How European startups can scale, rather than stumble, in China – Tech.eu

Thanks to the Internet, scaling tech companies globally is easier than ever – and it’s more important too, with the rise in local competition and copycats across the world.

With its 650 million Internet users and national enthusiasm for technology, no market presents as much opportunity for European companies as China, even discounting the current economic concerns. So, as a Chinese investor working with global tech firms, it’s fascinating to see countless Western companies knocking on the gates here, and the overwhelming majority returning home in defeat.

Titans that achieved dominance across the world have encountered their biggest struggles in China, and we see many European companies in the current generation facing similar obstacles.

While it’s tempting to explain this away by pointing to seemingly insurmountable barriers – particularly government regulations – the fact is that it can be done. We succeeded with Skype a decade ago, when nobody believed that a Swedish technology company could scale to become a global category winner. By investing in local knowledge and partnerships, we were able to grow from Europe into China, making it the largest market for the company in a few short years. And other Western companies like Apple, for instance, have taken a similar approach by working closely with Chinese regulators and regional mobile carriers to localise a great product that’s been hugely successful.

Since our Skype days, I’ve been part of Niklas Zennström’s team at Atomico, helping companies scale in Greater China, many of which were founded in Europe. It’s clear to me that each startup is unique, and the right approach to scaling in China has to reflect a company’s culture, resources and product-market fit.

But even if there’s no one-size-fits-all formula for success, there certainly are universal pitfalls – the mistakes we’ve seen time and time again over the years.

Appointing a “Head of Asia” can be a devastating business choice

It’s impossible to group Asian countries in the same way as Europe – Japan and Korea are far more different in culture and business behavior than say Germany and the Netherlands. It’s crucial to prioritise ruthlessly the countries that you really care about, and to hire the right person in each country to lead on business and report straight back to company headquarters wherever that is across the globe.

Founders need to empower their country teams to make their own quick decisions, while visiting them regularly to demonstrate real commitment to each individual market. Helsinki-based Supercell, for example, was able to scale into China by focusing on finding the best country heads with in-depth knowledge of local markets and advantageous regional partnerships, and now has a set of very successful teams across Asia.

Communicating with local teams is vital

This is closely linked to the second mistake that Western companies often make when scaling into Asia: they hire people who communicate better with the global headquarters than they do with their own local teams.

It’s an easy mistake to make, particularly when presented at interview with two candidates, one of whom is fluent in English and Powerpoint, while the other finds it harder to get across to you what they mean. But it’s vital to drill down deeper, and to understand their real level of expertise. Ultimately, you need to optimise for individuals with the strong networks and country-level experience that will help your company make real progress, rather than ‘easy-hires’ who would fit in easily back at company HQ.

Focus on building trust, rather than drafting contracts

Another mistake that Western founders often make is believing that contracts are more important than trust, and that the quantity of partners is more important than their quality. When we first scaled Skype in China, we focussed our resources on building a name for ourselves on the ground, fostering a small number of key local relationships and developing trust by delivering beyond our contractual commitments.

The most successful companies build a few of these deep partnerships based on trust – or “guanxi” – rather than hundreds of partnerships based on contracts. And when you do need a contract, if you have the right level of guanxi, you’ll find the paperwork gets done in hours rather than months!

Perfecting your product for China can hold you back

When it comes to product development, a common mistake for tech companies is wasting resources on creating a product that’s ‘right for China’, often based on attempting to copy incumbent success. While you need to take into account local language and design needs, when it comes to the core product, it’s a better investment of resources to develop services that will appeal to people globally.

For example, Skype usage is higher in China than anywhere else in the world, but the founding team would never argue that the product was designed for China – there were actually very few changes made to the product when we scaled into Asian markets.

Patience is a virtue – particularly in China!

Finally, Western entrepreneurs looking to grow their companies in Asia must not expect overnight success. Patience is key when scaling into brand new markets, and the experience is different for each company that I’ve worked with. There’s a saying in China that Western companies often capture Chinese hearts but not Chinese wallets – so it’s important to persevere!

It’s promising that more and more European companies of all sizes are investing resources in Asian countries, but it remains to be seen whether this generation of tech companies will avoid these pitfalls and be more successful than their predecessors. One thing is clear: while the global tech community prides itself on each shiny ‘unicorn’, the far rarer species will continue to be the handful of companies who have scaled successfully into China.

Author: 

Kelly is based in Beijing, where she leads VC firm Atomico’s operations in Greater China. Kelly has extensive experience in China’s tech industry, through previous roles at PalmSource and as President of Skype Greater China.

Featured image credit: Sean Pavone / Shutterstock
Source: How European startups can scale, rather than stumble, in China – Tech.eu

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