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U.S. Startups Meet Asian Investors: Five Tips for Smoothing Cultural Edges

Twenty years ago when our team first began our careers as a venture capitalists and startup advisers, expanding into Asia was a luxury. Most entrepreneurs started here, conquered the U.S. and European markets, then perhaps launched a small Asian presence, mostly just to “check the box” as part of their pre-IPO activities to build buzz and credibility.

Today, that path is dramatically different. Asia is now a necessity, particularly in the skyrocketing mobile and gaming industries. The sheer economic power of the region, the massive population and the fact that it has become the epicenter of hardware manufacturing in the high-tech sector combine to make it a must-win for virtually any new tech venture.

But, winning in Asia requires U.S.-native entrepreneurs to step outside of their culture comfort zone. Some Asian nations have garnered a reputation for being extremely conservative, difficult to penetrate and resistant to outsiders in a business context. And, we’ve all heard the horror stories of very promising relationships quickly shattered by a cultural faux pas, which perpetuates the stereotype that Asians are somewhat fickle and easily offended, adding to the intimidation factor for young upstarts. After all, it’s only the most critically important market in the world to penetrate, and it’s kind of a closed society. No pressure, right?

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The reality is that Asian business dynamics actually aren’t dramatically different from those in the U.S. But, there are some defining cultural nuances startups must be aware of in pursuing any new business opportunity in the Far East, or any region for that matter. Here, we’ll shatter some of the myths and misconceptions, and provide some insight into what to expect and how to approach new business opportunities with investors or partners in the region.

1. Not all Asian cultures are the same

In our work with Japanese, Korean, Taiwanese and Chinese companies and investors, we see stark contrasts among the cultures, some fueled by historical context, that make doing business with one dramatically different from another. And, even within each country, cultures, norms and values can vary, especially in the expanse of China. Assuming all Asians have a similar culture would be as ludicrous as assuming Americans from the Deep South are culturally the same as New Englanders. It’s critical to do some research or partner with a firm or company with native, on-the-ground experience in the specific area you’re aiming for in order to fully understand and embrace these nuances.

2. Know the processes

Japan is commonly referred to as a very hard market to enter, but the reality is that Japanese investors are simply methodical and thorough, ask lots of questions, and then take that information back for consideration. That’s just how the process works, and it can make it difficult to get a read on where you stand. You might wait three months on a deal proposal and go through many contractual iterations and negotiations, all of which can make U.S. entrepreneurs and investors a little nervous. But, not all Asian businesses move at the same pace. In Korea and China, business tends to move a bit more quickly, and you could go to a contract in a matter of weeks. Knowing in advance how the deal-making process works can alleviate some anxiety and help keep you from becoming too aggressive, passive, or simply giving up in frustration.

3. The decision makers aren’t always who you’d expect

In Japan, Korea and Taiwan, the business structure, decisioning and deal-making process are somewhat similar to those in the U.S., but China is quite different. For example, in Japan, while the organizational structure looks very much like any U.S. corporation, most of the decision-making is made from the bottom-up. In the U.S. and China, winning over the CEO is key to forging new business deals, but in Japan, convincing the working-level mid-manager is critical. He or she has tremendous influence, although they may not look or act the part. It’s somewhat of an invisible process, and you have to understand that nuance in order to reach the right person or people in the organization.

4. Simply speaking the language is not enough

There is a dramatic difference between conversational language and business language. As a Japanese native, Toshi had the privilege of interviewing candidates for the position of a Japan country manager for one of our portfolio companies. One gentleman, a Japanese-American, spoke perfect English, “looked the part,” interviewed very well and seemed to be an excellent candidate—that is, until we asked him to continue the interview in Japanese. It was quickly apparent that his business Japanese was not up to par. Having been in the U.S. for 13 years, he appealed to the U.S. business crowd here, but clearly did not have the language skills to get the job done on the ground. On the other hand, we’ve also worked with a CEO who now runs a subsidiary of large Asian company. He’s as American as apple pie: Michigan State All-American in football, hardworking mid-Western values and unequivocally Caucasian. However, he is exceptionally conscious of cultural nuances, well versed in the culture of his Asian associates, and he’s excellent at leveraging those differences.

5. You may only get one shot

Many companies, regardless of culture or location, have very long memories, which mean that early market failure, retraction and then attempting a re-entry are not an option. You have to get it right the first time. Many entrepreneurs want to tackle the Japanese market first, but we advise most startups to start with Korea. It’s much smaller, but more concentrated, and it’s easier to quickly gain globally reference-able customers. This allows expanding startups to fine-tune their product and processes and build momentum. From there, it’s easier to expand into other countries like Japan. The bottom line: a well-prepared late-comer has a much better chance of success than a company that rushes to entry without proper planning. The market remembers.

One of the most important first steps in planning an Asian expansion is to partner with local entities on-the-ground who can help you navigate cultural subtleties. It’s rare that a company can grow organically in any new market, much less one halfway around the world, without an active and engaged partnership in the target market.

In addition to the founder or CEO being prepared, it’s also critical that investors and members of the board are well-versed in the challenges and nuances of Asian markets before an expansion strategy kicks off. It can be difficult for these stakeholders to see beyond the opportunity, and it’s imperative that they not get too caught up in their own success and apply ill-fated pressure to move into Asia without a clear understanding of what’s involved. VCs tend to be creatures of habit, planning strategy based on pattern recognition and assuming that what worked in one instance will work in another. That’s hardly the case in Asia, and managing expectations is paramount to not making a pressure-fueled mistake.

Author

Toshi Otani

Nov 13, 2014