How China’s Business Equation Can Be Advantageous to Startups

China's business equation is different from it for startups in other parts of the world. This episode explores how the government, culture, and market forces interact to create a unique environment that can be advantageous for startups looking to enter the Chinese market.

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How China’s Business Equation Can Be Advantageous to Startups

Going back to my question. What are some of the differences between China and the rest of the Asian region in terms of how business is done and how people are working? It is a lot similar between the two, Japan, Korea, and Southeast Asia. These are the broad categories. India is another category entirely. Is there anything unique to China that you want to point out?

That’s a hard one for me to answer because it’s like asking the goldfish what the water is like. It’s like, “What water? I live in here.” The speed of change is unique here in that China adapts to new concepts and technology with what I call China’s speed. Everything is constantly changing here and there’s a willingness to accept and adapt that makes China unique. Even though it happened by accident, I ended up in China and started this company. My vision as an Asia-wide brand started in China because I was here. The benefit is that China is the best environment for a startup because customers are quite willing to adapt to new things and the competition will copy and fast follow. You’ve got to be better, continuously innovating and moving ahead. It’s a bootcamp. If you can survive in China, you can survive in the rest of Asia.

There are two insights I have to share regarding how China is probably different from the rest of the Asian region. Firstly, the availability of talent. The amount of technical talent stands to focus on Science and Technology, Engineering, and Math. There’s an unbelievable talent coming out of China. A lot of Chinese research and machine learning are world-class. Something that Westerners and the Western world need to pay attention to other. Especially in the PropTech industry, China has these five-year plans.

You've got to be continuously innovating and moving ahead. If you can survive in China, you can survive in the rest of Asia.

When the government commits to making a change and a strategic plan or focus, they will get every stakeholder involved, and they’ll have the largest companies in this concept of smart cities, for example. It is creating PropTech that can’t be seen anywhere else. Forget Japan or Korea, where they have incredible technology. When China does it, they’re serious, and companies will make it their strategy because they know the government is all in on this.

Even the president can’t change the plan once it’s set in stone. It’s something that people will do and everyone is going to rally around it and make it happen. When those waves come, they’re like tsunamis. If you can ride those waves on the government behind it, change is not like, “Will it happen? Will it not happen?” The US is victim to a lot of dilly-dallying around with things. What I find with China is the conviction is crazy. When they say they’re going to do something, they do it full force. They’re like ten years ahead in many areas, like in blockchain and how IoT and technology work there. Do you think running your company in the Western market will eventually catch up, or is it too far away?

That’s hard for me to answer because, in fact, I haven’t lived in the US since I left for England in ‘93. If you hear my accent, you think I’m American and I’m like, “I’ve now lived more than half of my life not in America.” I believe in American innovation. I believe that for better or worse, the American values of individualism and optimism about, “I can see that can make a difference. I can do this.” The American Dream is still quite strong. Still, the largest tech companies in the world have come out of the US, and the US school systems are the best in the world. That is one weakness that China has. Although they do have an incredibly strong STEM curriculum, they also have weaknesses in their education systems that make innovation difficult. The reason I’m here is that the 21st Century will belong to China the way the 20th Century belongs to America.

PTVC 129 | Startups In China

Prior to Trump, it felt like everyone needs to focus on China. People were sending their children to Chinese schools and picking up Chinese as a second language. Everyone was like, “This is where the goldmine is and the future of collaboration is.” We took a radical step back. It certainly didn’t help with all the political rhetoric about the origins of Coronavirus, and that’s for a different type of show. It somewhat feels like tensions are at an all-time high. I experienced this. I’ll give you an example. We started to see a lot more US activity when it comes to blocking business with China.

CFIUS stands for The Committee on Foreign Investment in the United States. They are there to protect American interests, and they were blocking a lot of acquisitions and FDI or Foreign Direct Investment. We experienced that when I ran my startup. It felt like, “We’re taking a step back.” It’s a crying shame because this future looks so rosy, this golden handshake almost. Whether you have the Western and East that are finally working together as superpowers, it feels like it’s ruptured over the last years. Do you experience that from your side where you’re sitting? Do you have any views on this?

I’m not an expert on geopolitics, and I wouldn’t comment on the political aspects of it from the standpoint of trade and collaboration. As you can tell from my life, I’m a globalist. I believe that free travel, free board, or the free exchange of ideas is ultimately going to be better for everybody. I see it on both sides that policies here emphasize domestic production, domestic consumption, and a little bit of China for China, which makes sense. It is possibly a reaction to maybe the Western view of China as a gold mine. The West saw China as first a producer and then a market. They need to see China as a partner.

