To Do China Right, Enjoy the Food: 12 Gems For Growing Your Business in China
Last Friday, Cleantech Group, Silicon Valley Bank, and Wilson Sonsini Goodrich & Rosati convened an intimate group including investors (Dow Venture Capital, Keytone Ventures, Khosla Ventures, The Westly Group), corporate innovation leaders (ABB, Applied Materials, Siemens), and startups (Efficiency Exchange, Gridium, NexSteppe, Scoot Networks) for a Power Breakfast focused on strategies for working in China. A panel of investors, bankers, attorneys, and startup CEOs with deep experience working in China led the conversation, moderated by Cleantech Group’s CEO, Sheeraz Haji (see a couple interesting slides from Sheeraz’ presentation at the end of the post.)
We promised not to attribute quotes so participants would feel more comfortable speaking their minds, but here are a dozen highlights from the experts:
- Enjoy the food. Personal connections drive business in China. One panelist mused, “Once you start enjoying food with people you really start to get to know one another.”
- Wear the mandarin hat. One seasoned investor recalled how he was advised to make clear to Chinese counterparts “what’s in it for them.” But, he added, the euphemism “wear the mandarin hat” sounds better. The need to align partnerships fully is a business fundamental that deserves extra attention in China. Several participants emphasized that engaging in corruption is absolutely unacceptable, and that corruption is waning in China.
- Be patient. One panelist recalled being told, “It will take you five years to figure out what you want to do, another five to figure out how to do it, and another five to learn how to make money at it.” This advice was given a decade ago so the timetable has likely sped up, but the general notion remains. For example, it can take years for a “paper JV” to evolve into a robust partnership.
- Hire young, hungry people with local knowledge. Rather than hiring employees with a management consultant view of China, look to the abundance of enthusiastic young people with on-the-ground experience in Chinese cities and factories.
- Make your commitment clear. To make real progress, you have to send a full team. If your company is not a major multinational, you won’t get the attention of a state-owned enterprise or regional authorities unless you make a clear indication of your intentions. Hire people for their Chinese network; this doesn’t have to be your CEO, but having a well-networked Chinese person on your board of directors can be a valuable asset.
- Explore raising Chinese capital. Due to an abundance of capital, Chinese valuations can be friendly to companies raising rounds. Chinese investors are also the most likely source for capital-intensive business models.
- Be flexible. According to one participant, “In Switzerland I know when my train is coming—and on which platform—three months from now. In China I don’t know what’s happening two hours from now.”
- There is still risk in China. As people suffer the negative effects (pollution, industrial accidents) of the last two decades’ breakneck growth, some level of civic unrest is likely and should be taken into consideration in planning.
- Never follow popular trends. Central planning results in chronic oversupply. Five Year Plans and other government initiatives can cause thousands of provincial and municipal leaders to scramble simultaneously—often without coordination—to fulfill government edicts.
- Government matters. Doing business in China is doing business with government. You can think of China as a multinational in which the Central Government is corporate and the provincial and municipal governments are business units. Understand the Five Year Plan and other government initiatives so you can approach a local official and say, “This is how I’ll make you a hero.” If you have a brand like that of Silicon Valley Bank, then you may even be lucky enough to be name-dropped in a Five Year Plan.
- IP is manageable. Speak with a startup CEO about China and the issue of intellectual property protection will arise in the first five minutes. Despite the conventional wisdom, IP can be defended in China: one panelist cited as evidence the 2008 Olympics, in which Beijing’s streets were notably free of counterfeit goods. China has only recently recognized property rights, so the concept of IP takes a while to develop. Hire a lawyer with experience in China as well as cross-border experience.
- Find a good partner and trust them deeply. Much has been written about how critical partnership is when entering China. Our China veterans stressed the need to trust your partner “absolutely.” One of the best ways to vet a potential partner is to bring them to your home country and observe how they interact with colleagues and investors. There is an abundance of potential partners who look good on paper: if one does not immediately deliver, then quickly move on to the next.
Participants stressed time and again that opportunities have never been greater to work in China. However, the likes of Amazon, Facebook, Google, and Yahoo have all failed in entering the country. Recognizing this challenge, Cleantech Group provides services to companies entering China:
- Register for our webinar, “China: A contrarian solution for western cleantech companies to find scale and finance,” this Thursday, July 18 at 11am ET.
- Apply for a spot on our China Tour from November 3-8, when we will guide investors and CEOs on a learning and networking tour of China.
- Dig into data housed in Cleantech Group’s i3 platform, which tracks over 1,000 companies working in China.
- Consider our tailored advisory services focused on China. Our senior advisor, Fred Chang, combines skills and experience in venture capital, entrepreneurship, and consulting to guide businesses as they enter China. He likens the service to that of a Sherpa: “We do the heavy lifting, and we also guide you to the summit with advice and access to government and capital.”
- Download our white paper on China market entry. We combined our expertise and experience with recent interviews with China cleantech insiders and secondary materials to bring together this China market entry white paper.
- Download our white paper on China’s cleantech ecosystem. Did you know that (as of May 2013) China’s cleantech investment ecosystem includes: 1000+ companies, 220+ investors, 480+ deals, $40+ billion invested, 700+ relationships, 187+ M&As, and 170+ IPOs? Read the white paper to learn what else you need to know now.