Russia-China Forum “Investment in Innovation” 2016
“There is a stereotype in Russia that nothing new is created in China and that the country only copies what others have done. Believe me, that is not true,” says Andrey Prokhorovich, head of Eurasia Development, a company specializing in technology transfer between China and Russia. Today, he sought to dispel this myth and explain the most common mistakes made by Russian entrepreneurs planning to enter the Chinese market during the panel discussion “Russia and China — A Horizon of Opportunities and Success Stories of Technology Companies Entering the Two Countries’ Markets.” The discussion took place this morning as part of the Russia-China forum “Investment in Innovation,” organized by RVC.
“China ranks first in the world in terms of the number of researchers, and sooner or later quantity turns into quality. In addition, fab labs and hackerspaces are springing up like mushrooms across China; children start learning 3D prototyping from the age of six, and a generation of biohackers is emerging. Another important figure: as of 2016, Chinese venture capital funds had been allocated USD 328 billion for startup development. That is more than the entire budget of the Russian Federation. And, for example, the five-year budget of China’s Ministry of Science and Technology through 2021 amounts to USD 1.58 trillion,” Prokhorovich said.
What mistakes, according to the expert, are most commonly made by foreign companies entering the Chinese market?
“First, they fail to understand the mental and cultural differences. If you cannot figure them out yourself, you need the right partner. Second, they do not pay enough attention to China’s development strategy. Most companies, for example, do not even analyze the outcomes of the National People’s Congress, where the Five-Year Plan is adopted and China’s development path is determined. Our entrepreneurs usually simply bring projects to China without realizing that they may not fit into the country’s priorities. Entrepreneurs should keep in mind that China’s Premier recently stated that the country is primarily interested in Internet+ projects — the Internet of Things.”
Third, entrepreneurs often choose the wrong partner or ignore the right one.
“For example, Groupon managed to make both mistakes with the same partner: it signed a deal with a company that already had several similar projects, meaning Groupon could not be its priority, and then failed to learn from its partner how to operate in the Chinese market, instead bringing in a team of Western professionals. The result was massive investment, yet the company still ended up leaving the market. Fourth, companies fail to accept the rules of engagement with the state — Google’s exit is one example. Finally, they adapt their products incorrectly and fail to understand the importance of localization.”