map out; Europe’s flagging trust in the UK; and an all-round less attractive landscape for new talent are all real factors that could lead to an opportunity deadlock.
Welcomed or not, Brexit has been a catalyst of change, encouraging businesses to consider the possibilities that exist beyond the horizons of the EU. The UK’s tech community has shown an increasing interest in accessing China, but the cultural and practical divide have so far deterred many from any commitment.
There is no escaping the fact that, as with any expansion into new territory, a business moving into China will face its own set of challenges. But with the right education, steering and connections, these stumbling blocks can be turned into building blocks.
Rather than stepping into the unknown, UK businesses need to arm themselves with knowledge and relationships ahead of the move to enable them to pre-empt and bypass potentially challenging situations, and ultimately benefit from the fruits of the East.
First and foremost, investment in China is very welcome, with the tech scene being particularly well supported by the government.
Complex government regulations however, alongside competition from local players and tech giants who boast strong governmental relations and bigger resources, are perhaps the greatest difficulties UK businesses might face.
That said, if the local government thinks a company has great potential and fits within the national strategy, they will give solid support, from the provision of land to discounted office rents, for example.
The UK excels in AI and green tech, which tick this differentiation box and are hot on China’s tech agenda, and so innovations in these areas are more likely to attract significant support from the Chinese government.
For companies registered outside of mainland China, getting listed directly on the Chinese stock market is not a reality yet, however, joint ventures can go for an IPO in China – as demonstrated by Foxconn.
Having an IP is also vital to avoid business models or products being copied.
Bearing a capacity to shift mind-sets around salaries is similarly important: wages are relatively low in China, but on the flipside, there’s a great labour force supply.
It’s also important to be prepared for a new working environment.
In China, work and life are far more interconnected, meaning personal connections are crucial – employees tend to promote the company on their own social media, WeChat, as personal branding and company branding are interlinked.
Furthermore, business is done on a face-to-face basis, usually over dinner. Earning and giving trust is a longer process in China and building real relationships helps to spur this along.
Independent incubators and accelerators such as Cocoon Networks don’t exist in the same way either, as the local government usually sets up businesses within industrial parks.
Co-working spaces do exist however, particularly in the larger cities such as Shanghai – the home of WeWork. And so the buzz of excitement from the cross pollination of innovative ideas is as ubiquitous in China as it is across the UK’s co-working spaces.
Recipe for success
Succeeding in China’s tech scene is a step-by-step process.
To begin with, UK businesses should look to collaborate with local companies and investors in one city before considering expanding into others.
Finding the right partner to steer you is crucial. Companies like Cocoon Networks can help to keep your experience on target, finding the right city with the right government support for your initiative.
Businesses also need to maintain an out-of-the-box approach to thinking. It’s important to remember that local governments in China don’t necessarily care about the amount of money as much as the value and prestige a foreign company can bring to them.
There’s a great incentive system in China, so if your startup is the first of a specific industry, the government can be very willing to support.
Indeed, there’s fierce inter-governmental competition as each local government vies for the top reputation spot, and so with some smart thinking, a business could turn this into an opportunity.
Finally, having both passion and drive to navigate the very different cultural terrain will be essential for success.
Not only will it help you to fight off the fervent competition, but it will also help you to maintain momentum through what can be a lengthy process: it’s a big step to take and success won’t happen overnight, but the pay-off can be of paramount significance.