Following on from my previous post, “Foreign Entrepreneurs in China Should Be Aware – Part 1” I will expand upon more of Bowei’s presentation. I got in touch with Bowei who kindly updated his slides.
In the last post, I wrote about the allure of China’s size and opportunity that shines so brightly it sometimes blinds foreign entrepreneurs who think they can easily set up shop and sell something that people will buy. Like everywhere else, doing business is hard. Doing business in China is even harder. There are some things you just won’t get until you come here, experience, learn, accept and adapt.
Competition is very much a factor start-ups must consider when entering a market. Do you believe you can beat them? If not, then why do it? Bowei touched on some good points that I will elaborate on:
1. Endless competition – does it matter?
Bowei noted that in America, there are usually only a handful of competitors that really dominate the market. Of course China has its key market players, but the amount of smaller competitors can be in the 1,000’s!
In China, as a result of its massive size, low barriers to entry, lack of intellectual property laws many start-ups attempt to attack the big players all the time. That’s why there are over 5,000 Groupon clones and 100+ Android app stores.
Yes, on the surface the sheer number of competitors can be scary and sometimes persuade people not to try to enter the market. But if you are a brave foreign entrepreneur who has strong experience and the right connections, don’t be intimidated too much. I often hear of all the cloning going on and think many of them aren’t even very serious. Take the Group-buying clones for example, many of them started with the mentality that there exit strategy was to get as many customers as possible then sell to one of the bigger one’s like Lashou, Meituan or Gaopeng. So they scrapped together an average site with poor operational processes but failed to think and plan carefully about building a solid and sustainable business first. So even if you hear a number like 5,000 clones of course it will be harder to stand out, but put that number in context of serious competitors.
2. Competition is vicious, many are unethical, and some are illegal – are you willing to play?
Due to the high amount of competitors and strong drive to win in China, often people feel pressured to compromise ethics and do whatever it takes. It is questionable whether people really feel an ethical dilemma. China is such a different place culturally, that some things are just seen as normal. Bowei referred to practices of buying customers, paying people to write good reviews about them or bad reviews about their competitors and even faking user activity and sales. I have heard stories where companies will pay PR agencies to do the dirty work for them. I also wrote about group buying sites, faking numbers before to things look more popular or create a sense of urgency. Why this happens is a very complex issue and I don’t really know why.
I’m not trying to generalize and say foreigners are more ethical than Chinese, but I am saying that you need to be aware of some of the practices that happen here. Either you can stick to your moral values and do everything legitimately or you may also feel pressure to bend them in order to compete. There is also potential for being in China to influence the way you think and behave.
3. Big US internet giants become road kill in China – need a local partner?
Bowei refers to some of the most famous and classic examples of American tech giants that have failed to assert themselves in China. The likes of Google, Yahoo, Ebay, Twitter, Facebook have failed to make a serious footprint in China. Bowei makes it clear that of course some companies had no chance before they even started due to government regulation, which prevents their service from working in China. A good example of this is with Facebook, where Ren Ren, the Chinese clone is virtually a replica of Facebook in Chinese and many Chinese people have never heard of Facebook. So with this kind of government ‘tariff’ that is preventing outside competition from coming in, local companies have an open battlefield to rumble in.
For a foreigner wanting to succeed in China, many experienced entrepreneurs and investors advise that you need a local Chinese partner (when I say foreigner, I am including overseas born Chinese). The reasoning is fairly obvious. Locals inherently understand the culture, they naturally communicate in Chinese, and they have a better chance of getting connected. However, even for a large company, simply having a local partner doesn’t always work. We all know where Groupon’s relationship with Tencent has left them. I know some foreign entrepreneurs trying to make it in China, don’t truly believe they need a local partner and have enough self-confidence to go it alone. Statistically the success rate of only expat teams is low, however it doesn’t mean it can’t work, it’s just more difficult.
Being an entrepreneur in China takes balls, but it is those balls that can grandly reward you. The points discussed aren’t meant to scare anyone but instead paint a more realistic picture of what it’s like to do things here. They are also controversial topics which are not always clear cut. China is a place of extremes and it manifests itself just as much in business as anything else.
Once again I’ve managed to only cover points from one of Bowei’s slides. It appears this will become a series of posts!