Young, Chinese and overseas Chinese startups push into foreign markets

Firms such as Ehang and Musical.ly are discovering more opportunities abroad than at home

ON THE outskirts of Guangzhou, a city in southern China, lies an abandoned park filled with crumbling replicas of the wonders of the world. To the right are fading golden spires that are meant to represent Angkor Wat, a temple in Cambodia. On the left, a row of dusty Egyptian statues towers over a desolate Greek amphitheatre. Adding to the surrealism, the tops of the trees have been lopped off and a buzzing noise fills the night air.

This strange place is the testing ground for EHang, a Chinese startup that makes drones. (The treetops were chopped off, an employee explains, because drones kept crashing into them.) Hu Huazhi, EHang’s founder, is beaming. His firm has just set a world record for a drone-swarm light show in Guangzhou, where it flew a thousand small drones in perfect unison. Next it plans to launch an autonomous flying-taxi service with a giant drone big enough to take a person (pictured). Dubai has just signed a deal with EHang to launch drone taxis this summer.

EHang is an example of a new kind of Chinese firm, labelled “micro-multinationals” by some. In the past, Chinese consumer-goods firms focused on the home market; startups were particularly inward-looking. The rare exceptions to this rule—firms like Lenovo, Haier and Huawei—were giant technology companies with deep pockets. That made sense: the mainland economy was growing at double-digit rates and China’s rising middle classes were eager for new products. Marketing and distribution were easier to get right on the mainland than overseas.

But times are changing: more Chinese startups want to go global from the start. Often founders are mainlanders who have worked or studied abroad. In some cases, says Benjamin Joffe of Hax, a hardware “accelerator” in Shenzhen, the startups may have little choice but to widen their horizons. Their products may simply be too innovative and expensive for China’s frugal consumers.

One such firm is Makeblock, a startup based in Shenzhen that sells do-it-yourself robot kits. Jasen Wang, its founder, says he went “global” from day one. His firm has quickly entered developed markets. Foreign sales (including to such big retailers as America’s Radio Shack) make up nearly three-quarters of the firm’s total revenues.

The fact that the mobile internet is particularly advanced in China means the mainland can throw up truly inventive new business models, says Shi Yi, a serial entrepreneur. DotC United, his company, looks for models on the mainland and then adapts them for foreign markets. “We are like Rocket Internet, but in reverse,” he declares, referring to a German e-commerce conglomerate that takes business models from advanced markets and adapts them for developing ones. For example, Wifi Master Key is a Chinese sharing-economy app that lists details of private and public wifi networks around the world. Swift WiFi, Mr Shi’s homage to it, now has over 150m users in 50 countries.

Musical.ly is another micro-multinational. Valued at about $500m, it is one of the most fashionable apps among Western youngsters. More than 100m teenagers use it to share short videos of themselves lip-synching to popular songs. Teens and parents alike may be surprised to discover that this trendy app is run by Chinese engineers, working round the clock in an open-plan office in Shanghai in the company of the firm’s mascot, a small white dog named Mu Mu.

Alex Zhu, Musical.ly’s co-founder, reckons his firm can become “Instagram for music videos”. Unlike other micro-multinationals, Musical.ly did give the local market a go but has flopped at home. Mr Zhu notes that Chinese schoolchildren typically have hours of homework and tutoring after school. They did not use his firm’s app. In contrast, he observes, “American kids have lots of free time to play and experiment with social media after 3pm.”

In the past, fear of getting sued over intellectual property (IP) kept many Chinese firms at home. The new micro-multinationals are tackling the issue head-on. Ninebot, a Beijing-based firm, makes better versions of the clunky, self-balancing scooters that were invented by America’s Segway. Confronted with an IP lawsuit from the latter firm, Ninebot simply bought Segway. Now, argues Mr Joffe, it innovates “on top of Segway”, which was stagnating, and the combined firm’s strategy will be global.

Neil Shen of Sequoia, an American venture-capital firm, reckons this all adds up to a trend. Slowing growth in China means the domestic market is less attractive than it used to be. A younger generation of founders unafraid of going global is in charge. David Cogman of McKinsey, a consultancy, who works with many Chinese entrepreneurs, recalls that a decade ago it was almost unheard of for small, consumer-oriented firms to look abroad. When he advises companies today, it is “a regular conversation”.

economist.com

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