Don't expect that the world is going to adapt around you. You need to be able to adapt around the world and learn.

China is standing up and saying, “We create things. We innovate. We’ve got things to contribute. We’re not just following as a market or a manufacturer for the West to be an equal economic partner.” That’s a reasonable adjustment. I hope that in the future that these extensions ease and that there’s much more willingness to cooperate and not the isolationism that I see now, but I see this again as a short-term focus that the US went through isolation as periods in the 20th Century, but it’s still dominated. It was the major force in the world. Britain dominated the world economically, politically, and militarily in the 19th Century. America did in the 20th Century and China is in the 21st Century. It’s how it’s going to be.

Ideally, it’s a future where countries left each other. What it takes is we need more you and more people who come from the West who can be great role models for other founders who can see the world is very big, much bigger than the US or a country in Europe. European founders are great because they tend to realize the country is small that they’re in and they have to go global quickly or wide. I learned a bit of Chinese myself and I committed to it. I’ve got forgotten a lot of it now, but when I went to China, I’m not just a foreigner coming into a seed as a gold mine, but I see it as an investment that we wanted to deliver a good, product, and to customize our product.

We don’t just want to take what works in the West and bring it to China. We’re going to invest in local engineering, product, salespeople, Chinese-born GM, JVs, and partnerships. When you do all of this and also speak the language, suddenly, you find the country opens up for you and you get access at the highest levels because you are committing, and people experienced that. It’s very rarely more than ever because of the way we’ve taken a step back. I feel like, at this moment in history, it’s an opportunity for the next group of Westerners to come out, go to China, and partner there.

More people were going to China and felt like. “You’re no longer unique when you’re going into China,” but I felt like COVID has caused this separation for a while. This is great because there’s the world reopens, the US goes back to China for the supply chains, and sees China as a partner. You can have a first-mover advantage again. It feels like that from where I’m standing, at least I don’t know what you see.

It sees the commitment. I’ve found people here incredibly kind, generous, and open. I speak Chinese fluently, but badly. I speak like an immigrant, which I am. I will not sound like an immigrant. People are so generous to me because they know it’s not an easy language and I’ve taken the effort to make China my home. The fact that I’m creating an opportunity for China is going to add to the Chinese economy and development. That’s what I’m here for. I think that there are lots of opportunities, but you have to be genuine. You can’t fake it. You can’t just use China instrumentally, and that’s probably true of any country.

Certain Fortune 500 CEOs have tried to play to this and show like, “We’re coming here. We speak a few words of Chinese.” That’s not enough. You have to show commitment and by your actions, not your words. The approach that you said about contract negotiation and appreciation is the relationship-driven world. I remember, in my startup, I used to host cultural sensitivity training workshops. For anyone going to any Asian country, we would have an expert come in and explain to them, “Here’s how certain things are.” If we go in, we’re very pushy, and we want to get straight to the point, that is extremely offensive and rude. There is a way things are done.

It takes a lot of going in, not being arrogant and humble. When you do that, then the country literally opens for you. The land of opportunity is one way. It’s bountiful and huge. Look at how many people there are in China, the GDP of the nation, and the level of technology and R&D. It’s the most exciting opportunity if you can focus on it. It’s not one you can do lightheartedly. You can’t just tiptoe. You do have to commit resources to China. Otherwise, you’ll have another case study.

On the cultural sensitivity side, one of the things I tell people coming here is, “You cannot assume that the rest of the world is like America or wants to be America.” In many Americans, we have this implicit bias that America is the shining city on the hill, everyone wants to be like America, and every culture wants to be more like American business. Not necessarily. China wants to be more like modern China, equally valid. Don’t expect that the world is going to adapt around you. You need to be able to adapt around the world and learn from it.

There are some great things. The emphasis on relationship, I will never ever go into a negotiation without knowing who I’m sitting across from, where they come from, who they are, what their reputation is in the industry, and who am I getting into the partnership with before we start discussing any terms because that’s what’s going to matter in the long-term. I can’t imagine ever going back to the contract-focused way of thinking.

It’s been a pleasure having you on the show. Thank you so much.

Thank you for having me. I enjoyed the conversation.

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About Zain Jaffer

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780m.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as “Forbes 30 Under 30”, “Inc. Magazine’s 35 Under 35,” and the “SF Business Times Tech & Innovation Award.” He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.