Businesses must weather a challenging climate to penetrate the Chinese market with their tech, but the pay-off has never been higher. At one level, China is an attractive market to foreign tech and home to an urban middle class expected to account for 70% of the population by 2030. At the other end of the spectrum, China is striking out in new directions, entering new markets — and winning. Whether the goal is to partner with Chinese tech leaders going global or identify tactics to target Chinese consumers, David Sullivan, Founder & Managing Director of Alliance Development Group (ADG), covers all the critical go-to-market questions. David has over 25 years of experience assisting Western technology companies with Asia and China strategy, growth, corporate development, business development, and operations. He discusses the opportunities and roadblocks in the Chinese market today and offers advice to mobile tech companies concerned about protecting their IP in China. Finally, David shares how ADG qualifies targets and drives the entire in-country business development and technical cooperation process for an impressive and growing roster of clients.
So of course it’s one thing to embrace a growth strategy, it’s another to know where to grow, how to grow and to answer that all important question for 2020, the hot growth markets, the fastest growing markets – in many cases, the answer is across all of them except maybe fastest growing market and according to the research I’m looking at is Indonesia but, hey, the market to target is China. And we’re going to find out from the expert about how to do that – what is the China market, what should be your growth strategy, your go-to-market strategy, how are you going to do it, how are going to crack the code in China? And my guest today is David Sullivan, he is Founder and Managing Director of ADG. David, great to have you here today on Mobile Presence.
Thank you, great to be here.
So it’s great to have you as I said, it’s all about China, I’ve been looking at the mobile reports, the App Annie reports, always the research about the China opportunity – ADG, what do you do and why are you so focused on China?
So, ADG, we built the platform, it’s really a go-to-market platform for technology companies that are trying to address the China market and addressing the China market, it’s critical to have a local presence and a lot of companies that are coming into the market, they’re starting out with kind of flying in, flying out and they don’t really have a local presence on the ground.
But, I went over to China in 1997, I was with Lucent Technologies for four years and then we founded ADG in 2001 and really the platform we built was to help Western, US and Western technology companies with coming into the market, understanding the eco system, validating the market, identifying opportunities and partners, and then really helping them to start executing.
After we make some market traction, get some commercial traction and business, we help them kind of scale from there and launch their own presence or develop a joint venture or licensing agreements.
So is this primarily for tech companies but also I would imagine it’s fairly similar if you have sort of the software, the apps, the IP not only the hardware but also the software – is it both of these that you’re appealing to?
Absolutely, so in our business we’re focused on two general buckets – one is the enterprise software space, the other is the connected device space and those are, you know, very large and diverse segments and they overlap significantly. So, you know, working within the connected device space, it may be smart phone companies, it may be IOT device, automotives, drones and robotics, smart phones and in those segments, there can be hardware solutions like sensors and camera-related and many different, I guess you’d say hardware and component level solutions but there’s a lot of software in those solutions.
So, I think the majority of our clients, the companies we help are software companies and really it goes across, as I mentioned, it goes across the enterprise but also into all those different connected device solutions I mentioned, but lots of software. Data solutions, analytic solutions, AI solutions, mobile advertising solutions and even mobile apps – we help the Weather Channel, we help PayPal in China, a wine app called Le Vino, many different consumer apps but a lot of the partnerships have been B to B to C so it might be partnering with an Alibaba or partnering with Xiaomi, a smartphone company to address their customer markets.
And what’s really interesting to note as well is a lot of projects are global via China, so as these Chinese companies are starting to go global, a lot of these Chinese companies are addressing markets in Latin America, Africa, Asia, Eastern Europe and they’re really going global, so some of the best opportunities for Western technology companies is to partner with these Chinese companies going global.
I was just going to say because they’re going global, I know they’re doing a lot in Japan is one market, Indonesia another but also, you know, going clearly global from thereon. You mentioned of course Alibaba which is important if you have anything related to commerce but also to - I’m thinking also of WeChat which is getting on Tencent’s platform which can be anything from an app to a service to a bank, well, maybe not a bank because I mean the laws a little different – they have their own. So, I guess what do you see as one of the most attractive opportunities there? There’s so many, obviously China is a hot market but it’s also coming back to the West so it’s going East to West whereas we go West to East – is it a specific partner or market or opportunity that you see there?
