How U.S. Entrepreneurs Can Expand or Partner in Asia
For many U.S. entrepreneurs, the United States may not a big enough market for achieving their growth goals and they may be seeking opportunities for expansion in Asia. Earlier this week, Netflix announced plans to extend its operations by the end of next year from 50 countries to 200, including big and small countries in Asia, from mainland China to Vietnam.
If your startup is hungry for growth, you may be able to benefit from some of the entrepreneurial lessons I’ve learned on four trips to Hong Kong and Singapore with Babson College MBA students, including a visit earlier this month. Here are four key tactics for U.S. entrepreneurs interested in tapping growth opportunities in Asia:
1. Craft a distinct growth strategy for each nation.
Recognize that each country is different and develop distinct strategies accordingly. I can't even begin to provide insight about all the differences between these countries.
Some of the most interesting Hong Kong- and Singapore-based startups I visited earlier this month are seeking to gain new customers in mainland China as well as other countries in Asia, including India, Vietnam and Indonesia.
But it's clear that for U.S.-based companies, a major risk to doing business within some of these countries is that bribery is seen by the entrepreneurs I met with in Hong Kong and Singapore as essential to making deals.
A Singapore-based consultant, Greg Lipper, told me that an American arriving in the airport in Jakarta, Indonesia, can wait 90 minutes to exit. Or, he claimed, the traveler could bribe someone and be out in 10 minutes. He also alleged the practice is so rampant in Indonesia that a person needs to pay a bribe to gain a map of whom to bribe.
When I met with Alexis Horowitz-Burdick, the CEO of Singapore-based beauty products e-tailer Luxola, she claimed that while Indonesian government officials and businesspeople expect people to pay bribes, there is a way around it. You can hire, as Horowitz-Burdick did, a person who can help grow the business because of relationships with people in Indonesia who can get things done there.
Christopher Exline, founder and CEO of Hong Kong-based furnishings retailer, Home Essentials, told me he decided to shut down his operation in India after it became clear, he claimed, it would never grow there without paying bribes. Exline is considering re-entering India by setting up a franchise.
The Council on Foreign Relations has written an in-depth analysis of allegations of public corruption in India and GAN Integrity Solutions has alleged that Indonesia suffers from corruption by public officials.
I reached out to the Indonesian embassy in Washington and the Indian consulate in New York City for comment but have not received replies.
2. To do business in China, bypass the gateway countries.China is the biggest market in Asia with nearly 1.4 billion people. It used to be that U.S. companies might want to have a base in a Westernized outpost to gain access to mainland China. But now it may make more sense for U.S. entrepreneurs to go directly to China.
You may be able to tap China's huge opportunities without setting up a satellite office in Singapore or Hong Kong like representatives of those countries urged Western companies to do several years ago. When I brought my first class to Asia in 2012, Hong Kong and Singapore government officials and businesspeople billed their countries as gateways to China.
More specifically, they pitched their countries to Western investors and multinational corporations as good places to locate regional headquarters, thanks to their Western-style corporate governance, financial markets and intellectual property protections.
While Hong Kong and Singapore retain some of these attributes, the success of China-based companies, including Alibaba, suggests that entrepreneurs don't need to use these gateways to China. Instead, they can go directly to Beijing, Shanghai or whatever Chinese city they see as an area of opportunity.
And China seems to be cracking down on government corruption according to Newsweek. One example I heard from KC Kwok, honorary senior research fellow at the School of Economics and Finance at the University of Hong Kong, is that many of the five-star hotels in China's major cities used to be filled with government officials. But now they have vacancies, which could mean lower rates for international visitors.
Although China still has a long way to go -- given environmental pollution, limitations on freedom of speech and less-than-transparent financial reporting requirements for public companies, China seems to be moving more toward Western-style corporate governance as evidenced by the huge success of Alibaba's initial public offering last year.
3. Target nouveau riche Chinese customers.
There is a distinct shift in capital flow in China as the country tries to command more economic growth from consumer spending and less from government investment in bridges, roads and power plants.
My tour guide in Hong Kong commented ruefully on the poorly dressed shoppers from mainland China who swarmed over the border to Kowloon on weekends with roller bags filled with cash.
Her comments reminded me of the disdain that Europeans once expressed for newly wealthy Americans who loved to visit Continental shopping destinations. These wealthy parvenus descended on a Nathan Road watch retailer (I saw the crowds myself) to swap cash for expensive watches.
The demand for baby formula is also high in China, according to my tour guide. In 2008 Chinese baby formula was found to be laced with poisonous chemicals so demand for Hong Kong-made formula is so great that China has set limits on how much its citizens can buy. For U.S. companies that make or distribute baby formula, China is a huge opportunity.
As more Chinese consumers spend their cash, there should be plenty of chances to increase revenues for U.S. companies that make certain desired products.
4. Partner in Asia with U.S.-trained entrepreneurs.
Depending on the specific skills needed, U.S. startups expanding in Asia might want to hire a local entrepreneur or partner with a company in the area. If the skills are better managed by another company, then a partnership makes the most sense. But if a U.S. startup requires a more direct day-to-day involvement in the country, hiring a country manager makes more sense.
My observations in Singapore and Hong Kong suggest that often the best partner or country manager would be an individual who's been educated in the States, someone who can understand a U.S. entrepreneur's goals and achieve them. The culture in Hong Kong seems to place a premium on people who become doctors or bankers and tends to not look as kindly on entrepreneurship, given the enormous amount of cash required to buy an apartment or pay the rent and the family shame that accompanies business failure.
Two promising startups in Hong Kong (WeLab and GoGo Van) were started by locals I met who had significant amounts of U.S. education. Two Singapore startups with high potential, RedMart, a grocery delivery service, and Luxola were run by entrepreneurs (whom I also met) from the States who moved there.