China's great for Western startups

Openness to technology, a giant market, manufacturing prowess and support make for a great environment for new companies

China's legacy as the world's low-cost manufacturing factory, combined with its aspirations to rival Silicon Valley for world-changing innovation, have made it the perfect home for Western startups to commercialize their new technology, entrepreneurs say.

"China's high-technology manufacturing strength will help China to stay competitive on the technology scene over the next decade at least, as we have the ability to help many Western firms turn their brilliant laboratory innovation into profit-generating products that will sell in the market," says Qiao Huijun, an investment partner of Angel Plus, a Chinese fund.

"As China's real economy and property market are slowing down, and the stock market is volatile, there is an increasing availability of capital to fund domestic and global startups, which are expected to lead the next phrase of China's growth and knowledge economy creation."

China's domestic startup scene is booming, aided by opportunities in technology and service industries emerging as a part of the country's structural shift.

Premier Li Keqiang has called for "mass entrepreneurship", and in 2015 launched a 40 billion yuan ($6.16 billion; 5.5 billion euros) government fund to invest in seed-stage tech startups. In the private sector, angel investment funds, venture capital funds, and funds developed by dominant technology companies like Alibaba, have offered seed funding tailored to the smaller capacity of fledgling companies.

The availability of capital, a large consumer market and high-tech manufacturing capability have proved attractive for Western startups, and many agents and funds are now helping them with their entry into China.

Angel Plus launched a new incubator in London in February to help technology-oriented British firms commercialize their cutting edge technology in China, after the launch of a similar incubator in Silicon Valley in January.

Its business model works by investing in selected technology firms within its incubators, and providing engineering and manufacturing support to them using its fleet of in-house engineers and its own factories, and then using its marketing strength to sell the commercialized products to China's massive consumer market.

One example of a Silicon Valley firm it invested in is a motion sensor technology company that makes tennis clothing that includes sensors for tracking a player's posture.

"They had great technology but manufacturing costs were about $300 for each sensor. Our engineers worked alongside their R&D team to take production cost down to $15 for each sensor, which made large-scale commercialization viable," Qiao says.

The Angel Plus team of engineers provided support from industrial design and mechanical design, through to hardware and software improvements, and Angel Plus' own production facility cut costs for third-party manufacturers.

"Because our engineering support is so comprehensive, we had to really limit the industries of firms we accept into our accelerators, as our engineers only have expertise in certain fields," Qiao says.

Like Angel Plus' overseas incubator project, many individual Western startups have also realized what China can offer innovative solutions, and many Chinese entrepreneurs who founded their firms in the West are realizing the great value their China connections bring.

Chen Fujia, founder of Oxford Space Structures, is one example. As a doctoral graduate of the University of Oxford, Chen used her understanding of aerospace technology and the university's highly supportive research and development environment to develop a new, user-friendly baby cot that can be deployed and retracted in seconds. It became the core product of her business.

The technology is so different that Oxford Space Structures has already attracted 200,000 pounds ($284,700; 254,400 euros) of private sector investment in the UK in only two years. Chen knows that China's manufacturing strength is key to helping SpaceCots become commercially viable, and the massive Chinese market will help the company grow.

Oxford Space Structures established an office inside Suzhou Industrial Park to manage the manufacturing side of the business, which is outsourced to a Chinese factory. About 1 million SpaceCots are expected to be made in 2016, according to company estimates.

"China is a very big market for baby products, and its rising middle class is increasingly able to afford high-end consumer products," says Chen, adding that she expects sales of SpaceCots to be largest in the Chinese market in the next few years.

The newly emerged Chinese consumer market's willingness to try new ways of purchasing and new products is also making it attractive for Western startups that hope to shake up industry models but have trouble competing with deeply rooted incumbents in their domestic markets.

One example is the UK startup Reward Technology, which developed a new way of doing supermarket discounts. Using the company's technology, a store detects loyalty cards in customers' pockets as they walk in and automatically generates a selection of what is considered the most suitable promotions based on the specific customer's past shopping behavior. It sends this list to the customer's phone as a text message.

The firm is currently registering a patent for the technology in the Chinese market, and also is speaking to Chinese investors in the hope they will pour more capital into the business, says CEO Paul Sheedy.

"We will target our technology toward Chinese supermarkets, who are now struggling to keep up with competition coming from Western supermarkets entering China, like Carrefour, Tesco, Marks & Spencer. This could be a real game-changer for Chinese supermarket chains," Sheedy says.

He says the technology is much harder to market to established Western supermarkets that are accustomed to the idea of paper vouchers. "They have for years worked with external data analysis companies that have an embedded interest in making sure their positions are not challenged by companies like Reward Technology.

"Chinese supermarkets are more flexible in their choice of partners and are more adaptable to new technology," Sheedy says. "They are going mobile first, therefore Reward Technology is keen to target this market. We will start from big centers like Shanghai and Shenzhen."

Other Western companies are finding common cause with China's private technology giants.

Sensewhere, an Edinburgh-based startup founded in 2009, has created a positioning technology for smartphone applications that can accurately detect a user's position inside shopping malls. This enables app developers to send more targeted discounts and directional advice to customers.

The company received investment from Chinese Internet firm Tencent, which is using its technology with Tencent Maps and Tencent QQ applications.

"China's vibrant technology scene and visionary Chinese firms like Tencent are allowing us to implement our technology on a large scale," says Blake Bullock, vice-president of business development at Sensewhere.

"We rolled out our positioning technology for the first time in China. We're now looking to take it to other international markets."

Recognizing the huge potential to help Western startups build a home in China, the Chinese government supported the establishment of International Universities Innovation Alliance in 2015, which is a Beijing-based nonprofit organization that provides assistance to startups in international markets. The alliance also uses its overseas subsidiaries to help Chinese startups go global.

IUIA joins with international universities, think tanks and incubators to host competitions to identify promising startups. Its London subsidiary, IUIA Ventures UK, was established in October during President Xi Jinping's UK visit. IUIA is currently setting up subsidiaries in the United States and Singapore.

IUIA has partnerships with 70 to 80 universities globally, and its vision is to expand this network to 1,000 partner universities in the next three to five years, says IUIA Secretary-General Sun Wansong.

IUIA was founded with support from multiple Chinese government agencies, including the China Investment and Promotion Agency of the Ministry of Commerce, China's Torch High-Technology Industry Development Center of the Ministry of Science and Technology, and the Foreign Expert Bureau.

It also established joint ventures with Chinese companies to invest in promising projects. It has already invested in three companies, in the US, Hong Kong and Canada, all of which are startups with a key focus on expanding into China.

cecily.liu@mail.chinadailyuk.com

(China Daily European Weekly 04/01/2016 page9)