The question "Why China?" is usually quickly answered for many startups: The combination of market size, availability of investment capital, and political support for innovation projects makes China an attractive target market, especially for technology scaling. China's pioneering role in digitalization and the resulting opportunities for startups are also currently being widely discussed. However, it is important to differentiate between digital
- B2C markets whose speed and scale are impressive, but which are also characterized by strong local competition and specific Chinese customer requirements and
- B2B markets in which technological standards (e.g. in mechanical engineering) are generally still set by Western suppliers.
In traditional manufacturing industries such as steel, cement or chemicals, China accounts for about half of global output, so that in many B2B sectors the question is more of “how” than “if” regarding market entry in China.
Crucial before taking the first steps in China is a clear definition of the target market and the requirements for local partners. Due to its size alone, China cannot be viewed as a single market. Many Chinese companies – and thus potential local partners – are often well positioned and networked only in certain regions. Another special feature is the role of private and state-owned companies. The Startups The expressed desire for a private sector partner to develop the market is often neither feasible nor sensible, particularly in strategic industries such as energy or telecommunications, but also in most process industries.
China for startups
Establishing contacts in China is relatively easy for startups these days. Support is available through a variety of competitions, delegation trips, industrial parks, accelerators, and technology scouts. Particularly good examples of this are the TIE² International Lab of the UnternehmerTUM and the "4th China (Shenzhen) Innovation & Entrepreneurship International Competition." It is important for startups to identify the players behind them as early as possible, as well as their strategic, financial, or even political motivations.
Simple letters of intent (MOUs, LOIs) with potential local partners are also quickly signed in China business. It is advisable to formulate as concrete goals, planned milestones, and basic responsibilities as possible at an early stage in order to establish an initial reference point for subsequent negotiations.
Concrete contract negotiations typically begin a time- and resource-intensive process in which even negotiated results are often called into question over numerous iterations. Especially for startups, which typically find themselves in the role of smaller "junior partners," it is imperative not to lose sight of their own goals and their own technological strength as a negotiating position.
It is also advisable to develop one or more fallback options prior to negotiations. Due to the size of the country and the intense competition among Chinese companies, there are good alternatives for the location or partner in almost every case.
Innovative technologies usually require a lot of explanation
Just as important as stringent negotiation is supporting implementation "on the ground" in China. Innovative technologies from startups often require considerable explanation to Chinese partners – especially when you're no longer talking to Western-trained managers in the finance or M&A departments of large corporations, but rather to those responsible for production or sales in day-to-day operations. In these areas, simple things like English language skills or process documentation are often lacking.
In addition to know-how transfer, training, etc., building personal relationships and a sense of trust is a key objective of regular on-site presence. Building and maintaining these relationships is a core responsibility of startup founders/CEOs – both in initiating and implementing collaborative projects.
Conclusion
In a nutshell: True "quick wins" are rare for startups in China. Rather, the following factors promise medium- to long-term success:
- Go to China from a position of technological strength rather than financial weakness
- Clearly define your market, goals and requirements for the Chinese partner
- Try to understand the motivation of the Chinese partner, why they want to cooperate with or invest in a German startup
- Cooperate with Chinese companies that have experience in international projects or, even better, have their own presence in Germany/Europe
- Always work with fallback options, especially with regard to locations and partners in China
- Builds personal relationships – especially as a founder/CEO yourself