You know, there’s so many thousands and thousands and thousands of opportunities and potential partners and it really depends on the company, the Western company that’s looking to address China, it depends on the strategy but China’s starting to innovate more and more and more and now you’re starting to even see Facebook copying, you know, Chinese apps, TikTok, but even with all that innovation from China, there’s still a massive appetite for Western technology partners.
So, every day, you know, thousands and thousands of Western technology companies are being approached by Chinese companies and it’s really across – it’s across all segments and all technologies. And even if a Tencent has a solution, and it looks like they’re taking a big market share, then another company, whether it’s Alibaba or ByteDance or another company seeking to, you know, de-throne them or compete with a local player like a Tencent, so Alibaba might be missing a solution where Tencent is already dominant and Alibaba with partner with that Western technology company and it could be licensing the technology so even if a market looks like there’s a big major competitor in China, often the other bit China company is seeking solutions to compete in the market so, really across all technologies.
And there’s always the new VC back or P back technology company that has improved something by 10X or has decreased the cost of something by 10X or 100X. So, there’s always new technologies coming out of Silicon Valley, of Boston, across the United States and across Europe and these Chinese companies, you know, want and need these companies to partner with.
So, we’re seeing opportunities across the board with all the smartphone companies in China and most people from the West, they know Samsung and Apple but the next eight companies in the top ten, seven or eight of them are Chinese – Vivo, Oppo, Xiaomi, others and they’re going global and they need technologies and the automotive companies, the Chinese automotive companies are growing very rapidly, they’re starting to export and they need technologies and these are becoming big connected devices, big mobile devices with all the apps they need and all the IOT connected technologies and Cloud-related technologies and we’re seeing, again in drones – a lot of people don’t know that there’s one company, DJI out of China, in certain segments controls 70% of the world’s drone market. Robotics is really significant.
I didn’t know about the drones, I have to say, David, I really didn’t think that one – I was going to bet on some Silicon Valley cool company for that one.
Yes, I mean, I think this one Chinese company controls 70% of the world market, DJI. I mean, they’re in the Apple Store, but they need a lot of software and they need a lot of technology and they’re partnering with hundreds of US companies and European companies. And SmartHome, their solutions – and that’s just on the connected device side and if you look on the enterprise side, there’s also SAS are becoming really significant and Cloud is becoming significant and lots of AI technology and 5G technology and IOT technology - these are all big opportunities for Western category leading solutions.
So in a word, it is truly a wealth of opportunity and I guess what we’ll do is come back after the break and talk about that other side, now that we know the size of the opportunity, we know it’s across all of these different areas, these verticals, these technologies, is how to get in on the opportunities. So David, we have to go to a break but listeners, don’t go away, we’ll be right back.
And we’re back to Mobile Presence. I’m Peggy Anne Salz and we have today David Sullivan, Founder and Managing Director at ADG, Alliance Development Group. So, David, right before the break we were talking about the Chinese opportunity – I agree, it’s huge, we don’t put the numbers on it, massive – I know the biggest spender in the app market is one thing I watch, for example, you know, eclipsing US long ago – so we know the money is there, the opportunity is there, they do pay in many cases for content, for technology but there is a downside, there’s a couple of red flags with those green flags. Let’s talk about the elephant in the room – IP. David, how desperate is the situation there, what do you have to watch?
So, yes, for the last 18 years we’ve been working with software companies, helping them with China and one of the number one concerns has always been around IP. How do we protect our IP and how do we develop sustainable partnerships and not just work really hard for a year or two and then the partnerships done after the local company figures out what they’re doing after a lot of investment? So, you know, IP protection is critical, there are a lot of cases where IP has been outright stolen or reverse engineered etc.
What we’ve seen is there’s strategies that Western companies can pursue to reduce the risk of IP theft and on the government side, you know, this is actually probably one of the positive outcomes of the current pressure that the US is putting on China is more adherence to their IP laws, so there’s more emphasis on IP protection coming out of the China government which is a great thing.
We’re also seeing more Chinese companies creating IP that’s worthy and so they’re also demanding IP protection in China, so the domestic Chinese companies are requiring that more from inside China which is also positive.
That said, part of it’s sure IP theft, the other is just being a science project for a Chinese company and being copied and so on one side if it’s a pure business model like an internet business model, Uber, for example or others, it’s hard to protect a business model IP, that’s more about just speed and scale on investment – Uber went into China and then China DD really dominated in one business.
