There is a time-honoured business model in China known as “Copy To China” – find a product or service or business model that works in the US or elsewhere and replicate it in China. In the technology industry this is exemplified by ChinaHR.com Holdings Ltd building a Monster look-alike and then selling 40 percent off to Monster Worldwide, Inc. for US$50m or Joyo.com Ltd replicating Amazon and then selling it to Amazon for US$75m. The same model is popular in many other markets, particularly Australia. Seek has had great success emulating Monster.
Australia has the best relationship with China of any Western country. When I developed my first joint-venture company in China in 1991 I was astounded by how many Government officials told me it was possible because “Aodaliya (Australia) is our friend in the West”.
A lot has happened since those days. Now anyone can do business in China easily, Westerners can even finally make money there and can even repatriate those profits! So we have lost a great deal of our special status.
Still, as a big supplier of raw materials and a generally friendly political voice, we have retained special leverage. At the same time the so-called “China Bounty” is fuelling our economy and fuelling innovation. At present the conventional wisdom, espoused by people like me, is that we need to develop our companies into the US market and sell them to higher valued US companies.
We are beginning to see another interesting opportunity for Australia. As China matures quickly its government officials and entrepreneurs are looking more carefully at the wealth created in places like Silicon Valley and seeking to emulate it.
Copy to China is falling out of favour as a business model. Being the world’s factory is still a fantastic business but Chinese businesses are seeing the opportunity to emulate the Japanese by using their growing discerning domestic market to build economies of scale and product quality to become fierce export competitors.
When I talk to Chinese executives, they say they no longer want to just partner with Western designers to manufacture in China or distribute there. Instead they want to partner in the ownership of products and build their own brands. They want to own intellectual property. This is good news for the West because it increases Chinese enrollment in the idea of protecting intellectual property. To date, China has been like the US was in its early history – not much point championing intellectual property protection if you only own a small fraction of the world’s intellectual property.
Chinese companies are developing their own intellectual property as import replacements and then developing export markets. The successful rise of Huawei Technologies from the ashes of a Cisco partnership is one of the more ious examples. The recent purchase of MG-Rover Group Ltd by Nanjing Automobile (Group) Corporation is a great example of the trend. Nanjing’s plans to leave engineering and design in the UK but moving production to China makes sense. They will be able to build volume in a market where Jaguar has a great reputation by being very competitive on price but equal in brand. Then they will use their global brand to build export sales and distribution channels, which they can then leverage for all their other cheaper car models.
Australian startups always struggle to access capital and to build critical mass because of the small domestic market. If our most innovative companies were to partner with Chinese companies they could access capital and market volume to perfect their products and then develop global markets. The Chinese partners want to jointly develop and own intellectual property that can be leveraged worldwide. Australia is a great and innovative source of intellectual property. In China, there is a shortage of intellectual property that can be developed into products and services that will sell in developed economies. We could become the source of those innovations. Our American and European competitors don’t need to so we could have this field considerably to ourselves.
There is a great opportunity for a government-education-business consortium to work with Chinese compatriots to develop a fantastic pool of high growth startups. The Australian-Chinese innovative startup has the potential to be a real differentiator for Australia’s entrepreneurial sector.
Michael Gale is co-founder and CEO of Gramercy Venture Advisors, a boutique advisory firm, predominantly servicing young companies in high growth sectors and professional investors in this space. Prior to Gramercy, Michael spent the previous eight years as