Wandering China

An East/West pulse of China's fourth rise from down under.

Tech firms find China a challenging market

Quite a bit of attention on the Google saga. Breaking into the middle kingdom has its fair share of challenges, but the rewards are great.

Quotable Quotes – “When it comes to sales, it’s a huge market of a billion-plus people. If you capture even a small percentage of that, you’re still doing well…” Anna Han, Santa Clara University law professor who advises American companies on doing business in China. “It’s a market you can’t ignore.

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Tech firms find China a challenging market
By John Boudreau and Brandon Bailey
Source – Mercury News, 16 Jan 2010, updated 17 Jan 2010

Google’s threat last week to leave China, after it spent millions of dollars to get a toehold in the country’s enormous Internet market, underscores the promise and pitfalls of operating in the world’s fastest-growing major economy.

Western companies have stampeded into the country of 1.3 billion, drawn by both a huge pool of cheap labor and the buying power of a swelling middle class. But doing business in China means dealing with rampant piracy, an intrusive government, widespread theft of intellectual property and a regulatory environment that often favors local competitors.

And while no other Western companies signaled they would follow Google’s example, more are expressing frustration with business conditions in the country.

“I think there are lots of areas in which it is or will get harder to operate,” said Mark Natkin, managing director of Beijing-based Marbridge Consulting.

Government intrusion varies significantly by industry. The Internet and telecommunications industries are under tight scrutiny, facing censorship of the Internet, because the technology of companies like Google can provide access to politically sensitive information.

“If you provide something they disapprove of, they’ll come down on you,” said Anna Han, a Santa Clara University law professor who advises American companies on doing business in China.

On the other hand, manufacturers of everything from shoes to chips can face fewer pressures and in fact are often warmly embraced. When Intel announced it was building a chip plant in the northeastern city of Dalian, government officials rolled out the red carpet with tax breaks and handshakes.

Many companies have downplayed the problems and continue to make a huge bet on the country. Commenting on Google’s charge that hackers with possible ties to the Chinese government launched cyberattacks on the search giant and at least 20 other companies, Hewlett-Packard CEO Mark Hurd told the Financial Times that “I’d hate to run off on this one example and say it’s a threat to the evolution of the IT industry.” He described China as “an amazing market with tremendous growth.”

In 2008, Palo Alto-based HP sold more than 4.4 million PCs in China, making it the nation’s second-largest computer vendor after Lenovo, according to the IDC research firm. Not long ago HP announced it planned to open its second manufacturing plant in Chongqing in the country’s central-western region. In addition, a branch of HP Labs, the company’s highly regarded research division, is based in Beijing.

But even PC makers ran into a roadblock last summer when the government suddenly demanded all new computers sold in China be preloaded with the so-called “Green Dam” Web-filtering software that would block both pornography and banned political sites. After a global and domestic uproar, the government indefinitely set aside the requirement.

In a report last fall, the European Chamber of Commerce complained that despite some positive changes, operating in China was becoming more challenging.

For instance, the Chinese government released new rules in November requiring that computer hardware, software and green technology products must be based on intellectual property that was developed and owned by Chinese companies, in order for the products to be certified for sale to Chinese agencies.

“No other country in the world has a proposal as draconian as this,” said Robert Holleyman, CEO of the Business Software Alliance, a trade group for commercial software companies. “This is completely antithetical to how products are created, particularly for software, which tends to be developed on a global basis, with elements designed by teams all over the world.”

“U.S. companies are finding it increasingly frustrating to do business in the Chinese market,” added John Neuffer, vice president for global policy at the Information Technology Industry Council, a tech industry trade group.

Added to these recent tensions are long-standing concerns. The Business Software Alliance, for instance, estimates that 80 percent of the software used by businesses in China is pirated, meaning they are illegal copies for which no license has been paid.

And knockoff brand-name laptops are hawked on street corners in Shenzhen, fake iPhones roll off nearby assembly lines and the latest version of Microsoft’s Windows operating system can be had for a lot less than its retail price.

Still, those who have operated in China for many years say the government is far more sophisticated about understanding what foreign companies need.

“I started doing business in China during the early ’90s. The restrictions back then were a lot more than they are today,” said Jack Jia, chief executive of Baynote, a Cupertino startup that makes search software and has operations in China. “In 1993, 70 to 80 percent of business was based on government relationships. Even business to business was done through the government.”