So in the first place, you need to have a technology that, you know, can be defensible and can be protected and just around some of the strategies on IP, there’s the basic stuff around patents and trademarks and some companies don’t even do that out of the gate and they really should, really out of the gate do the China patent stuff and China trademark stuff, the legal stuff. And also you got to protect yourself technically – if you can have software that is pinging back to the servers and you know what’s going on and can be shut off remotely, has different technical protections, we’ve seen companies come into China with no technical protection and they got copied very quickly. But, you got to put those technical protections into place.
But I’d say the key that we found and our working with over 100 technology companies, the vast majority of software companies, we’ve never seen, that we’re aware of, software being, IP being stolen or copied. You know, one of the keys is really around partner selection and partner...
And that’s where you come in, you’re also helping with that, that’s part of what you’re doing for, as you said, hundreds of clients. Maybe you want to tell me a little bit about that – I’ve got 100+ technology clients, hundreds of deals, 18 years in business, you have probably some interesting stories to share or some interesting challenges that you have come up against that maybe the average company doesn’t that you’ve had to help through there. For example, finding the partners...
Absolutely. So, around IP and also around just those cases, we’ve found companies that will meet a Chinese company at a trade show and I’ll be talking to them and they’ll say, “Oh, we found our Chinese partner and we’re moving forward”, and I’ll say, “Where did you meet them” and they say, “We met them at a trade show, Mobile World Congress or CES or something” and they’re going down the road with a very deep partnership with this company and they’re flying in and flying out and they have little relationship with them except their trips in, they don’t really know the company, they didn’t go out and talk to the whole eco system.
You have to go to China, you have to engage the broad eco system and you might have to talk to 50 or 100, 200 companies to fully understand the whole eco system, the customers, the partners, the routes to market, the government – what’s happening, what are your competitors doing, what are the business models that work? And what we find is a lot of companies, they fly in, they find a partner, they sign up, they’re kind of waiting and then two years later they say, “Oh, it’s been terrible, we’ve wasted a lot of time, they took our ideas and we’re done” and they never were in the market and they weren’t engaging the eco system, talking to tens and tens of companies to find the right one, the right chemistry with the right fit...
...and they also sometimes choose partners that aren’t global or they don’t have anything to lose if they do steal technologies because sometimes if you’re working with a company in China that’s only domestic, they’re not global, they’re not listed on a global stock exchange, they don’t have business outside of China and they’re not a brand – those companies are riskier, they don’t have much to lose.
Sometimes they can be Grade 1, you get a good company with a good CEO and sometimes they’re invested by Sandhill Road or Western VCs but you got to check the due diligence list of – are these companies invested by the Sequoia Chinas and the NEA Chinas and the big global VCs or famous Chinese VCs that are reputable? Are they listed on Nasdaq or NYSE or in Hong Kong or London? Are they listed, do they have business outside of China? People say well, Huawei is really risky, they might take your IP but I find Huawei is one of the least risky because they have the most to lose now, they’re global, they’re in 160 countries and they’ve got top down rules around IP.
So picking that reputable partner but also deep engagement and so when we help companies, we help companies that are either new to the market, they’re just coming into China or they’re under-performing or they’re not happy with their current situation in China and they want to grow faster or identify new opportunities.
So in that case, I mean, is it consultative or do I come to you and say I know exactly what I want, just make it happen – do my due diligence so I don’t spend my life on LinkedIn checking the entire mobile eco system to figure out is this company up to scratch. So, I guess the question is where do you come in?
Yes, so we’re a unique business model, it’s kind of a mash-up of multiple businesses, multiple business models. In the front end, it can be that go-to-market strategy, it’s for companies that are seeking to the address the market and they’ve limited or no market traction, we help them identify the Chinese eco system, engage the landscape, we help them kind of create their pitch, create their introduction cooperation proposition but then really deep eco system engagement. And then through that process of eco system engagement, we’re doing that assessment and go-to-marketing strategy development, so we’re looking at routes to market and partners, business and cooperation models, what’s the product and technology requirements – if they need a Cloud, do they need an ICP license and how are they going to get that, the pricing and the marketing positioning and the regulatory and the IP, the IP protection strategies.
