Technical paper. China offers German companies access to a mass market. But there are more reasons why the country is exciting for startups.
A guest post by Jelte Ansgar Wingender, he works for the incubator Innoway in Beijing and manages the China program of the startup network Startup Grind
China has produced more than 90 unicorns in recent years, according to CB Insights, with more than 150 in the US (see chart). With a population of over 1.4 billion people, China thus offers a huge market for startups. In 2018, more than 26 percent of global VC investments flowed there. For 2019, the country is expected to overtake the US for the first time in absolute VC investment volume.
These numbers are known to anyone who deals with China in the short term. However, living in the country and being confronted daily with the local ecosystems, one learns that they are often misleading and do not show the whole picture. That’s why we’ve listed the true Top 5 reasons why foreign startups should go to China:
Many experts in Europe and the US speak of so-called China Speed - but what exactly that means in practice, but many do not know. In the startup hubs of the West, founders are faced with extremely high demands in terms of quality and functionality. Investors and clients always expect the best, which leads to long development times. In China, on the other hand, “good enough” is often enough to acquire investments and first customers. The quality comes mostly with the growth and the increasing competition. True to the motto “try almost, fail fast, succeed fast”, many ideas from Germany that have not yet matured have already become investment worthy projects in the Chinese market. The Germans just have to dare.
- Market entry in Asia
Hong Kong or Singapore are often recommended as entry points for the Chinese and Asian markets. This is unfortunately a wrong assumption. Both cities do not provide enough room for growth and are more of a location for international investment, but not for a China entry strategy. If you understand Singapore or Hong Kong, you will not understand China and you will find it difficult to expand into other Asian countries. Shanghai, Shenzhen and Beijing, on the other hand, are markets where it is easy to grow, get investments and the Chinese business mentality know.
- Testing concepts
Anyone looking to expand into the US or globally in the long term can use China as a test market to quickly test a Product Market Fit. The Chinese market provides much more useful feedback for startups than other, more traditional markets in Europe.
- Openness to Innovation
Tech startups in China are extremely friendly to innovation and trends. Hardly any other country welcomes new technologies like China. Keyword Mobile Payment: Within a very short time, China has managed to digitize payments to a large extent: Statista forecasts a penetration rate of 35 percent for 2019.
Many startups expect to find a 100 percent Chinese startup ecosystem in China. In reality, only 95 to 98 percent are fully occupied and aligned locally. The remaining two to five percent are extremely international in terms of personnel and business. Founders from Finland, Pakistan, Israel, Japan, Brazil or Nigeria are easy to find in Beijing. The international potential is massive and gives companies a network that they can use in their global expansion. The cohesion in China’s international startup community is all the stronger because everyone is alien here.