Succeeding in China: 8 Key Lessons from Skype

much like Mordor, one does not simply walk into China— following the launch of ‘Europe Meets China’, our report into the games industry

I am often asked how we managed to make Skype a success in one of the most challenging territories in the world. While there were many factors at play which conspired to enable us to establish Skype as a serious player in the Chinese market, I thought it would be helpful for founders to read a few of my thoughts on the lessons we learned whilst setting up. I hope you find them useful:

1. Make sure that you choose the right business partner. China is a unique, complex and intimidating market to try and jump into, and having local expertise and connections available to you from the outset will be invaluable in making a successful entry. Whilst you’ll obviously want to develop a full local team over time, establishing a partnership at an early stage will ease the process of introducing yourself to your Chinese customers.Try and stick with a single, trustworthy, capable business partner rather than working with many different companies or organisations — the level of mutual trust and commitment you will establish with a single business partner will be extremely helpful over the long term, and won’t be replicated if you are collaborating with multiple actors. The perfect business partner includes the following elements — well-connected, so as to understand how things really get done (including influence with regulators, politicians and media); a strategic asset (eg a large customer base you can use to turbo-charge growth, or software you need such as accurate maps); money (of course!) so they are as committed as you; and, last but not least, great people they can loan to help you in your day-to-day strategy and operations
2. Trust your business partner organisation — don’t second-guess their advice at every turn. When we established Skype in China, we chose to partner with Tom Online, who at the time were a top portal in the region, and to use their on-the-ground knowledge and expertise to help us acclimatise. We struck an exclusive deal with them to secure their support and buy-in, and in return they provided us with invaluable practical assistance, manpower and intelligence. Tom Online assigned 80–100 staff to run sales & marketing, promotional activities, government relations, customer services and other functions, while Skype provided product and technical support. The staff were all Tom Online employees and were paid by Tom; Tom’s remuneration came through a revenue split deal through selling Skype products such as Skype out minutes
3. Hire local people — the importance of local knowledge and expertise cannot be underestimated in general, but this is particularly true when expanding a market such as China where business practices and culture can often be unfamiliar to organisations accustomed to a Western mindset. Whilst you may be able to make hires with excellent track records and pedigrees in their own territories, there’s never any guarantee that this pedigree will translate to success on the ground in China. It’s also important to note the extremely local nature of country knowledge — don’t think you can just get away with hiring a ‘Head of Asia’ to cover all markets; thinking of ‘China’ as ‘Asia’ is as helpful as thinking of ‘Africa’ as a homogenous continent (not very); hiring specific talent which knows the ins and outs of the country and its idiosyncrasies, and letting their local wisdom shape your decisions, is crucial. It’s also vital to hire people that you trust implicitly — having faith in your hires’ integrity is more important than their qualifications, and many of our hires when establishing Skype in China were based on their loyalty and our belief in shared values rather than on applicants’ MBAs. Another example of this is when Uber moved into China. Uber hired local people to run all the cities they operated in, found a partner who could provide political and regulatory guidance as well as product, and they tried to localise as much as possible by putting in local payments providers like Alipay and using Wechat for customer support, etc
4. Ensure a short reporting line back to HQ — the ability to move quickly, to be agile and to make quick decisions is a crucial part of expanding into any new market, and it’s important not to institute complex reporting structures which will slow down processes. When I was hired by Skype, I had a direct reporting line into Niklas — meaning we were able to quickly take decisions about our approach to China, including hires, partnerships and strategic business questions. Had I had to route my thoughts, questions and suggestions through a Head of Asia, APAC or, worse, ‘New Markets’, the whole process would have been slow and cumbersome in the extreme. As I keep saying, China is a fast-moving business environment and new entrants should ensure that their structures are setup to enable them to move as fast as the rest of the Chinese economy does
5. Empower the local team to make decisions — relinquishing control is hard for any founder, but there comes a time when you have to be prepared to let your teams take the reins. If you have managed to find the right local business partners and staff, this should be less of a daunting step than it might at first appear, but it is an essential one; your team on the ground needs the autonomy to be able to make snap decisions and act accordingly, without waiting for a lengthy approval process from HQ
6. Ensure that the team back home understand the cultural differences inherent in doing business in China, and accept them — it’s vital that they understand the fact that the way in which the business works in this new market will look and feel very different to what they are potentially used to. Knowing that guanxi is more important than a formal contract, for example, will make it easier for people at the top of the company to feel comfortable with work being undertaken on a…less ‘formal’ footing than they might be used to in the West; their willingness to travel to China, understanding the value of personal connections, will be a boon
7. Have a great product — it seems obvious, but it bears repeating. China is the most competitive, fast-moving market out there, and the number of different players and actors in every single sector is such that if you don’t have a winning product, you’re going to get buried. Be confident, be good, or go home. Quality is paramount — whilst China is famous as a market in which you can see dozens of copycat competitors springing up overnight, these competitors will rarely have the same high production values as you do, and it is this attention to detail which will set your product or business apart from the local replicas. Chinese customers value A-grade quality above almost all else — there is simply no substitute
8. Be committed — overnight successes don’t happen overnight, and without a great deal of investment; time, money and effort are vital if you are going to crack this particularly tough nut. I see too many companies who enter China tentatively, ‘testing the waters’ rather than diving straight in — if you have a product which solves a local need for Chinese consumers, much as Skype did by eliminating costly communications overheads for Chinese people at home and abroad, then you have every chance to make your mark with the right commitment of time, passion and investment