And once we start looking at that, we’re identifying partners and opportunities that have the right interest and fit and we facilitate the whole thing so our team is technical business development, part of the team is technical business development, corporate development people that we’re getting enabled on the company’s technology and we’re out representing them as their China team. So, in many cases, we – so when I was saying earlier we’re a bit of a mash-up, on the front end it could be consulting but as you said earlier, some companies say “We know what we want to do, we want to go after Alibaba – help us” and then we’ll drive that strategic cooperation with knowledge. So, we’re the team on the ground that is engaging across the departments.
I’ll give you once case to kind of give you an example. There was a company called “I Verify” and they were a BC back company for the United States, they had a bio metric technology, it was a software-based bio metric technology and initially they wanted to go after the smartphone companies, so it was like a fingerprint but it was taking the eye vein print, it wasn’t even the iris, it was the veins in your eye had a fingerprint and really unique technology, no one else in the world was doing it.
So, we started helping I Verify and we first brought them into China and we started to really engage the eco system and identify the right fit, the strategy, the pricing, the product, all that and initially we started targeting the smartphone companies. So we developed about 6 or so licensing agreements with different smartphone companies over the ETE, there was Vivo, TCL, top ten OEMs, Chinese OEMs.
And after some time, we said, Okay, we can bring this across some of the mobile apps and try to bake this authentication technology into some apps and we started partnering with engaging Qihoo which was a pretty big Chinese security solution, Qihoo 360 – they were often considered number 4 after Baidu, Alibaba, Tencent – we started the commercial cooperation but then Qihoo said, hey, we know we want to invest as well. So, we helped to facilitate that and they invested in A round and then after that we said, Alipay would be a really interesting partner, Alibaba’s Alipay and Alipay had 5 or 6 hundred million users of the Alipay app – it’s one of the biggest payment apps in China and they’re starting to go global.
So we engaged the Alipay team then we developed a strategic commercial agreement with them to be integrated into the Alipay app, this I Verify, this small US company’s technology. And then we brought that commercial deal story to the corporate development team, the investment team and Ali actually, they actually invested and they bought the company, they bought this US company. And this was a 3-year relationship where I Verify had nobody in China, so we were the team on the ground doing the strategy, doing the business development, doing all the operations, helping to facilitate communications around the investments and then through to the exit.
So, it was a bit of consulting on the front end, business development and kind of China operations, almost like a manufacturer’s representative, if you will, or outsource team and then through to the exit and then the transfer.
And in other cases, it might become a JV or it might become a licensing agreement...
Well, clearly, David, you know, you do have a proven track record, you have a lot of different roles and hats that you have in this process. We do have to go to a break just one more time but listeners don’t go away, because we will come back with some tips you don’t want to miss so we’ll be right back after the break.
And we’re back to Mobile Presence. I’m Peggy Anne Salz, we have today David Sullivan, Founder and Managing Director of ADG, Alliance Development Group. And we were talking about first the opportunities in China and then also what you need to do to take advantage of them. But, maybe you can water – just maybe, I won’t say water it down, but condense it down into a couple of clear items on a checklist. You know, I’m a US mobile tech company, what do I need to do to identify, for example, the right strategy, right partner, right go to market strategy – there must be like a do and don’t list here, obviously we can’t go into that much detail, David, but you probably have some straight dos or don’ts that you know off by heart.
Yes, thank you. I think when you’re – if you’re a lesser mobile technology company and you want to address the China market, it’s really critical to – one is you need to commit to the market. Opportunistic approaches to China typically fail so you have to make a decision to invest and to commit to the effort. But once you’ve done that, it’s really important to broadly and deeply engage the China eco system. It can’t just be the fly in and fly out.
So one is you have to identify and broadly engage the China eco system and...
So what does that mean, does that mean like stay there for a month or make this your second home, broadly engage sounds like quite an investment of time and effort.
Well, I think it can be – well, it could either be you send a person over and they spend a couple of months there or you find someone like us that already has relationships and has the network and we can kind of tap you in immediately, right away, or find someone else to help you. But it’s really important to have those, you know, hundreds of conversations throughout the eco system and, again, it’s with customers, it’s with partners – you have to understand what’s going on on the ground, it can’t be from a report or trying to meet people through LinkedIn. You have to understand deeply all the different elements of the go-to-market strategy and it’s one of the routes to market. Who are the best partners and those change by – six months ago, the partners might be different. So, reading a report, they get out of date really fast, China changes very fast, it’s very dynamic.
