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    The types of entrepreneurs you meet in China

    Synopsis

    Chinese entrepreneurs are moving up the supply chain from assembly to design, engineering and more. Having more than one boss good for you?

    Before my first trip to China earlier this year, a well-known Silicon Valley venture capitalist told me I should go to Japan or Singapore instead. "Chinese people aren't entrepreneurial," he said. "They don't create things. They're just good at ripping them off."

    I won't embarrass him by using his name here, but I'm glad I didn't take his advice. I've spent five weeks on two trips to China this year, meeting with entrepreneurs in Shanghai, Beijing, Shenzhen, and Hong Kong. These startup founders are as scrappy and willing to take risks as their peers anywhere, at times even surpassing the people who flocked to Silicon Valley in the late 1990s.

    Conditions for new companies in China are hardly ideal. The modernity of the big cities is not yet widespread. Regulation is still a moving target. But there's still enough progress and wealth created by new businesses to give entrepreneurs hope.

    Given China's size and geographic, demographic, and economic diversity, I can't possibly give a one-size-fits-all description of the typical Chinese entrepreneur. But for those who believe the country doesn't do entrepreneurship well, here's a rundown of the six types of entrepreneurs you'll meet in China (with apologies, of course, to Mitch Albom, author of the best-selling The Five People You Meet in Heaven).


    The Opportunist

    And that's not necessarily a bad thing. Sure, there are plenty of poseur-opportunists who flock to China (from the US primarily, but also from Europe) but know or care little about the place. They may not even have great ideas for a company; they just want in on the action. The good news is that poseurs get weeded out fast. Most Westerners who move to China leave within the first year, I'm told. Locals put the percentage as high as 90%.

    But opportunists also take the form of talented, ambitious thrill-seekers who can thrive in China. Take Richard Robinson, the New England-born co-founder of Kooky Panda, a company that taps local developer talent to create social games for cell phones. Robinson is formerly vice-president for sales and marketing at Renren.com, a dot-com-era company that went public on the Hong Kong stock exchange in 2000, only to get acquired at a lower price by a local company in 2001. Robinson also founded a mobile gaming company called MiG that was acquired by Glu Mobile in 2007.

    Robinson, who backpacked around the world for years and wound up in China via the Trans-Siberian Railway is now a lifer. He's got a Chinese wife and in-laws and two kids who he says are "made in China." He even wears cufflinks bearing the Chinese flag. Successful as he's been, Robinson entertains no illusions of creating the next great Web or mobile company that dominates the domestic market. "That's not the game I'm going to win," he says. Instead, Kooky Panda uses high-quality, low-cost game design talent in China to build content for much of the Western world.

    The Expat Who Wins Big

    Yes, "big" is a relative term, but when it comes to the Web, the expat name mentioned most often is that of Fritz Demopoulos. A Los Angeles native, Demopoulos moved to China in the late 1990s as an employee of News Corp. He later left the company to start Shawei.com, a sports portal he sold to Tom.com in 2000 for about $20 million. He went on to co-found Qunar.com, an online travel company comparable to Kayak.com in the US.

    Demopoulos has a down-to-earth demeanor and dresses like he's in Silicon Valley, with glasses and floppy bangs that never quite stay off his face. But he's also got a fighting streak. Five-year-old Qunar is locked in a legal tussle with Ctrip, the Chinese equivalent of Expedia.com. Ctrip alleges that Qunar unlawfully gathers and posts information from its own pages.

    Consultants advising Westerners who hope to do business in China warn of guanxi, the deep-seated relationships that can make it hard for outsiders to break in. But in a display of the same bravado that built Silicon Valley, Demopoulos waves off talk of guanxi, says he doesn't speak Chinese well, and adopts a build-it-first, ask-questions-later outlook when it comes to getting a company off the ground.

    The "Copycat"

    The view in Silicon Valley is that some Chinese companies rip off their product ideas. Some even get a seemingly unfair leg up in cases where the government blocks US sites in China. Twitter and Facebook aren't available in China, a boon for Facebook clone Xioanei and a new Twitter-like service launched by China's largest portal, Sina.com (SINA). (A lot of homegrown Twitter clones have been blocked, too.)

