Chinese Entrepreneurship Comes in Different Flavors

Travelling the Silicon RoadSHANGHAI – Entrepreneurs take different forms in China, as they do anywhere else. But China is definitely a place for entrepreneurs at the moment, as its transition from a state-owned economy to one that is market-based is in full swing.

On the one hand, there are people like James Gao, founder, president and CEO of start-up Apexone Microelectronics Inc. An analog and mixed-signal company that started operations in 2002, the company has already caught the eye of the VC community and the financial press, being listed as one of Red Herring’s top 100 firms in Asia.

Having completed its Series A funding, its VC backers include DCM-Doll Capital Management, Walden International, The Yangtze Venture Ltd., Ben Itri and YouLiang Cai. Apexone calls Shanghai home, with offices based here in a high-tech park that is also home to companies like Applied Materials Inc. and Semiconductor Manufacturing International Corp.

It is the kind of start-up – and Gao is the kind of entrepreneur – that most in the West would recognize right off. It is a fabless start-up with some interesting IP, currently producing a couple million chips a month, including both from internal development programs as well as finished products.

Its product portfolio includes a patent-pending crystal-less USB transceiver device, a digital audio amplifier developed partially with a U.S. technology partner, and data converters for wireless and broadband applications – converters based on digital CMOS, not BiCMOS, that achieve 12- to 14-bitrates or higher and speeds in the range of a couple of hundred megahertz.

Naturally, the company is targeting high-end consumer applications and is trying to stay away from the crowded low-end market. “In general we’re trying to get high performance analog or mixed signal, along with future applications,” Gao said.

Gao is a Chinese native who got a master’s degree in electrical engineering in the States in 1991 and worked in the chip industry there for a number of years before returning to China. He came back, he said, because he saw the business opportunities here. He noted that’s why others are coming back to China, but is thoughtfully pragmatic about the phenomena; eventually, as the prevailing economic winds shift back to the United States and elsewhere, that’s where Chinese graduate students will go, following the opportunities, he explained.

“I think right now the environment is good,” Gao said of the VC and business climate in China. “But it is a challenge to balance the risks,” he added. “There are always risks, of course.”

He noted that he met recently with some central government officials who observed that the Chinese start-ups that seem to have the best chance at success seem to be those that have foreign VC backers. And at a recent trade show here, among the five Chinese start-ups participating, four of them were backed by foreign VC investors; only one was funded by Chinese venture capitol.

But that’s the hot interest among the VC community right now: start-ups created by Chinese EEs returning to China, having cut their industry teeth abroad, Gao said. The big question is, which ones are the ones to back? After all, they can’t all be successful in the long-run.

Even though getting VC money isn’t a problem in China right now, it’s not like every Chinese engineer with a good idea is guaranteed to strike market gold just because they’re following the technological gold rush back to China.

“Not every company does well,” Gao said of start-ups like Apexone. “The trend really is similar to Silicon Valley. Just a couple percent are successful.”

Moving from Government Bureaucracy to Private Business

At the other end of the Chinese high-tech entrepreneur spectrum is Zhong Jian, founder and manager of Dakeli Technology Co. Ltd., based in Beijing. His isn’t the usual formula for high-tech start-ups, but his is perhaps not entirely unique, at least here in this country.

Zhong is in some ways more symbolic of what is happening in China than a company like Apexone. A former government official in the Ministry of Post and Telecommunications (MPT) (one of the forerunners to China’s current Ministry of Information Industries (MII)), when China first started flirting with a market economy in the 1990s, Zhong saw an opportunity to go into business for himself, and seized the opportunity.

One of his assignments back in the day in the MPT was to travel to Singapore and set up a state-owned company to import high-tech goods into China. He was given the equivalent of about three months worth of funding to get things going. After a year, the business was functioning and stable, so he was sent to Japan to do the same thing; once again given about three months’ worth of funding. Two years later, the business was successfully stable.

After learning how to set up two business operations with little financial backing, and things changing in China, Zhong decided to go into business for himself. “I adjusted to business with no financial backing; why not start my own?” he recalled.

“I like freedom. I hate politics,” Zhong said. “That’s why I left the Ministry, to start my own business.” That was 1997. Today Zhong employs 10 people between Dakeli’s office in a residential apartment building in Beijing and one-man offices scattered around China. Last year it brought in revenues of about $4 million; this year the company should see revenue of about $6 million, according to Zhong.

Dakeli originally started out importing networking test equipment into China; it has since branched out into telecomm, as that is a hot market in China right now. Things have changed considerably since Zhong started Dakeli eight years ago.

“There are many stories … but generally speaking when I started it was easier,” Zhong said. “Now there are more and more private companies. There is more and more competition.”

That’s why Dakeli has had to branch out into other areas, and concentrate on high-end technology and applications; the low end has rapidly become crowded in the Chinese marketplace. The company has become particularly focused on the rollout of a 3G standard in China, as well as other specialty telecomm products.

The 3G standard adoption in China has been delayed, but as Beijing prepares for the Olympic Games to come to China in 2008, it looks as if the government will start issuing licenses for 3G in the first half of next year. “I think next year when licenses are issued, our test business will be brisk,” Zhong said.

Dakeli has also begun working with small foreign companies outside of a distribution capacity. “We like to work with small companies with good technology,” said Zhong. “They are flexible, like me.”

For instance, it is working with a Japanese company to design and sell a unique chipset for PHS applications in China. PHS is a mobile standard that was developed in Japan a few years back and has since fallen out of favor, although still popular in many parts of China. While Dakeli’s revenue from this agreement is small – maybe just 2 percent of this year’s revenue – that represents just the first order, one from a government contract. In the near future, after subsequent orders, the PHS revenue stream could represent as much as 30 percent of the company’s revenue, Zhong suggested.

Electronic News Travels to ChinaThe environment has changed in other ways, too, inside China. Relationships are very important in China, and always have been; being a former employee of the Ministry has helped, Zhong acknowledged. But now, it’s not always about whom you know; many government contracts are put out to bid and there is a transparency in place that wasn’t there back in the 1990s.

“Now business is more and more professional,” he said. “You have to have good products, service and technology. Otherwise, you will lose to the competition.”

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

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