In China, That Ivy League Degree Isn’t Gold
from The Asian Wall Street Journal November 01, 2005
China still is a magnet for ambitious, Western-educated entrepreneurs coming home to start high-tech companies and cash in on China’s economic boom. Take Charles Zhang, the Massachusetts Institute of Technology-trained founder of Web portal Sohu.com Inc., and Edward Tian, who earned a doctorate in the U.S. and once charmed Rupert Murdoch into joining the board of his Beijing telecommunications company.
But this favored class isn’t looking quite so favored, at least in the eyes of venture capitalists looking to invest in China. The trend is largely anecdotal, but for many “seed capitalists” poking around Beijing and Shanghai, slick Westernized returnees are out. Local, rough-around-the-edges entrepreneurs are in.
“The less English you speak, the better,” says David Zhang, a venture capitalist in Beijing with San Francisco’s WI Harper Group. He and other investors say locally trained executives often are more thrifty with cash and better understand local Chinese markets – and businesses that know how to tap them – than people who have been abroad for years.
“A lot of the returnees, actually, they have lost touch with China,” agrees Vincent C.H. Chan, a managing director at Jafco Asia, part of Jafco Co. of Japan.
Instead of courting Ivy League graduates with slick business plans, Messrs. Zhang and Chan are plowing money into no-frills Chinese start-up businesses such as wireless-services provider China Broad Media Corp. The company, funded by WI Harper, is the brainchild of Tian Song, an entrepreneur who went to college in Beijing and toiled in the state-owned telecommunications sector there. He says, through a translator, that his only visit to the U.S. was a brief trip to Las Vegas.
Jafco has helped to finance such entrepreneurs as Zhou Hongyi, who founded Chinese Internet search-engine concern 3721 Network Software Inc. Yahoo Inc., intrigued by Mr. Zhou’s technology – it enables people to use Chinese characters to search the Web – bought the company nearly two years ago for US$120 million.
Some returnees may have “studied in a good school,” says Andy Yan, managing partner of Hong Kong investment firm SAIF Partners. But “when they come back, they think they know everything.”
One of Mr. Yan’s favorite home-grown success stories is Hu Xiang, a founder of SAIF portfolio company Mobile Antenna Technologies (Shenzhen) Co. Mr. Hu, 52 years old, is about as far from a polished returnee as one can get in China: He doesn’t speak English and missed nearly 10 years of schooling during the Cultural Revolution that began in the 1960s. Mr. Hu dug tunnels and later was a low-level factory worker, sometimes going hungry.
That Mr. Hu suffered during the Cultural Revolution and had to work so hard for his success, instead of leading a more comfortable life abroad, appealed to Mr. Yan. “We’ve been through so much,” says Mr. Yan, who had similar experiences. “The challenges now don’t seem so big.”
After spotting a business opportunity in supplying locally produced wireless antennas in China – and being inspired by a Chinese translation of “The HP Way” management tome – Mr. Hu started his own company. Mobile Antenna says it has about US$40 million a year in contract sales and makes gear for such Western companies as Lucent Technologies Inc. and Harris Corp. of the U.S. Networking giant Cisco Systems Inc., of San Jose, Calif., is an investor.
To be sure, a significant number of Western-educated Chinese businesspeople will continue to snare funding from overseas venture capitalists. That is particularly true in high-tech fields in which China doesn’t have much local expertise. Returnees also can help implement basic business practices that aren’t always common at home-grown Chinese businesses: the U.S.-educated Mr. Tian, for example, says employees at his first Chinese start-up company sometimes had trouble organizing quarterly earnings numbers on time, or even using telephone voice mail.
Many U.S. financiers have little choice but to continue to deal with China’s English-speaking elite: Most American venture firms don’t have Mandarin-speaking partners on the ground in China.
Still, focusing only on returnees can mean missing out on good deals. And returnees often demand stock options and Silicon Valley-type salaries, Mr. Zhang of WI Harper notes. That can drive up costs and lower profits for venture investors.
Local chief executives often better understand consumer tastes and trends that drive industries like Internet commerce and mobile communications in China, Mr. Yan of SAIF says. A degree from a foreign university is no longer a must; China’s economy is expanding so rapidly it offers many opportunities to learn management skills.
A case in point, Mr. Yan says, is Mr. Hu at Mobile Antenna. Lacking English skills and the resources to go abroad, Mr. Hu eventually earned a degree at a Chinese university. He built a career in academia and at a state-owned electronics factory, moving to the giant Chinese telecommunications concern ZTE Corp. in 1991.
Like many entrepreneurs stuck in big companies, Mr. Hu became restless. In an interview, he says he saw how ZTE spawned a local, Chinese supply chain for telecommunications gear used in fixed-line phone networks. By 1994, he saw mobile-phone use skyrocketing in China and figured the companies building the mobile networks would need a nearby, low-cost supplier of wireless components.
He left ZTE in 1997. Two years later, he started Mobile Antenna with a few partners and about US$370,000. They struggled at first, he says, but gradually improved product quality and won big international firms as customers. The company now has nearly 570 employees and is building a new office in another part of Shenzhen.
He has done well enough to send his daughter to Boston College in the U.S.
– Rebecca Buckman
Staff Reporter of The Wall Street Journal