Leveraging co-innovation with Chinese startups

A survey conducted earlier this year among the members of the EU Chamber of Commerce in China, notably those in the chemical, automotive and machinery industries, revealed that a majority are looking to maintain or increase their research and development (R&D) investments in China. The reasons can be found in China’s size in market, partners and talent pool, as well as readily available software expertise and entrepreneurial agility. These strengths of China’s R&D landscape are particularly tangible among the country’s numerous high-tech startups, which, I would argue, offer the potential for promising partnerships with international corporate partners.

The above-mentioned survey was conducted prior to the still ongoing and infamously heavy-handed series of Covid-related lockdowns in China. The resulting economic challenges of the pandemic, in addition to political crackdowns on Chinese big-tech companies, have already created a backlash for China’s technology sector. However, due to the ongoing (re-)allocation of public and private investments, Chinese startups’ most distinguishing features and characteristics will undoubtedly endure. Driven by a highly competitive and fast-paced market, China’s startups tend to advance quickly from initial ideation phases and experimenting with innovative models to minimal viable products and market validation. Chinese start-ups are real champions in pushing time to market to its limits.

However, the Chinese market remains challenging, and especially entering its dynamic ecosystem has become more difficult. Roadblocks range from less developed intellectual property rights to unlevel playing fields, from tightened regulations to transparent business practices, and from political uncertainties to cultural barriers. These obstacles are in themselves not inhibitive to engaging with the Chinese market, but when it comes to R&D collaboration, one respondent of the above-mentioned survey points to an interesting alternative form of engagement with Chinese R&D actors. This particular company states that while it conducts only limited R&D in China itself, well ring-fenced from its core R&D, it has set up a technology scouting team which identifies local researchers and innovative startups to partner with for the company’s global offering. 

Such an approach not only allows utilising the high potential and maturity of China’s startup and innovation scene, but it also minimises risks by creating a flow of know-how and even technology from rather than exclusively to China.

This individual statement is in line with what Swissnex in China has been observing; various Swiss companies have mandated us to support their corporate-startup matchmaking in China to get early insights into trends, experimental technologies and possibly new business verticals. As the Institute for Management Development (IMD) observed, corporate-startup co-innovation models, leverage the innovation capabilities of China’s startup ecosystem to build or enhance a solution either for the global or specifically for the Chinese market. While Swiss corporates possess technical assets, sophisticated distribution channels and brand credibility, Chinese startups, in particular, have a proximity to the Chinese end-user and, as mentioned above, the agility to build and test solutions quickly not only for the Chinese but also the global market. This creates win-win opportunities that have less political and regulatory exposure.

Startups certainly have a role to play in corporate innovation; there are various models of how corporates could engage with Chinese startups. Swiss corporates such as Firmenich have already paved the way. There are some truly fascinating “rising startup stars” on the horizon in China, such as PHABuilder, whose R&D pipeline includes green biodegradable materials, or Joes Future Food, which is developing the capabilities to commercialise cell-based meat production, notably pork, in China. Corporate collaboration with such Chinese startups might offer a dynamic and lean way to leverage China’s R&D potential, particularly in politically and economically fragile times when new large-scale R&D investments may be risky and, therefore, not viable.