Market Access Q&A: Accelerate Your Journey to China

February 9, 2021
Innovation Insight

XNode Blog

Market Access Q&A: Accelerate Your Journey to China

XNode 创极无限 partnered with Singapore Week of Innovation and TeCHnology (SWITCH), the leading tech festival for the Global-Asia innovation ecosystem. In the sessions of China Market Access , XNode leaders including CEO Wei Zhou, COO Luuk Eliens, Corporate Innovation Director Lei Niu, and Chadwick Xu, CEO of Shenzhen Valley Ventures (SVV) discussed how to bridge the gap between China and foreign corporates and startups.

Following their discussion, the answers to the questions asked by the audience are excerpted as below:

1 | Guanxi – the Relationships

How important is ‘guanxi’ (Chinese word for relationships) to be successful in China?

Guanxi is a nice-to-have facilitating factor for conducting business in China and is just as relevant to the rest of the world. It is not an absolute must as the deciding factor for success in China. As a startup, you need to have unrivaled products, a strong product-market fit, and an excellent team. While guanxi may act as a bonus for giving you a speed boost and open some doors, these fundamental competencies will be the ones closing the deals for you.

So, it is not like without guanxi you cannot do business in China since what really speaks for your business is the knowledge, technology, and logical business sense, which you bring along with you.

2 | China vs Silicon Valley

How is the innovation ecosystem in China different than that of Silicon Valley?

The differentiating factor is that in China, innovation has been fueled by the consumer side, in the sense that innovative business models have been implemented to cater to the growing needs of the population in China. The growth of Silicon Valley, on the other hand, has been concentrated on high tech startups. Recently, China has been making the shift towards technological innovation. Take the example of Shenzhen; it is the hub of hardware, robotics, and artificial intelligence and is leading the new trend of technology-driven innovation in China.

So initially, innovation came from the consumer but now, we are seeing a shift towards more technology-based startups.

3 | Beijing vs Shanghai vs Shenzhen

How is the ecosystem different in China’s top tier cities?

Different cities have their own distinct characteristics and clusters. Shenzhen is the city with the most entrepreneurs with mostly private ownership businesses. Beijing is the place for state-owned corporates headquarters, while Shanghai has been the go-to city for international corporates.

Before expanding to China, companies should understand their business, their customers, and all the city choices available to them to find their suitable fit.

4 | International Expansion

Given the rising cost of labor and raw materials, to what extent are Chinese companies looking to expand outside China?

Mostly big companies are expanding to markets outside China as opposed to SMEs. This is because China is fiercely competitive in its own market. They need to win their own country before they expand to another. Chinese companies are not yet ready mainly because of talent reasons since they would need to deal with different tech infrastructure, consumer behavior, and cultural context. They would need to have an army of talents who understand the local customers and international game. They will need to hire locals to run the local businesses. This can take a long while, which is why most SMEs are wary of expanding outside. However, in the future, we will see more and more of them tapping into other countries' markets.

As for the cost, yes, it is rising. China is shifting from manufacturing-heavy to a service and advanced technological innovation-based economy. So, the whole labor force has already been upgraded. Many Chinese companies are setting up their manufacturing plants in Southeast Asian countries. However, it should be kept in mind that China is a very multi-layered economy, which will continue being one of the major manufacturing hubs while innovating and going upstream to a service-based economy simultaneously.

5 | Navigating Government Policies

How to navigate the business landscape in China as a foreign business?

As a foreign company, you need to have a local partner who can help you sail across the barriers of navigating government policies. Alternatively, you can enroll yourself in a high-quality program provided by the government or the private sector to give you a boost by providing you education first. Indeed, it is hard to navigate the government policies for getting benefits that apply to different industries, fields of operation, or technology. Ideally, you should find someone at the early stage to help you settle and build the ground plan so that, eventually, you can run by yourself.

All in all, considering the overall costs and benefits, China is still a very friendly market for foreign companies to expand to.

Do you want to expand your business to China? Check out CHINA INCUBATOR BY XNODE to help startups take their first steps towards expanding to China online with XNode coaches,