Note: Originally published at SANDIOS.
What first comes to mind when you think of China: Communism? Cheap products? Knock-offs? Piracy?
I recently had the great fortune of accompanying a group of investors, bloggers, and entrepreneurs on a whirl-wind tour of East Asia to meet our Japanese and Chinese counterparts, and learn what's shaping their high tech industries. "Geeks on a Plane" traveled to Tokyo, Beijing and Shanghai over a 10 day period, meeting with the locals and ex-pats building the Internet, Mobile & Gaming markets.
To say the least, it was an eye-opening experience.
The first day on the ground in Beijing challenged my preconceptions. Not that cheap products and knock-offs don't exist. They do. (One session we used plastic badges on which the left tab kept breaking off. By day's end, the floor was littered with them.) The point is that this is neither a complete picture nor an accurate summary of China's economy. China is teeming with entrepreneurship, innovation and believe me, only quality product can sustain the stunning architecture of Shanghai.
Perhaps it is the awesome scale that hinders deeper inspection:
- 350M Internet users
- 80M added in 2008
- 660M mobile phone users
- 162M users have personal blogs
- The most popular blogger gets 7K comments
Where user numbers and page hits are measured in the thousands here, they are measured in the millions in the East.
Perhaps it is that satisfied with stenography and repeating tired and trite caricatures, a lazy western mainstream media (RIP) is partly to blame. In China, where the media is overtly controlled by the State, the Internet is already the dominant source for news and information.
Chinese companies dominate all the major Internet categories, including gaming, search, e-commerce, IM and video hosting. This is not for a lack of trying by the worldwide market leaders. They largely failed due to poor strategy and a lack of understanding of the local culture. (This is not to say, however, that they can't make a comeback.)
Copycats do exist in China, but copying success is a standard way of starting out all over the world. Copying is in itself, not enough to build a successful business. Innovating for the local market is key for success. It was interesting to see before and after screen shots of Chinese Internet sites that started out looking like their US counterparts, but then evolved into their own, unique Chinese products.
The Chinese Internet market is dominated by PC gaming. Their biggest challenge was overcoming rampant piracy in order to make money. (BTW, Chinese Internet companies make a lot of money.) The top 6 gaming companies have a total market value of 12B and are listed on NASDAQ. This, despite that the fact that most Chinese do not own computers. Gaming is a social institution here, where friends play multi-user games at Internet cafes that can have upwards of 600 seats.
Make no mistake, true Communism does not exist in China. China is exercising capitalism. Commercialism is rampant. Consumers are barraged with the message to spend, despite the fact that income is low. Income tax is ~45%. The family is the safety net.
The government encourages the market and is largely absent from daily business activity. They do, however, have influence via trade protection. They ban, for example, gaming consoles. (Obviously, this helps promotes the local PC gaming software companies.)
While not communist, China's Communist Party is certainly totalitarian and its threat is omnipresent. There is only one political party and it maintains tight control over any internal threats to its existence. While popular western Internet sites such as WordPress.com and Twitter are sometimes blocked, this has little affect on daily life and frankly the people are not so much concerned. Internal companies who violate laws, however, can be swiftly taken down. This threat has a greater affect on the people, resulting in self-censorship that stifles freedom and creativity.
The crime rate is astonishingly low. I don't know of another major city in the world where you can walk around the downtown area after midnight without fear of violence. This is not only due to the police cameras, but to the brutal reputation of the security forces.
Driving to the airport it was astonishing to see the huge commercial billboards that spanned across the freeway, followed by a string of police monitoring cameras. Taxis flowed in a wave, speeding toward the terminals only to slow down en masse in front of the cameras, only to speed off again.
China is a viable place to do business. Labor is inexpensive and high quality. Tons of university students are about to graduate without a job. There is a thriving and energetic ex-pat community and numerous companies dedicated to helping foreigners get started in China the right way. The people are warm, outgoing and industrious. They are friendly, but not fawning. This is a 6000 year old culture! It is a culture that throughout history has been known for innovation, technological leadership and extraordinary economic activity. The Chinese are a people seeking closer ties to the West and actively encourage Western business activity inside of China. They are certainly worthy of our respect. As the GM of the Shanghai Westin put it when speaking of doing business in China (no pun intended):
We must remember we are forever only guests here.
For more information on the trip, including presentations, photos, and videos, please check out:
Questions and comments welcome!