The PRD Megacity
Taiwanese Startups Flock to Pearl River Delta
The Pearl River Delta, which outshines other areas in terms of startup support, is luring young Taiwanese entrepreneurs with attractive incentives.
Taiwanese Startups Flock to Pearl River DeltaBy Kuo-chen Lu
From CommonWealth Magazine (vol. 623 )
Not one of China’s startup bases, such as Zhongguan Village in Beijing, Hangzhou or Shanghai, is as generous in supporting Taiwanese startup founders as the Pearl River Delta, which grants financial subsidies, free office space and mandatory business referrals. Moreover, the Pearl River Delta region boasts industry clusters and supply chains that other provincial cities in China lack, not to mention a sizable Taiwanese community with a dense interpersonal network.
Is the Pearl River Delta truly that great with regard to founding a startup? In Shenzhen, I met Lee Ching-kang, chairman of Grass Wonder Inc. which won the first Innovation Start-up Star Competition in the Nanshan District of Shenzhen in 2015. Lee’s company designs IC for automatic movement tracking.
Grass Wonder took the crown in a strong field of more than 2,000 participants, prevailing over formidable rivals such as Shenzhen-based Da-Jiang Innovations Science and Technology Co. Ltd. (DJI), a manufacturer of unmanned aerial vehicles.
Thanks to the win, Lee’s company moved quickly to the center of attention, in stark contrast to the disinterest Lee had faced in Taiwan. “Before coming to Shenzhen, I spoke with every single Taiwanese electronics firm boss you can imagine,” Lee says. Yet, none of these talks turned into a collaboration because the Taiwanese entrepreneurs set all kinds of unacceptable conditions such as putting their brand name on the product, producing for them under contract, or even demanding deferred payment.
Lee eventually participated in the competition in 2015 upon invitation from Lin Chi-hsiang, executive secretary general of the Shenzhen Monte Jade Science and Technology Association. Following the victory, both his startup and his life took a very different course.
One of Lee’s Chinese customers, Yang Ping, general manager of Shenzhen Wonew Technology Co. Ltd., notes that his company originally specialized in smart selfie sticks. When he saw that there were selfie sticks with automatic tracking function, he immediately signed an exclusive licensing agreement with Grass Wonder. When Wonew released its first product that allows people to take selfies with automatic face tracking late last year, the company could not keep up with demand, selling 10,000 pieces. Wonew, which sells via Chinese e-commerce platforms Taobao, T-mall and Jingdong, ranks third on all three in terms of sales volume. This year, sales are expected to multiply.
China’s hotly contested consumer market resembles a shark pool.
Once rivals sniff out an opportunity to make money, they will scramble to seize it like sharks that smell blood.
Grass Wonder originally wanted to manufacture automatic tracking devices with its own chips inside. However, after many companies demanded collaboration, Lee decided to focus instead on IC chip design as well as the R&D of core processors.
Grass Wonder has signed contracts with 15 Chinese companies that use the chips in different products such as selfie sticks and desktop selfie devices, which means that product development and marketing are the job of the collaboration partners.
For managing these collaborations, Lee registered a company in Shenzhen and rented a place to live.
Working and living in Shenzhen is making a difference for Lee. “After coming to Shenzhen, I was sped up. They are doing the frontline market promotion; I provide core technology and chips. It was also because I came to live in Shenzhen that I understood that the pace can get so fast. If I hadn't come here I would be much slower,” he says.
Free Space, Matchmaking
Another example for how Chinese local governments go out of their way to court young Taiwanese entrepreneurs is DG Young T.E.A.M.S., a posh co-working center in the Songshan Lake Science and Technology Industry Park of Dongguan City. The center provides start-up capital, free office space, and helps the fledgling companies build their business.
We are surprised to find two young licensed physicians among the young entrepreneurial crowd. Uneasy about the rat race in Taiwan’s medical profession, the graduates of National Taiwan University's Medical School decided to take off their white coats to help Chinese farmers market their aqua-culture shrimp and crab.
