It has always been difficult for foreign startups to obtain Chinese venture capital funds, but now Chinese companies are starting to turn to foreign-born startups. As China moves towards technological progress, the paradox in its quest for innovation becomes obvious: innovation planning is one thing, but its creation is an elusive and often abstract goal. We need an ecosystem that is conducive to such activities, and people with special skills: engineers and data scientists with tough technological skills in AI (artificial intelligence) and learning and founders of start-ups with leadership skills. China is still short of these resources, and it is often Chinese returnees from Silicon Valley who bring the necessary talent back to the country.
I) A change announced
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According to a report by strategic research firm ABI Research, AI startups in China raised nearly $5 billion in venture capital in 2017, which PriceWaterhouseCoopers estimates represents 48% of total AI start-up financing in the world, compared to America with its 38%.
The foreign founders, eager to tap into a large number of Chinese consumers, are voraciously adopting new products and technologies. While the risk is compounded in China, with an unknown corporate culture and a poorly understood regulatory environment, there are also compelling benefits for start-up founders such as speeding up time to market and high valuations.
II) The figures illustrate this
In October 2018, venture capital investment in China reached $93.8 billion, $2.2 billion more than the $91.6 posted in the United States, according to Crunchbase. The time it takes for a start-up to enter the Chinese market is on average four years, almost half of the seven years it takes in the United States, and as a result, there are now 109 such companies valued at $535 billion in China versus 127 in the United States with a cumulative $478 billion.
III) Efforts are to be expected
Nevertheless, China lags far behind the United States in terms of the quality of its engineers and patents, the maturity of its technology ecosystem, and its ability to attract the best talent in the world. The total value of China’s technology market is still only 32% of America’s.
However, political and economic forces in China are pushing investors to continue trading around the world.
Traditionally, Silicon Valley has been the favorite, but with the Trump administration backing down, Chinese investors are turning to Israel for its pool of quality startups and to Europe for its manufacturing prowess.
IV) Example of a promising collaboration
Plug and Play, an innovation platform and silicon Valley start-up investor with a well-established presence in Beijing, Shanghai, and Hangzhou, invited a handful of startups from the United States, Europe, and Southeast Asia to collaborate six-month cross-border program aimed at an acceleration program dedicated to helping them gain access to the Chinese market.
Today the Chinese market represents an opportunity for foreign startups.
Despite all this, a good marketing strategy, an in-depth market study, and knowledge of Chinese consumer habits are necessary.
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GMA aka the Gentlemen of Marketing in China a “pure digital” agency, composed of a team of 70 people, based in Shanghai, with micro branches in the world: UK, France, Taiwan.