You know, what are the business models and cooperation models? What are the technology requirements? A lot of times there’s different product requirements, if there’s a connected device, there’s Cloud, ICP license requirements and looking again at the pricing, can you – should you even go to China? That’s the first question – you can do that higher level engagement, see if you should go and then how you should go. Looking at the competitors – competitors could become your partners, they could be your JV partner, they could be your partner for going overseas, they could acquire you, you could acquire them, looking at the IP stuff and also looking at the different compliance – there’s different regulatory compliance rules.
So, looking at all these go-to-market elements but doing it from an engagement perspective, not a consulting McKinsey-ish, you know, assessment but doing it from a business development perspective because you really get this insight and this feedback when you’re meeting with executives with potential partners, so you need to meet with the executives of potential partners and customers to get the true real story and if you approach it from just an academic consultative process, you’ll miss a lot.
Well you said the true real story, David, so I have to break in because, you know, we understand that this is - timing is good but tensions are high so is this time or is this a situation where the tensions currently between the US and China, that they’re going to play a huge role and we’d better just sit it out for a while?
So, you know, my personal feeling is the time is right because when some people are sitting out, that’s when opportunities are opening up because some other people are sitting out and are worried about things. So, China’s the second largest economy in the world and it’s not going anywhere and the China and US cooperation is – it’s every day... If you talk to, you know, 95% of US technology companies or US companies in general, are staying in China. Companies that are there are not leaving. So, there’s been surveys by US China Business Council, the majority of companies are staying there.
Cooperation’s happening every day, we’re bringing companies in every day to meet the China eco system, to do strategic cooperation, develop partnerships – China’s open for business. There’s a lot of buzz in the news about the conflict, sure there is conflict but actually I think the pressure that’s being – I mean, China was playing unfair in various areas and I think some of the pressure that’s happening right now is good, I think it’s good for China, it’s good for the United States, frankly, and it’s going to open up opportunities for US companies.
You know, we don’t want – some people talk about de-coupling and that’s the last thing we need and the risk of the talk of de-coupling is that it becomes a self-fulfilling situation where people are talking about it, people start worrying about it, people start disengaging but, you know, all those signs are it’s not going to happen – the economies are too connected and the benefits are too great for everybody to stay engaged.
So, some companies are kind of pausing, many of our clients, we’re still having new clients all the time and they’re going after it, it’s mobile apps and it’s enterprise, it’s big data software, it’s AI related. I mean, on the investment side, that’s a different story because some of the CFIUS rules around investment from China into emerging technologies so the investment we’ve seen slow down but the commercial cooperation, we’re not seeing it slow down.
And I couldn’t agree with you more, David, when others are getting out, because we’re all going to ultimately have to get back in and to lose this time, to lose these ties, it just doesn’t make business sense. I have to say, David, for me, you are going to be my go-to person for everything around the China market for sure and I’m going to have you back here on Mobile Presence, listeners, so this isn’t the last time. But in the meantime, David, great to have you here, I want to have you back – how can listeners stay in touch with you or up to date on what ADG is up to? I mean, you got a lot of interviews out there in the news, CNN and others, I’ve been reading and listening to. So, you got a lot to offer, how do we stay in touch?
I’d say check out our website, alliance-dg.com and feel free to ping me anytime, email@example.com and we’re happy to chat. Also, we’re happy just to share thoughts for companies thinking about going to China, we’re happy to have a conversation and to share our ideas on here’s an opportunity, here’s something to look out for and anytime we’re happy to share our thoughts.
Absolutely, and I’m happy to have you back so listeners, that’s a wrap. Of course, if you want to keep up with me throughout the week or find out more about how you can be a guest or sponsor on Mobile Presence, then you can email me, firstname.lastname@example.org, that’s where you can also find my portfolio of content marketing and app marketing services.
And so my friends, this is a wrap, as I said, of another episode - check them all out over at webmasterradio.fm or you can also find our shows on iTunes, Stitcher, Spreaker, Spotify and iheartRadio simply by searching Mobile Presence. So until next time – remember - every minute is mobile, so make every minute count. We’ll see you soon.