The Songshan Lake industry park is the most Taiwanese-friendly investment environment in all of China. Dongguan City Mayor Liang Weidong points out that the city set aside 50 million renminbi in start-up grants in 2015 to support 100 young Taiwanese start-up founders. In 2016, the city announced a five-year action plan from 2016 to 2020 for the incubation of technological and innovative start-ups from Hong Kong, Macao and Taiwan to provide long-term support for start-up teams.
Most of the 50 million renminbi is channeled through T.E.A.M.S. Companies that move into the center, are granted 200,000 renminbi (about NT$870,000) in start-up capital and can use the office space for free. After two years, they have to move out regardless of whether the start-up failed or succeeded and are free to go wherever they want, no strings attached.
The Huaqiangbei mega market claims the local industry chain is able to deliver samples in one day, finished products in three days, and mass production within a week.
One of the center inhabitants is Celarus, a medical materials company founded by David Lin and Anderson Chak, the two NTU med school graduates. They apply "Silverate”, a silver solution that was used to dress the burns of the Formosa Fun Coast dust explosion victims, in aqua culture. The material's antibacterial and disinfecting properties help reduce the use of antibiotics in fish farms. Shrimp farms in the Dongguan area have already begun using the substance.
Why did the pair turn their backs on their medical careers in Taiwan? Before going to Dongguan, Lin had already passed his physician’s license in Singapore. He had to decide between a medical practice in Singapore or running a start-up in Dongguan. He was not willing to stay at NTU Hospital because of the heavy workload and publication pressure.
“As a resident I worked at least 90 hours per week, yet the salary at NTU Hospital is the lowest in all of Taiwan. In the end, I thought: Forget it,”
According to Lin, a typical work day means seeing outpatients from morning until early afternoon. Around 2 p.m. at the earliest, physicians find time to see their hospitalized patients until 5 p.m. Subsequently, they need to correct med school student home work but are also expected to find time to do research and publish academic papers. Whoever does not publish within three to six years will not be promoted and eventually be kicked out.
“As a resident I worked at least 90 hours per week, yet the salary at NTU Hospital is the lowest in all of Taiwan. In the end, I thought: Forget it,” Lin says in explaining why he chose to found a company in China.
In Dongguan, he didn’t just get start-up capital and rent-free office space; Cheng Haibo, deputy director of T.E.A.M.S., even helped Celarus find customers. For instance, Cheng is scheduled to accompany Lin to Jiangxi Province and introduce him to crab farmers there. Basically, the center provides seamless support from launching a company and finding capital to exploring the market.
Cheng points out that such generosity is possible because the government wants to court Taiwan. “If Chinese civil servants acted like this toward Chinese startups, they would be suspected of favoritism. But if it is about providing services to Taiwanese company founders, it is not a problem because this means we are doing a good job in our work toward Taiwan."
There is another factor that sparked Chak to ditch medical practice in favor of business in Dongguan: He has family ties in Dongguan. Chak is the nephew of the former chairman of the Taiwan Businessmen Association Dongguan. As a second-generation Taiwanese investor, he can rely on the existing interpersonal network and resources of his uncle.
First Generation Help
We came across several second-generation investors who launched their own companies in Shenzhen after growing up in Taiwan and studying overseas exactly because of existing personal connections. Huang Shih-wen and Lin Yiu-hsien, founders of tech startup Shenzhen Jizhi Tech Co. Ltd., are junior high schoolmates. They picked Shenzhen as location because of the resources its sizable Taiwanese business community offers.
Huang is a second-generation Taiwanese entrepreneur. Originally, he studied law at NTU but later switched his subject to information management. Upon graduation from university, he obtained a master’s degree in information engineering from the University of Illinois in the United States. He was studying for a doctorate when he decided to found his own business.
Before deciding where to register his business, Huang squarely looked at the pros and cons of China, Taiwan and the United States. He first ruled out the United States because it is a predominantly white society where establishing an internet-related start-up would not be easy. He then decided against Taiwan because of its small domestic market. A young startup might quickly hit the ceiling there, and the threshold for getting a new company off the ground would be high.