China’s strong infrastructure makes starting a business easier than in other countries, said Michael Cusumano, a professor at the MIT Sloan School of Management who has worked in both countries.

“There is corruption in China,” he said. “But it doesn’t compare with the levels of corruption you see in India.”
While frustrations are sure to continue, no one expects other major Silicon Valley companies to threaten to leave China, as Google has done.

“When it comes to sales, it’s a huge market of a billion-plus people. If you capture even a small percentage of that, you’re still doing well,” Santa Clara University professor Han said. “It’s a market you can’t ignore.”

Filed under: Communications, Culture, Economics, Google Cyber-attack 2010, Internet, Media, Mercury News

Overseas Chinese return to start companies

The overseas Chinese have always been critical to the mainland since the Chinese grasped the true meaning of their value from the  late 19th century onwards. Whilst they were previously thought of as deserters, the enlightened administration see them as potential catalysts to build their own competencies. What more, talent as competent as one can find anywhere, but essentially Chinese to the core, their own breed. Very convenient! Although the big question remains – why did these Chinese leave China in the first place? Push or pull? Also, it will definitely be more than meets the eye, getting these people back to the place they wanted to leave not too long ago!

Quotable Quotes“The government is rolling out the red carpet,” said Li, who rides a rickety bicycle through an open-air market every morning and evening, grabbing wok-fried meals on his way to building TerraBay Pharmaceuticals, which is working on a treatment for lung cancer. “The government takes the risks. And there are almost no strings attached.”

Overseas Chinese return to start companies
By John Boudreau
Source – Mercury News, 24 October 2009

TIANJIN, China — This city in northeastern China is a long way from Sand Hill Road, home to the world’s greatest concentration of venture capitalists. But a deal too good to pass up led Yong Li to leave his family in Palo Alto a few months ago and head here to pursue his dream of starting a company, with backing from an unlikely source — China’s newest capitalists, its Communist leaders.

“The government is rolling out the red carpet,” said Li, who rides a rickety bicycle through an open-air market every morning and evening, grabbing wok-fried meals on his way to building TerraBay Pharmaceuticals, which is working on a treatment for lung cancer. “The government takes the risks. And there are almost no strings attached.”

China has quickly grasped the fundamentals of Silicon Valley innovation: Daring investments in aggressive entrepreneurs create world-changing companies. Officials across the country are luring back Chinese-American technologists and executives — many from Silicon Valley — in hopes of seeding an entrepreneurial culture that they hope will some day create world-class companies. As the U.S. economy sputters, provincial officials are finding a receptive audience on tours to the Bay Area and other parts of America.

Silicon Valley has long been a global revolving door for the bright and ambitious who use experience gained at successful startups and companies as a springboard to launch new careers in their homeland. China’s efforts to entice star talent to return, though, represent a new wrinkle. It is tapping into the anxieties of Chinese professionals who increasingly feel the valley is a professional dead-end.

“We were able to get funding in the valley, but the fund collapsed,” Li said. “So we ended up with nothing.”

He now represents a wave of highly skilled immigrants flocking back to their homeland, which poses a threat to the Silicon Valley’s innovative culture, said Vivek Wadhwa, a researcher on immigration and labor issues at the University of California-Berkeley. Others, though, see such movement as yet another strength of the region; those who return to their to countries of origin to start companies frequently come back to the Bay Area to set up research offices, as Li plans to do should TerraBay succeed.

Evidence of China’s projected 8 percent-plus economic growth amid the global downturn is easy to find in Tianjin, a city of more than 11 million. Its skyline is clogged with construction cranes converting former rice fields into technology parks and high-rise office buildings.

“If you go down the streets of Beijing and Shanghai, the most common word on the signs is ‘innovation,’ ” said Bill Miller, co-director of the Stanford Project on Regions of Innovation and Entrepreneurship. “They call it homegrown innovation. They are really trying to push the country up the value chain,” moving beyond manufacturing products to eventually creating and designing them.

Talent-poaching has picked up in recent months as Chinese officials descend on Silicon Valley on a regular basis. “Their selling point is this: China is a big and growing market. If you don’t come to China now, five years from now may be too late,” said Bin Lee, founder of the Silicon Valley China Entrepreneurs Forum.

