What Western Companies Need to Know About Partnering with Startups in India and China26 June, 2018 / Articles
There are two contemporary strategic imperatives, among others, that many executives are grappling with: (1) competing in emerging markets and (2) partnering with startups to gain exposure to novel ideas and opportunities. While each on its own is hard enough to accomplish, in concert these imperatives pose a formidable challenge — yet one that some Western corporations are taking on, notably in China and India.
Compounding the challenge is the reality that while often taken in the same breath, China and India are in fact a study in contrasts. Failing to take into account China-India differences can lead to inappropriate uniformity in the startup partnering strategies across these emerging markets. A more nuanced approach is needed when partnering with startups in those two important emerging markets (and entrepreneurial ecosystems).
A useful starting point in analyzing China-India differences is the argument made by Harvard Business School Professor Tarun Khanna that India is essentially an institutionally weaker and more chaotic version of economies like the U.S. or UK, while China’s economy is qualitatively different in that it has been shaped by stronger state support and is consequently better organized. While there is no doubt an intent to strengthen India’s entrepreneurial ecosystem, its state support is more limited and less sophisticated than China’s in addressing the voids that impede innovation and entrepreneurship.
State support in China profoundly influences all three sets of actors that are vital in the context of corporation-startup partnering — ecosystem orchestrators, ecosystem participants, and ecosystem intermediaries — leading to certain distinctive features in China. First, in relation to ecosystem orchestrators, China has spawned strong home-grown rivals that shape the competition among corporations for the hearts and minds of startups. Second, in China, ecosystem participants — including startups — pay heed to the government’s national priority areas which influences the capabilities and orientation of the partner pool that a multinational can tap. Third, the Chinese ecosystem intermediaries (e.g. incubators) that nurture startups typically embody local government efforts through which state policy is implemented on the ground.
Corresponding to each of these sets of actors, based upon my research in China and India (see “About the Research”), I recommend three ways multinationals’ startup partnering strategies in China be adapted to address the unique partnering opportunities and challenges in that market, which would differ from their approach in other emerging markets like India.
Differentiate against home-grown rivals. Unlike in India, Western multinationals in China must contend with the triumvirate of Baidu, Alibaba, and Tencent, collectively known as BAT, which are the dominant ecosystem orchestrators. This means that attracting startups to their ecosystem is a bigger challenge since many local startups will naturally gravitate towards BAT. For instance, in most major battlefields the key startups are backed by one or another of these companies; in the bike-sharing space, Mobike is backed by Tencent and its archrival Ofo by Alibaba. Moreover, some Western multinationals — notably ones such as Facebook and Google that would compete frontally with some of these corporations — wind up playing little to no visible role in the competitive landscape. The upshot is that Western multinationals operating in China are competing not only with each other but, more significantly, also local rivals and must differentiate themselves more forcefully than is necessary in India by, for instance, playing to their strengths in B2B rather than B2C business models.
Align partner programs with national priorities. A manifestation of the Chinese state’s dominance is the clear articulation of national priority areas — for instance, artificial intelligence (AI) and the Internet of Things (IoT) — which in turn directs the attention of startups to such areas. An implication for multinationals seeking startup partners in China is that they are likely to get more bang for their buck by seeking out startups whose focus is aligned with those priorities. Such considerations seem less pertinent in a market like India where nationally mandated focus areas are less engrained. It also means that in China, multinationals would do well to ensure that publicly announced partner initiatives mirror the Chinese landscape, as is well illustrated in the case of Intel’s Mass Makerspace Accelerator Program, announced by global CEO Brian Krzanich in Shenzhen; the focus on areas like the Internet of Things and robotics are highly consistent with China’s national priorities (e.g. through its Made in China policy). By contrast, India may well see more bottom-up initiatives such as the Intel India Maker Lab which resulted from the entrepreneurial efforts of a subsidiary leader, albeit with subsequent government support.
Leverage local government policy efforts. In China, policy measures initiated at the national level to redress the institutional voids impeding innovation and entrepreneurship cascade down to more local levels — the province level, city level, district level, and so on — through what are often entrepreneurial and creative actions taken by local government officials. For multinationals this can represent an opportunity to tap into ecosystem intermediaries that help enhance the efficacy of their startup partnering efforts. This may take the form of district governments within a large city like Shanghai incentivizing corporations to participate in efforts such as Zhangjiang High Tech Park’s Transnational Enterprises Joint Incubation Platform or to establish accelerators of their own, as in the case of Microsoft — China is the only country where it has set up a second accelerator. Other policy efforts may be less obvious (yet effective) as a means to foster startup partnering, as in the case of IBM’s collaborations with local startups via the Smart City program in less known Ningbo city. By contrast, in India, multinationals tend to work more closely with private sector entities such as the software trade body, Nasscom, through the latter’s 10K Warehouse program.
In sum, while any emerging market requires a distinct strategy, in the case of China the distinctiveness of the strategy will likely be greater than in India because of the profound role of the state in influencing ecosystem orchestrators, participants, and intermediaries. Of course, today’s China may offer a glimpse of tomorrow’s India as the state seeks to introduce new policy measures — but their effects will likely take time to be seen. But as things stand, Western corporations’ efficacy in tapping the unprecedented opportunities to engage with startups in emerging markets such as China and India will, in part, be determined by how well they approach these markets in suitably distinct ways.