China is wooing young Taiwanese entrepreneurs. The DG Young T.E.A.M.S. start-up center in the Songshan Lake Science and Technology Industry Park of Dongguan City provides capital and free office space.
In contrast, he felt China offered good potential for internet-related businesses thanks to its rapidly growing mobile internet market. Beijing was Huang’s first choice, but since his parents run a factory in Shenzhen, he picked the southern boom town for convenience and proximity to the family business.
The first product that Shenzhen Jizhi Tech Co. Ltd. churned out after its founding was the band aid-like Kidoo smart thermometer for families with small children. Instead of repeatedly getting up during the night to monitor the body temperature of a feverish, sick child, parents can affix a silicon patch with an inbuilt sensor under the child’s armpit. Through a mobile app, the thermometer sends data to a mobile phone and automatically sounds an alarm when the body temperature exceeds a preset threshold.
For Huang, it came in handy that his parents already manufacture in China. Huang and Lin were in charge of product design and marketing, while the parental factory took care of production.
The smart thermometer patch was a huge success. At a price of 109 renminbi with a two-year life span, they sold more than 10,000 pieces within a month on Taobao.
But as the orders flooded in, they were reported to police because they had sold the thermometers online although they were not licensed to manufacture and sell health-related products. Consequently, they had to take the Kidoo smart thermometer off the market. With certification a distant prospect, they have temporarily given up on the product.
Although the pair hit a wall with their first startup, they remained optimistic and soon came up with another business idea that will exploit Huang’s expertise in artificial intelligence, which he studied in the United States. This time, they were inspired by the success of Chinese online outsourcing marketplace for professional services Zhu Bajie (zbj.com). Typical freelance work offered on zbj.com such as logo, website and software design is still traditionally done by people, and registering a trademark through a lawyer sets one back about 900 renminbi. Therefore, Huang wants to use artificial intelligence to replace traditional human design and trademark registration with their internet service company Crowdsdom.
On their logo design website xzlogo.com, users can design their own logo in a dialogue with a robot. Huang and Lin believe that China offers enormous business potential, which is another reason why they decided against Taiwan. “Many people don’t know that there are 80 million newly founded businesses in China every year that need logo or product design. If we just grab a 10 percent market share, it would still be a considerable amount of business,” says Huang.
Lin Chi-hsiang, who promoted start-ups in Taiwan before relocating to Shenzhen, believes a presence in China is crucial if one wants to understand the market. “The Pearl River Delta boasts supply chains, markets and new business models. If startup founders do not personally go to China, they won’t understand what WeChat Pay is about, they won’t understand what Huawei’s internet platform is. It’s not just Taiwanese coming to Shenzhen to start a business; you can see startup teams from all over the world here.”
China’s startup scene is a brutal dog-eat-dog environment. Ten-thousand startups might fail before another internet giant like Tencent is born.
However, Gordon Sun, director of the Economic Forecast Center at the Taiwan Institute of Economic Research, cautions that the Chinese government’s massive efforts to attract young entrepreneurs comes at a price. “In supporting startups, China first sacrifices the lives of 10,000 soldiers to build the fame of one general; as long as they can spawn another Jack Ma (the founder of the Alibaba Group), their efforts will count as a success. Usually we only notice the single one that succeeded, but we don‘t see the 9,999 who failed.”
Founding a startup in China means having to survive in a brutal dog-eat-dog environment. Startup capital, rent-free offices and business matchmaking are all perks that young Taiwanese entrepreneurs receive as a result of China’s united front tactics that aim to build support for unification among the Taiwanese in China.
Nonetheless, the Pearl River Delta offers massive production capacity and the support of the Taiwanese supply chain. With its vibrant business environment, the megalopolis formed by the “Super" Pearl River Delta proves irresistible, luring Taiwan’s up-and-coming entrepreneurs to ride the huge startup wave in China.
Translated from the Chinese by Susanne Ganz