Date: 10/24/2019 – Author: Thomas Bott
Reading time: 3 minutes
Date: 10/24/2019 – Author: Thomas Bott
Why startups are so important
Big corporations dominate most of the world’s markets, with products in great demand among customers often due to their high quality. Important technologies are also driven by decades of expertise. However, it is not unusual for small startups to bring the often necessary breath of fresh air to an industry. Young founders have ideas that many large companies do not necessarily come up with. In Fintech, for example, such startups are responsible for many innovations in recent years.
Cooperation between corporations and startups can prove rewarding for both sides. The former get new input and the latter benefit from financial and human resources. Startups are the driving force behind the modern market economy — and it would be hard to imagine a world without them. Investors concur, which is why they invest millions in these new ventures.
China creates ideal conditions for start-ups
The country has a unique incubator system to offer, which is intended to provide young entrepreneurs with the resources they need. The initial aim is not so much as to provide startup financing, rather provide an infrastructure, startups being responsible for their work and growth. The “Dream City” example shows the advantages of this strategy: The small town within the city of Hangzhou offers working space, all necessary connections, and professional advice, as well as even apartments for the founders.
If companies are convincing with their ideas, they also receive a free office for several years and additional monetary support. In this way, startups are able to gain a foothold in the markets, some of which are fiercely contested, and perhaps the chance to grow into large corporations along the lines of Alibaba, Huawei, and Geely. Of course, this attracts not only company founders from their own country, but also from abroad. More and more startups from the West are recognizing their opportunities in the Far East. and it is not unusual for them to expand into China as a first step or even start their business there.
The most valuable startup in the world comes from China
Some companies already see how successful starting a business in China can be: Two of the three most valuable Unicorns, i.e., startups with a value of at least $1 billion, come from China. At the top is ByteDance with a value of $75 billion. With “Toutiao,” the media company operates the most important content platform in China. Based on artificial intelligence, it enables the platform to play out messages and information specifically to users. In the West, however, ByteDance is known for the social video network “TikTok,” which is increasingly competing with Instagram and Snapchat.
Didi Chuxing, the transportation company, ranks second with a value of $56 billion. In August 2016, the startup shortly competed with Uber from the United States and ended up buying its China operation. With the support of Tencent and the merger with Alibaba-backed competitor Kuaidi Dache, Didi Chuxing now controls 90 percent of the ride-hailing market in China.
The next Unicorns are in the starting blocks
Of course, there are already more of these Unicorns in China. In March 2019, the Hurun Research Institute published the “Hurun Greater China Unicorn Index 2019 Q1”. For the first time, researchers counted more than 200 startups with a value of more than $1 billion — 21 of which were added in the first quarter of the year alone. More and more startups are emerging in the areas of artificial intelligence and logistics in particular.
In the next three years, there’s predicted potential for 70 new Unicorns. Amazingly: 66 percent of these companies are to come from Beijing and Shanghai. In China, companies are concentrating heavily on a few large cities. This is probably directly related to the aforementioned incubators. It is also striking that many of the startups with the greatest Unicorn potential have received funding from one of the country’s largest Internet companies: Alibaba has supported 53 companies, Tencent with 31, and Xiaomi with 25 — giving the giants say in who makes the really big breakthrough in China.