    While they may crib product ideas, Chinese startups are blazing their own business model trail. Think of the contrast between eBay (EBAY) and Alibaba.com's Taobao. In China, eBay's stumbles are legendary, and Taobao has come in and owned the online consumer auction market. Nearly 50% of Chinese people online are Taobao customers, according to the company and Chinese Internet statistics. Taobao inked deals with several courier services so bidders without credit cards can pay for goods via cash-on-delivery. That's helped Taobao penetrate second- and third-tier cities in a way few e-commerce sites have.

    Scratch the surface and you see the same innovation with Web 2.0 "rip-offs" of Facebook, Twitter, and even Match.com. And, as many companies have learned during the downturn, business model matters as much as product.

    When I left my post as a reporter covering business software for BusinessWeek, I thought I'd never again have to write about the unsexy subject of supply chain management. Techies know the term well. It refers to the multistep process of bringing together a product's components and then getting finished goods to their destination. But during a recent trip to China, I was immersed in supply chain management again and encountered startups that are driving innovation in this crucial area. Their founders make my list of the six kinds of entrepreneurs you meet in China.

    Kings of Supply Chain Management

    China's massive factories aren't just for Dell computers and Apple iPods anymore. The country is climbing the value chain from electronics assembly to play an increasingly important role in product engineering, design, order fulfillment, even research and development. While in Beijing I met with the folks at Pharmaron, which handles drug development for huge U.S. drugmakers. Down the road, Pharmaron hopes to handle drug discovery for those same big companies.


    Which ones, you ask? Pharmaron won't let me tell. Western electronics, gadget, and pharmaceutical companies have their brand reputations to protect. They still collect the lion's share of the revenue generated by their products, and they don't want to broadcast the names of the Chinese players that help make them.

    The Non-Techie

    Judging from the way a lot of Silicon Valley venture capitalists invest, you might think the high-growth opportunities in China are all in tech. But they're the minority. Fortunes are being made in everything from locally produced tomato paste to coal mining.

    Entrepreneurs are also taking on just about any consumer industry you can imagine. An example is Xu Xiong, who started Oriental Fashion Driving School. Chinese drivers have to attend driving school before getting licenses. Xu wasn't happy with the process.

    Students would pay thousands of dollars and still be expected to lavish teachers with gifts, even wash their cars, to get passing grades. Xu, a lowly hotel clerk, wondered why a school couldn't revolve around the students. Roughly 10 years later, he's training 60,000 students a year at a sprawling campus that boasts cafés, napping areas, convenience stores, its own bus line, and closed training roads. There's even a petting zoo. The company has been profitable since the beginning, and Xu has been innovative at every turn, be it through kiosks to schedule classes or computer terminals that transmit written tests directly to the government so no one can bribe their way to a passing grade.

    The Legend

    Many in the West haven't heard of some of China's biggest and most impressive Web companies because they prize a low profile. One example is Giant Interactive (GA), a virtual game company that began in smaller Chinese cities but grew quickly, thanks to an army of 3,000 kids who go from one Internet café to another challenging each other to try Giant's games. In 2007, Giant went public on the New York Stock Exchange and today sports a $1.7 billion valuation. Of course, I know this mostly from what I've heard and read in Securities & Exchange Commission filings. Can I get an interview with someone at the company? Nope. Can I even get a callback from the PR person? Nope. (By the way, Giant, I'm not giving up.)

    However, there are exceptions to this unspoken rule to remain discreet, in part because successful entrepreneurs feel a responsibility to be a role model for the younger Chinese generation of would-be founders. Hands down the best-known is Jack Ma of Alibaba.com. A former English teacher turned CEO, Ma may be well-known in U.S. tech circles, but in China he's taken on rock star status. His face is used to advertise products, and he was a co-host of a Chinese reality show à la The Apprentice called Win in China. Would-be entrepreneurs speak his name in hushed, reverent tones.

    Kai-Fu Lee, the former president of Google China, is another "legend," though he's technically not an entrepreneur, having made his name mainly by working for big US companies in China. While I dined with Lee in Beijing, a person walked up to him and asked for an autograph. Still, I mention him because he's another example of a Chinese legend hoping that public displays of success will have a knock-on cultural effect: giving hope to would-be entrepreneurs and their worried parents, that they're not necessarily throwing everything away when they quit a job to take a risk.

    Lacy has been a business reporter for 10 years and is currently writing a book on global entrepreneurship. Her first book, Once You're Lucky, Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0, was published by Gotham Books in May 2008. She also blogs for TechCrunch.

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