“I can’t believe you’re here,” said a Chinese entrepreneur when we shook hands after a conference in Shanghai. “Three years ago we set out to clone your business model in China, raised venture capital and just hit break-even. Meeting in person was not something we ever expected!” It was even more strange for me. Coming to the world’s most populous country for the first time, I expected little awareness about the mobile web challenges we are currently tackling at Mobify. Instead, I found an active local competitor with 150 full-time employees, observed a vibrant and hyper-competitive mobile marketplace and even learned a few things about the startup ecosystem in China.
Cloning business models is completely normal. Copying products and borrowing startup ideas (and sometimes more than ideas) from others is a standard way of doing business in China and is readily acknowledged by local entrepreneurs. There is even a term for it - Shanzhai. In an extremely competitive environment, described as “the ultimate form of capitalism” by one expat, anything goes. Everyone is hungry for success and they work exceptionally hard to get it so it is commonplace for the clone to be even better than the original! Keep that in mind when putting together your go-to-market plan for the region.
“Mobile first” is a way of life for developers and consumers. Many new Internet users in China have never owned a desktop computer (or a landline phone) and have subsequently formed their opinions about various web services based entirely on the mobile experience. On one occasion, an American colleague of mine recommended LinkedIn to a friend in Shanghai. Accustomed to slick mobile products like WeChat, he commented that the mobile version of LinkedIn lacked features and wasn't interested in the desktop site at all. The lesson: if your product is not “mobile only” or at least, “mobile first”, it’s not going to take-off in China.
Relationships govern the business and technology decision-making process. Trust and relationships are everything in Asia. There is no credit system. Corrupt officials only take money from people they trust. In many cases, customers choose to work with people they’ve known for a long time, even if there are immense business and technology benefits of trying a new software vendor. If you are trying to break into the Chinese market with a new product or service, having well-connected partners or resellers can be the difference between success and failure.
Most companies are not yet comfortable with the Software-as-a-Service (SaaS) model. In an intensely competitive environment, data and IP are considered to be incredibly valuable. Vertical integration provides business and security advantages. As a result, many enterprise and technology companies are reluctant to host their data and software “in the cloud” out of concern that it might be stolen by the vendor. Subscriptions and consulting-based professional services are also thought to be “wasteful” and lacking value. Instead, customers prefer to pay a “perpetual license” and hire their own staff to reduce costs.
Online business is huge, growing fast and highly centralized. Recently, The Economist predicted that China will be the world’s largest e-commerce market by 2020 - bigger than US, Japan, Britain, France and Germany combined. With that being said, don’t expect to find a thriving ecosystem of innovative e-Commerce companies just yet. At the moment, most of these huge volumes are driven by several giant services like Alibaba and Taobao. What does this mean for startups? If your startup is B2B focused, the number of customers you can target is limited in comparison with the B2C market volume. Acquisitions are less likely as big players like Tencent are likely to simply copy your ideas and market to their user base.
Access to the global Internet from China is limited and slow. It’s easy to feel just how slow Internet access in China is even compared to other places in Asia (see this Quora thread about some reasons why). Having no access to Twitter and Facebook makes it difficult to stay up-to-speed (literally!) on tech news in addition to causing some mild withdrawal symptoms when visiting from abroad. For your web app, this means that pages that used to be lightning fast barely load and social features don’t work as advertised. Some popular sites that heavily rely on Twitter, Facebook or YouTube sharing functionalities may not be usable at all (so make sure you think async). Akamai, Google’s AppEngine and many other global web infrastructure platforms don’t have much traction in China, ceding ground to local competitors like ChinaCache. Your SaaS product just might need some fast local edge nodes to function properly.
If your company is serious about China - which you will no doubt be asked frequently when visiting - make sure to invest in mobile optimization, local delivery infrastructure, local translation and integration with Chinese social platforms like Weibo and WeChat. If you do, you will be rewarded with amazing growth opportunities, cultural experiences and learning along the way!