And the offer sheet is almost too good to be true. “The government doesn’t take an equity stake in the company,” he added. “It’s almost like an interest-free loan. If your business fails, they don’t care.”

Government representatives have deep pockets, offering seed money of up to $1 million (which goes much further in China), rent-free offices and labs, favorable tax benefits, assistance in cutting through red tape and other goodies to those with business plans to their liking.

“For every entrepreneur, special requests can be negotiated on a case-by-case basis,” said Xiao Sheng, a commercial deputy of Changsha, the capital of Hunan province in the southern part of China.

Officials in the city of Wuxi, a city northwest of Shanghai, wooed Haidong Wu, a Foster City entrepreneur, with free airfare, a stay at a five-star hotel and a lavish banquet after he agreed to take more than a half-million dollars in funding from the government and venture capitalists for a new media startup. “So many of my friends who are working as engineers have ideas and want to go back,” he said.

The experience of Li of TerraBay reflects the sour venture funding picture in the United States; 2009 could be the leanest year for investments since the dot-com collapse. Li and his co-founder, Hui Zhao, have now received commitments of up to about a half-million dollars and other forms of assistance from government agencies for their pharmaceutical company, whose lung cancer work would address a pressing problem in China, with its culture of smoking. They have joined hundreds of other overseas Chinese who have returned to Tianjin, according to local officials.

Government agencies “are all chasing after the same group of people — people with a Chinese background who lost their job or just graduated from college and can’t find a job” in the United States, said Zhao, a former Oracle software engineer who also left her family in the Bay Area to explore this new land of opportunity. “The bad economy has played a significant role in this movement.”

Professionals like Li and Zhao also say that many Asian tech workers struggle to succeed in Silicon Valley. Census numbers reveal that while Asians represent more than a third of the work force at many valley companies, their ranks are thin when it comes to leadership positions. “In Silicon Valley, there is a lot of opportunity,” she said. “But being a Chinese native, you don’t have a lot of access to networking and business resources or prestigious government spending. Here, I feel we are in the loop.”

Chinese recruiters also benefit from what some professionals say is a change in the political tone in the United States. “The general anti-immigrant sentiment is increasing,” Li said. “I felt I wasn’t as welcomed as I was when I first went to the United States” nearly 25 years ago.

Not long ago, talented entrepreneurs would have had little reason to return to China. But a new generation of business-savvy government leaders, many educated in the West, are trying to replicate Silicon Valley’s entrepreneurial milieu, Li said. “And they don’t ask for anything — no bribes.”

China’s recruiters draw inspiration from Wuxi, which financially backed Suntech Power, founded by overseas Chinese Shi Zhengrong in 2001, and now a leader in the global solar industry. This year alone, the city received some 870 business plans, many from overseas, Foster City entrepreneur Wu said.

Those who have returned, though, find China lacks many key ingredients needed for a high-tech entrepreneurial ecosystem. Government officials and Chinese VCs still need to understand that many ventures fail and that successful companies can take years to build, Li said. And while China is overflowing with sharp young minds, it does not have deep ranks of seasoned scientists and technologists.

“We thought the talent would be abundant and cheap,” Zhao said. “But finding qualified talent isn’t easy.”

Some returnees also say they have become Americanized to the point of feeling culturally out of step in their homeland. Li, who dresses in valley casual — shorts and T-shirts — is often mistaken for a laborer. “In China,” he said, “they judge you by what you wear.”

There are also personal strains, such as being away from spouses and children. Zhao has a 4-year-old in Pacifica. Li has a son in college and an 11-year-old daughter in Palo Alto. The hardest hours of the day come after work: “That’s the lonely time, when you start to miss your life in the Bay Area, your family,” Li said.

Still, the returnees, known as Sea Turtles, keep coming.

Qian Wang returned to Tianjin shortly after finishing her post-doctorate training in basic medical research at Harvard University. With government support, she and her co-founders launched Genee Scientific, which has created a social network site for global life science researchers and produces software to manage research labs. “The world is changing,” she said. “There are a lot of advantages to being here.”

Filed under: Back to China, Mercury News, Overseas Chinese

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