Tips for U.S. startups looking to break into markets in China

David Howard · March 28, 2008 · Short URL:

Young tech companies have frequently used the "Road Warrior" approach to sell into China, by flying a U.S.-based Asia-Pacific sales rep back and forth across the Pacific. Popping up in Shanghai one day and Shenzen the next, these Mad Maxes are subject to burnout and not nearly as effective as having an in-country presence.

Others startups have tried setting up in Hong Kong. Still, costs there are rising along with inflation, and as the Chinese market has grown, many customers are demanding that their vendors sustain a mainland presence in Beijing or Shanghai to be taken seriously. 

Other options have their own challenges. 

Chinese regulations have been dramatically liberalized in recent years making it much easier to directly establish a representative office or subsidiary, which often takes the special form of a Wholly Foreign-Owned Enterprise (WFOE), but it remains a time-consuming and intensive endeavor.

Some technology firms have chosen to establish a joint venture with a native Chinese partner, but this can entail grueling and time-consuming negotiations resulting in exorbitant attorney fees on both sides of the ocean. 

Yet another route is the channel partner strategy.  Here, time and money are focused on up-front selection from a number of prospective channel partners.  It can be difficult for the start-up to evaluate the track-record and credibility of such partners in so foreign a market, and the risks are great.  If the start-up turns out to have chosen the wrong partner, they won't know until after key opportunities have been lost, and the company's reputation may have suffered, making a re-start with another partner even more difficult.

It's not inconceivable that it takes a vendor from nine to fifteen months from project initiation to having to having an office secured and staffed with capable technicians that can begin training on the product.  This activity represents a distraction for the start-up vendor that is focused on developing a native market and trying to make the last round of financing stretch as far as possible.

In the face of all these challenges, a new option is sprouting up: using an independent sales and marketing firm. For more on that trend, I spoke with James Nysather of Basay International, whose firm is helping tech companies looking to sell into China. 

A trans-Pacific sales and marketing firm can jump start this process, leap-frogging the technology vendor past the bureaucratic nightmare and directly into opportunity assessment for the Chinese market and prospect engagement and trial promotion.

By using an outsourced sales and marketing representation firm that straddles the Pacific, the start-up vendor saves money in several cost categories.  Travel is substantially reduced, and organizational, leasing, human resources and salary expenses are non-existent. 

Look for a firm staffed with - and preferably founded by - Chinese nationals with a successful track record of product introduction in Asian markets for past and present global technology leaders.  Ideally, the Chinese managers will have spent some time living and working in the West.  Further if these same managers have become U.S. citizens while in the West,  they can often travel immediately to other Asian countries, responding to opportunities, while their Chinese competitors are still applying for travel visas.

Firms are sprouting up with offices in Silicon Valley, Beijing, and Shanghai.   Competent firms should also have Westerners on staff with experience marketing products or doing business in China.  Think of the firm as providing a bridge from West to East with solid foundations on both sides of the ocean.  A further consideration would be whether or not the firm provides an exit once sales begin to take off.  Will they help you migrate your operations to your own subsidiary office and sales team once sales warrant it?  Will you be able to ‘graduate' to establishing your own WOFE with ease?  Be wary of firms that don't provide a path towards an ultimate return to corporate control of Chinese operations once sales ramp up.

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