What Startups Need to Know When Expanding to China

From finding the right time for growth to sourcing the best talent to lead the way, this is what one hardtech startup learned as it expanded overseas.
Headshot of Mike Casper
Mike Casper
Expert Contributor
August 12, 2021
Updated: August 18, 2021
Headshot of Mike Casper
Mike Casper
Expert Contributor
August 12, 2021
Updated: August 18, 2021

In late June, my company announced that we’d hired our first general manager in China. Her job is to run our Asian operations and help expand our Chicago-based company’s global footprint, a move that we’ve long considered.

Azumo’s products include front-lit LCD displays that have myriad applications, and the future of LCD is in China. From that vantage point, it may seem like expanding into this massive Asian market would be an obvious move, but it took us years to get to this point because we were quietly working to perfect the technical specs of our products before turning our focus toward growth.

Here are some of the unique challenges and benefits of expanding to China for hardtech startups – and a few pieces of advice for anyone who is considering making this move.

 

The Employment Puzzle: From Third-Party Contractors to Full-Time Staff

When Azumo launched our first commercial product in North America three years ago – we were then known as FLEx Lighting – we initially contracted with sales partners to get the word out about our product. This allowed us to keep our staff and our overhead lean while we developed our products, and it’s not at all an unusual move for hardtech startups.

As we grew, we found that we needed to grow into the Asian market. We wanted to work with higher-value clients, and we saw that the majority of their partners were located in China, along with an increasing number of major global brands, including Lenovo and TCL. For Azumo’s display products, China offers quick access to a variety of hardware components that we simply can’t achieve elsewhere. Their supply chain works at a totally different pace than what we see in the States, and that was true even before the pandemic bottlenecks. Their access to raw materials and the factory-grade equipment needed to manufacture electronics means that their supply chain moves much faster than we can manage in the States.

Given that we would be separated from any Chinese colleagues by potential cultural differences and language barriers, it made the most sense for us to replicate our same sales strategy abroad. This meant hiring local contract partners who have the cultural competencies our US team lacks, both in terms of their deep understanding of business and negotiating norms. Those partners did a fantastic job, but as we grew, we needed to give our Asian customers and suppliers more attention, and that’s when we knew it was time to hire a full-time general manager in China.

But it’s important to remember that China is no longer the most affordable market for manufacturing, and if you aren’t looking to work with Chinese partners or sell your products in that country, it may not be the right place to expand. It depends on where your product is headed, and for some companies, other areas in southeast Asia such as Vietnam, Malaysia, and Thailand, for example, may offer better options for their strategic needs.

 

Leverage Your Network to Identify the Right Team

As in the States, it can be hard to find the right people to help you grow your business in China. While we have worked with recruitment agencies in the past, for this role, I turned to our fantastic network of investors and advisors to identify the right hire.

Due to the pandemic, hiring a counterpart abroad wasn’t all that different logistically than it would be to hire someone in the same city. But when video and phone calls are your only mechanisms for an interview, it can be difficult to gauge how well a conversation is going – are those long pauses a delay in the internet connection or is the conversation off on a different level?

With the help of my network, I identified a few great candidates who would have been a good fit. We selected our finalist based on three criteria:

  1. Experience. In this remote, international hiring process, we knew we couldn’t settle for someone who didn’t have the right range of experience. Our hire has over 18 years of experience developing and executing business strategy as well as logistics and manufacturing partnerships in China.

  2. Proven interest in the future of our technology. We are working to build the future of reflective displays, and so is our new GM. In her previous position, she worked with CLEARink, which is a different type of eye-health-conscious display technology. By looking at the competitive landscape, you may find the right person is already working in the industry and looking for a new opportunity.

  3. Personal connection. Any initial apprehensions I had about potentially hiring a GM I’d never met before were assuaged by the fact that, just as it so happened, I had met this candidate in the past. While you can establish interpersonal connections over video calls, in this case, we got lucky. Ultimately, our conversations – in-person and online – gave me confidence in her professional acumen. That, along with a personal endorsement from advisors, made it easier to start building our Chinese office.

As in-person conferences return to our calendars, this hiring experience is top of mind for me and should be for other founders. These events can be rich territory for hiring, even if you’re not ready to grow your executive team quite yet.

 

Bring in the Experts: Don’t Navigate Cultural Differences Alone

There are many blogs out there on the differences between American and Chinese business cultures, and I won’t attempt to summarize the best practices for intercultural communication here. But it is worth noting that everything from negotiation to communication styles are different, and they vary regionally within China. Knowing this, don’t attempt to become an expert in this area. Instead, seek out partners who know the differences and have experience navigating them. At Azumo, we’ve worked with legal, HR, and accounting firms every step of the way to ensure we’re following tax and employment laws in both countries.

Because we work in a very competitive industry, we have to be diligent about what information we share with customers, suppliers, and partners in every interaction with one eye on our IP and trade secrets. With the help of our trusted partners, navigating this aspect of international business and electronics manufacturing is far less daunting.

Geopolitics will change; patent laws will evolve. Because there are so many factors at play when you grow your business into an international market, it’s important to focus on what you can plan for. Work with trusted partners to make the right decisions and adapt to change while accelerating along your own growth trajectory.

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