Why Chinese startups should focus first on China

LBS alumnus Dickie Liang-Hong Ke explores the challenges that Chinese tech players face  

Chinese tech firms with an “ingrained home-country mindset” should focus on their domestic market before entering global territories, according to Dickie Liang-Hong Ke.

The London Business School Sloan Fellow, based in Beijing, China, said that overlooking their home turf in favour of far-flung foreign markets is one of the biggest challenges for rapidly growing tech companies.

“Chinese companies are similar to American ones when going abroad. Both the US and China have large, strong domestic markets, so they can have home-country mindsets. On the other hand, European firms rarely have big domestic markets and so must expand abroad. They quickly learn how to adapt to foreign markets,” he said in an interview with Innovated in China. 

However, there are examples of Chinese tech companies that have successfully established themselves in foreign markets, Ke said, including Huawei, Xiaomi, Haier and DiDi.

Ke offers Xiaomi, the world's fourth most valuable tech start-up headquartered in Beijing, as a case in point.

“Xiaomi began its overseas expansion in South and Southeast Asia, since countries such as India and Indonesia have large domestic markets. In return, these countries learn from Chinese business models and technology,” said the business advisor who splits his time between advising multinational corporations on China-entry strategies and Chinese companies on global strategies.

“Chinese start-ups should first focus on the big market in China and leverage local business networks and know-how. Naturally, Southeast Asia is easier for Chinese companies to expand to, closely followed by Europe and then the US,” he said.

Challenging the idea that Chinese innovation is simply a form of imitation, he said: “Around 10 years ago, things changed – Tencent and other top Chinese companies became real innovators.”

He continued: “If you want to determine whether the Chinese are imitators or innovators, you should try to be objective. If you look back at more than 3,000 years of history, since the Shang Dynasty, the answer is yes: China was a world-leading innovator. Only about 500 to 600 years ago, when the country became very closed-off, did this progress stop. 

“When we talk about innovation, we also need to examine the numbers. Firstly, look at individual companies’ investments in research and development. Huawei and ZTE represent the top two in the world. Secondly, in the last couple of years China represented almost 70% of new patents filed globally.”

Ke also credits Made in China 2025, a top-down government initiative to drive domestic high-tech manufacturing, as a key innovation indicator. 

“There’s a whole new innovation ecosystem now,” he said. Thanks to government, top tech firms such as Alibaba and Tencent, and investment in artificial intelligence, big data and cloud computing, the scale of the Chinese innovation market is as significant as the 1.4 billion people on earth who reside there.

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