We are seeing Asian startups expanding globally. This year, most notably Chinese bike rental companies Mobike and Ofo have expanded to Asian, North Americna and European markets. Chinese smartphone manufacturers Huawei and Xiaomi have been also successful in expanding to Southeast Asia and India. So what are the keys for Asian startups to go global?
At Startup Festival 2017 held in Seoul on November 30th, four panelists discussed the difficulties for global expansion and advice for Asian startups to expand their service globally. The panelists were Bryan Chang, Principal at Collaborative Fund, Judy Sindecuse, CEO & Managing Partner at Capital Innovators, Lu Gang, CEO at TechNode, and Michael Chow, General Partner at Radiant Venture Capital. The panel was moderated by Matt Shampine, General Manager at WeWork.
As a part of efforts to bring in global startups, VCs, and media to South Korea, the first Startup Festival 2017 was hosted by Ministry of SMEs and Startups, and organized by 500VOLT TWO and Brandcook in COEX, Seoul for three days.
These are the three things that we learned from the panel.
1. Localize your service
“Going global is happening right now. Startups should think about how to globalize using their technology, and business model. China is already a massive market, but China’s BAT (Baidu, Alibaba, Tencent) are making the most investment in the US and Southeast Asia. Mobile phone manufacturers are also going global aggressively,” said Dr. Lu Gang, CEO at TechNode.
Even though it’s mostly China’s unicorns that are making steps outside China’s border, Dr. Lu mentioned that startups from smaller countries have an opportunity for global expansion too.
“Israel doesn’t have a big market, but Israeli startups have shown good success cases. You should think about going global from the beginning and think about it every day,” he added.
About the advice to go global, Lu mentioned the importance of localization. Many foreign tech giant companies such as Google, Facebook failed to operate their service in the Chinese market, and even those foreign startups trying to take a piece of China’s booming O2O market such as Uber and Delivery Hero also had to change their direction. Uber’s China operations were purchased by Didi, while Berlin-based Delivery Hero had to exit China market amid hectic competition.
“Internet business is a reflection of the local culture. There are many failure cases of international companies trying to enter China market. They put a very strong marketing effort, but China’s ecosystem is totally different,” he remarked.
“To give ofo and Mobike as an example, it’s too early to say that they have succeeded in the global market. We cannot say they are a success story at this point, and startups should take care of their local market first,” he said.
2. Know your VC
As one of the strategies for global expansion, startups consider fundraising in the country they are expanding to, in a hope that the local investor will help them on the groundwork for local business operations. The panelists discussed the contrast venture capital environments in China, South Korea, and the US.
“Interacting with Korean VCs, the biggest difference of South Korean VCs and the outside is the focus on the profitability given lack of capital or relatively small amount of money available in Korean VCs. Most startups are pushed to profitability much faster than Silicon Valley startups and that changes the whole growth projection,” said Bryan Chang, Principal at Collaborative Fund. “All in all, I’ve seen more startups in Korean and Asia that have a focus on the growth side and sacrifice profitability with the capital coming out of Asian market. So, it’s good to balance both.”
Judy Sindecuse, CEO & Managing Partner at Capital Innovators, gave a broad explanation of how investors from different regions in the US have a different focus when investing in startups. Depending on your focus—whether you are a startup with a long-term vision to attract as many users as you can, or with a firm business model making money from the day one—startups should be aware who they are talking to. She also mentioned that a foreign company willing to fundraise in the US should have a US entity, otherwise US investors wouldn’t consider investing.
“If you’re an early stage startup, you should think about the region. We’re in the mid-west of US. Investors in east coast want to see profitability. Investors in Silicon Valley are trying to find the unicorn. Investors in the mid-west are trying to find B2B startups with practical ROI, and we are open to invest in smaller businesses. I think startups should break into these sectors, and learn about the differences between those markets,” said Judy.
3. Be aggressive in global expansion
Many foreign startups have expanded to China market, and South Korean startups are certainly one of them. E-commerce startups trying to take advantage of the boom of Korean dramas and K-pop in China, child education startups, technology-based hardware startups largely stepped into China. With political tensions beginning last year, the boom cooled down. On October 31, as China and Korean government reached an agreement to mend relations, the situation is getting better. However, given the overall political matters and economic relationships between two countries, Lu mentioned that the failure of China market expansion is the matter of being aggressive and competitive in the market.
Recently, China-based Legend Capital has invested in several Korean companies including cosmetics company Mediheal, Big Hit Entertainment, who owns and operates South Korean boy band BTS, a clouding company, and a film special effect company.
“We see more interaction and more and more communication between China and South Korea,” said Lu. “But we are not seeing many successful cases. Chinese startups are more aggressive to go global. Chinese look at Southeast Asia as a whole, but South Korea is too small a market and not that attractive for Chinese startups to expand to.”
“Korean startups are good at design and technology, but they are not that aggressive. They are afraid about Chinese startups are aggressive on copying the idea, and copyright issues in the Chinese market,” Lu pointed out. “Korean games were hugely successful in China. That’s an exception I think.”