Four AsiaBerlin Speakers share their views on how startups can go international from Germany to Asian Markets. Here are edited excerpts from the panel “Internationalization and Expansion Done Right” at AsiaBerlin Summit 2020.
The role of investors: Re-thinking startup strategy for internationalization
Accelerators and VCs are always on the lookout for promising start-ups. Sometimes, they need to help startups rethink their strategy to incorporate an international vision right from the start. Christopher Smolka, Senior Program Manager at German Accelerator, has lived in the Philippines, US, France, Denmark, and Berlin, giving him a broad view on internationalization.
German startups participate in German Accelerator’s programs for learning about market discovery and market entry in the US and Southeast Asia. He observes, “what we regularly see is that the German startups struggle with the basics of internationalization. We build the bridges to overseas markets, by building awareness of how to do business in the US and Southeast Asia and connecting these startups to mentors with deep vertical expertise”, he adds. German Accelerator helps startups identify soft skills and hard skills that are needed in their commercial toolbox along with the mindset for internationalization. Their focus is on product-market fit to understand who is demanding the product that is being built.
German Accelerator is present in Singapore, India, South Korea, and Japan. A large number of German startups are interested in expanding into Southeast Asia. Christopher says, “in the first quarter of 2020, despite the pandemic situation, there was plenty of interest in exploring Southeast Asian countries.” Christopher makes his point with an example. Wagawin, a marketing tech company, participated in German Accelerator’s Southeast Asian cohort of 2018. As the outcome of their participation, “they revamped their entire global value proposition based on validation workshops”, he says. Christopher was sure that the program helped Wagawin leverage the potential of their tech solution.
Christopher gives us another example of Prime Vector Technologies who are participants in the current Southeast Asian cohort. They are developing an affordable vaccination for Covid-19 and looking to expand in Southeast Asia. “Southeast Asia is a biotechnology hub, and developing nations in Southeast Asia need affordable vaccination,” he says. As a result, Prime Vector Technologies identified a prime market where they can provide value.
Expanding into China: Market fit, market size, tech and fundraising
Stefani Lu has consulted international brands, from fortune 500 companies to fast-scaling startups, with expansion in China for over 10 years. Stefani agrees with Christopher and believes that start-ups need to think about consumers who will purchase their products. As a mentor for multiple German startups looking to expand in China, she says, “by the time they have their product ready they find that Chinese customers are looking for something different. This could be due to the culture, environment, and mindset among other things.”
Kevin Worner heads XNode, a Chinese Acceleration Company. He has helped over 50 startups penetrate the Chinese market. Instead of pitching to startups to expand in China, 9 out of 10 times Kevin tells them, “China is not a market for you.” China has three things going in its favor- the market size, tech advancement, and capital availability. If the product-market fit is right, the market is huge. Technologically also, China is very advanced. In a few verticals, China is world-leading. Lastly, looking for venture capital is not easy in China. “When startups are looking towards raising funds, venture capitalists are protective of their downsides. Liquidations preferences and dividends work differently here. If the startup has the right fit then they have high potential to raise rounds of investment here”, Kevin points out.
When asked about which verticals to focus on Kevin responds, “make sure that you are in line with China’s 5 and 10-year plans.” At XNode, Kevin ensured that they were conscious of those priorities and values. He says, “Med-tech, smart manufacturing, education, and robotics are China’s focus areas and Germany’s strength areas too.”
Stefani Lu advocates for a strong bonding with the local ecosystem, government, and media for tech startups. “This means you definitely need a physical team in China”, she says. Before consumer goods, MNCs entered China the existing consumer goods ecosystem was 20 years old. They had strong local contact and distribution systems. For companies that have physical products she suggests, “start with local partnerships first. This will help you test whether your product works in the Chinese market.” Rather than investing in building an office and hiring a local team, it is better to partner with local players who understand the market.
Adapting to Covid-19 as an international startup
Michael Wax is Co-Founder and Managing Director of Europe’s first digital freight forwarding company, Forto GmBH. Michael’s company, Forto is a Berlin-based logistics company that helps more than two and a half thousand B2B clients with tech support to import and export goods, to and from China. Talking about his customer base and growth opportunities, he says, “92% of our customers are based in Germany. Since we know what works in Germany, we are able to expand our international business via adjacent European countries.”
Like Forto, XNode also had to adapt from a physical setup to a virtual one. Kevin admits, “the surprising thing, to me personally, was that the virtual setup also worked. It was definitely less fun though.” He thinks that virtual programs help companies meet and collaborate with companies that are based in Shenzhen or Shanghai, which was not as acceptable as it is now. There was a dip in quarter one of 2020 when it came to VC investing but it is recovering quickly. The RMB funds are quite active.
Pointing out valuable learning he says, “I see that many companies now understand the value of geographic diversification much more.” Stefani agrees with Kevin that geographical diversification is critical for companies to manage their top and bottom lines. “Investors became sensitive during Covid but one of the companies achieved 3.5 times its valuation in 9 months, which is unheard of in China”, she says. In her experience irrespective of where companies are started, other markets may not directly contribute to their revenue but help them develop their roadmap and secure funding.
Going international with talent
Forto’s talent comes from 50 nations. Michael says, “60% of the talent is German, 40% is international and 35% are women.” Their approach was to leverage the experience of logistics managers and young, hungry, entrepreneurial individuals. Reiterating a balanced approach he says, “our aim is to shoot for maximum innovation power while valuing relationships between people.”
The moderator Diksha Dutta brings up communication and asks the panel for their views on how they manage communication between eastern and western cultures. Christopher points out that an understanding of the culture is very important. His accelerator helps startups prepare for their presentations and pitches that are sensitive to culture. “Being candid and open about one’s own culture early on helps build trust in the long term”, he recommends.
Stefani says, “German work culture and communication is very straightforward. In China, there is a lot of back and forth.” Instead of focusing on your own culture Stefani thinks it is a better idea to think about the other culture- this helps open communication and build trust.
Parting thoughts: If you are thinking about internationalization…
Michael says” Don’t do it too early, don’t do it too late.” He suggests startups think about the different parts of the value chain and organization that will change with internationalization. If startups start communicating their aspirations with their team as early as possible, the change will be the biggest.
“Dedicate enough management attention to your expansion”, Kevin advises. Focused founders and dedicated management will ensure that the expansion is smooth. If not, you can lose a lot of money and time.
Stefani suggests an open mindset. “No matter where you go, no matter where you started, listen more; especially when you meet people from different cultures”, she says.
Christopher advocates, “think about internationalization as early as possible.” According to him, executing internalization with partners involves less risk and ensures a quick turnaround time.
Watch the full video of the panel on internationalization here: