Shenzhen, China “the world factory” and “new Silicon Valley”
- Annual GDP worth 280 Billion Dollars with 10% annual growth
- 90% of world electronic’s are made
Where is this place?
Not prevalently known area, but very famous amongst business leaders, Shenzhen (China) is one of the fastest growing cities in the world. My startup is closing working with Japanese government to build a strong ecosystem in Tokyo and the hottest topic right now is about understanding Shenzhen. As a country that is highly focused on manufacturing, Japan fears Shenzhen’s rapid innovation and dying to understand the ingredients that enable the city to grow at an enormous speed.
This post will briefly touch on some unique aspects of Shenzhen as an emerging giant ecosystem. This information will be based on the interview conducted to Chinese press who is a friend of my strategic advisor for my startup company.
Power of Government
Chinese government plays an enormous role in Shenzhen’s startup ecosystem. These are some of the major roles they play in this ecosystem.
- Gather as many Chinese young talented engineers from the world
- In order to attract them, government force subsidies companies and force them to pay extremely high salary that exceeds the current paycheck
- There are many government funded incubators that support startups
As a result of these measures, Shenzhen’s demographic became very unique; its population is mainly composed of 20-30’s young adults and only 2% is over 60. A quite different from Japan’s aging society.
Source: http://sarahpoling.weebly.com/demographics.html
Rapid Prototyping
Affluent venture funding, as well as talented human resources, is a key for any startup ecosystem. What is becoming an important role, especially for hardware, is prototyping speed (i.e. the physical speed of manufacturing low quantity prototype), rapid test marketing (i.e. start selling on the actual market) and high quantity manufacturing at low costs. These can all be accomplished in a single city, Shenzhen, whereas in Silicon Valley, there are not many manufacturing facilities that enable the speed Shenzhen has.
Harnessing Silicon Valley
Shenzhen also has many interactions and collaboration with Silicon Valley ecosystem. Tsinghua University, which is based in Beijing, has joint ventured fund with Chinese government and invest enormous amount on Shenzhen’s startups. Not only that, but also, they have partnered with Plug and Play Tech Center, the world largest accelerator, based in Sunnyvale to get state-of-art insights as well as gain networks with US startups, then scale their businesses in Shenzhen. In other words, this is one of the cases that other country leverage Silicon Valley ecosystem to grow its own ecosystem.
Quality Issue (Not quantifiable, more of a subjective opinion)
As I mentioned earlier Shenzhen’s core competence is its speed and low mass production costs. I have talked to many startups in Silicon Valley and one downside of Shenzhen would be its quality. Many defects were found in their products and there are some startups who expect Shenzhen to manufacture higher quality products. Japan’s manufacturing is still famous for its quality. How Japanese manufacturing companies adapt to a current fast-paced economy without losing the quality has become an important element for Japan’s breakthrough. Or Shenzhen might improve their quality without having to dramatically increase their price. It will be interesting to see what will happen in the future.
Users who have LIKED this post:
12 comments on “Shenzhen, China “the world factory” and “new Silicon Valley””
Comments are closed.
Thanks, Tomo!
For me, the last sentence sounds “It will be thrilling to see what will happen in the future.” haha
I just want to share that Plug and Play has launched its Tokyo office with Mitsibishi UFJ Financial Group as its partner. I’m considering how I can intern there the next summer.
https://www.bloomberg.com/news/articles/2017-06-05/mufg-teams-up-with-plug-and-play-for-new-japan-venture
Users who have LIKED this comment:
Thanks, Kenta for your comment!
I did not know that the biggest commercial bank in Japan is tying up with Plug and Play to launch Tokyo office. This is very informative! I was working on the final project and writing how important it is for Japanese Bank to get involved in building startup ecosystem and this initiative will definitely foster Tokyo’s ecosystem.
If you’d like, I’m happy to connect you with my friend who’s doing an internship at Plug and Play this summer. Please PM me if you’re interested!
Being Chinese myself, I’m familiar with the government policies in China especially regarding the new technological development in order to maintain economic growth. There are many “technology parks” established in recent years, especially in Shenzhen, to mimic the atmosphere of Silicon Valley. Not only do those parks include startups and firms, they also include venture capital firms and manufacturers, to create a vertically integrated ecosystem. The VC firms and angel investors provide the funds necessary for startups, along with other government incentives, have attracted and fostered many successful tech companies including the drone giant DJI and smartphone company Huawei. Other existing enterprises like Baidu have also migrated to Shenzhen, using it as an international operation hub. Indeed, in many ways Shenzhen is shaping up to be the new silicon valley. However, for it to establish a true international reputation, there has to be more companies that compete in the global market.
Michael Zhang
MS&E 238A student
Users who have LIKED this comment:
Compared to Shenzhen, I would think Beijng and Hangzhou are mre likely to be the Silicon Vally of China.
I think the key to Silicon Valley is not about volumn. It’s the people, really talented people with ambition to change the world instead of manufacture more. Skills are not enough, creativity and global prospectives are even more important. Unfortunately, Shenzhen does not have an local outstanding university yet. I think this is a check on the development of Shenzhen.
Users who have LIKED this comment:
Indeed, there is not yet a common agreement on which city should be the Silicon Valley of China right now, but saying that Shenzhen is lack of creativity and global presence is not accurate. As being the core of the hardware industry, Shenzhen is not only good at manufacturing but also product design and technology. Besides drone, Shenzhen also has advantages at biotech, new materials, robotics and wearable tech. Most of the patent applications in China are receiving from Shenzhen in 2016.
Shenzhen, Beijing, Hangzhou and Shanghai are specialized in different areas, it is hard to say which is the best at this point. Beijing has the most capitals and best educational resources and thus why the startups there has the most innovational business models; Hangzhou is supported by the giant Alibaba and embracing by the more relaxing lifestyle, attracting talents to live there and turning more small businesses onto the Internet; Shanghai has the most foreign capitals and advantages at FinTech, O2O etc.
The reason why international media relates Shenzhen more to Silicone Valley is that it is specialized more on the high-tech industry, which is similar to the semicondtor industry for Silicone Valley, as a boom of the technology cluster.
For the last point, I agree that Shenzhen is lack of good educational resources for gathering talents, it is a city that has a history less than 40 years. I think the government concerns about this as well. That’s why many good universities keep opening branch campus in Shenzhen, including domestic universities like Tsing-Hua U & Peking U and foreign universities like UC Berkeley.
Users who have LIKED this comment:
I could not agree more that Shenzhen is the Chinese silicon valley. There are lots of high tech companies in shenzhen, such as Huawei, Tencent,S.F. Express, DJI etc. those companies formed a great ecosystem for startups and innovation. ShenZhen is a newly-built artificial city where city is well planned and constructed, and have great infrastructures for companies. Shenzhen is in Pearl River Delta and 50km away from HK which can easily attract great investments and business as well as talents. Government also very support innovation and technology and encourage universities students to start their own companies.
Users who have LIKED this comment:
Interesting post William! It’s crazy that the area represents more than $280B on its own!
Concerning your willingness to build a strong startup ecosystem in Tokyo, what is your strategy to attract both capital and talented people? Silicon Valley thrived because of the right combination of talented engineers and entrepreneurs attracted in the area, a large pool of students fascinated by technologies, and tons of capital invested primarily by the government and venture capitalists. Even though, every ecosystem is unique and should not replicate what Silicon Valley is – in your opinion, what are the missing factors in Tokyo?
Users who have LIKED this comment:
Good question, Loic!
It might be typical of Japan, but I’d say that most of the talented engineers are not working for startups but for conglomerates like Sony or Panasonic. Partly because, there has not been a major unicorn startup born in Japan yet and a career getting into startups is still considered risky. Hence, we still struggle to attract talented engineers to startup ecosystem.
Also, Japanese culture of “beauty of conservativeness and humbleness” is a critical setback for building ecosystem in Tokyo. Japanese conglomerates are not actively doing M&A; they rather spend enormous time utilizing their R&D to create innovation, which makes it hard for startups to build EXIT strategy because M&A is not active.
Furthermore, Japanese startups, as well as mid-small size companies, are struggling to globalize their business. Japan is one of the few countries that the number of students who study abroad is dropping, even in this globalized era. We lack talents who can expand their business on the global scale, so that issue is where my company and Japanese government are collaborating to solve. Provide knowledge of how global business works, changing organizational structure to enable fast-paced business operations, and nurturing employees to adapt to the global market.
So going kind of going back to this main topic, Shenzhen seems to have everything that Tokyo lacks, even though some may say it could be a bubble (because a couple decades ago, Shenzhen was just a rural area) or lack global presence.
This is a very interesting article – I really did not know about Shenzhen at all! One concern that I have is that this has a lot of similarities to an economic bubble, and I wonder how sustainable the rapid growth of Shenzhen is? I would be interested to hear your thoughts on the area’s ability to maintain this level of growth year on year, as well as the potential risks of the bubble bursting!
Users who have LIKED this comment:
Hey Will,
Thanks for the post, very interesting.
First question, the part of the demographics of Shenzhen are quite interesting given its been widely publicized that Japan has experienced stagnant growth since the 90’s due to an again population and poor demographics. Shenzhen looks to have the right mix but do you think this is sustainable over the long term? One of the concerns with China over the years has been the fact that they implemented the 1-child policy for so long that there is a demographic time bomb that is bound to hit eventually with a skew to an old aging population similar to Japan.
I agree with your rapid prototyping argument and it makes sense. As a product of that I do see Shenzhen of having a higher propensity for hardware based start-ups compared to places like Silicon Valley and it’s a function of manufacturing (as you mentioned). I think another important factor that often gets overlooked is the supply chain. The supply chain in Shenzhen is highly sophisticated and developed which is another reason why they have a huge advantage when it comes to rapid prototyping compared to their peers.
One thing I’d mention is, do you think Japanese and Chinese start-ups will ever have the same global scale and success as their American peers from Silicon Valley? Though China has done a good job of cultivating local champions like Tencent, Alibaba and Baidu, they still haven’t reached the ubiquity of some of the major tech players in the US.
No doubt about it, Shenzhen is a rising star on the global scene, it’ll be interesting to see how things ultimately play out.
Users who have LIKED this comment:
Thanks for your insightful comment, Johnny! Below are my answers to your questions:
1. Shenzhen looks to have the right mix but do you think this is sustainable over the long term?
I’d say yes, Shenzhen’s ecosystem seems to be sustainable as long as Chinese government commits these measures over the long period. Shenzhen’s core competencies, which are manufacturing and supply chain, are so distinctive compared to other ecosystems.
2. Do you think Japanese and Chinese start-ups will ever have the same global scale and success as their American peers from Silicon Valley?
Maybe for China, but a very low probability for Japan. China is couple steps ahead in terms of harnessing Silicon Valley’s resource and government measures of drastically fostering ecosystem. On the other hand, Japanese ecosystem has less connection to other foreign ecosystems; less exposure to global scale incubators, investors, or talents make Japanese entrepreneurs aim small (i.e. build startup solely to target domestic market). Again, this is where my startup, as well as Japanese government, is trying to create change, providing opportunities and knowledge to Japanese companies to gain global perspective and hopefully create spark.
Hi William,
Thank you for this insightful Blogpost.
I am personally very curious to see how China moves closer to innovation and away from only being the place where foreign companies produce goods in a cheap way. Especially in the West many people are not aware of the many great companies that China has build in the last years. But this image could very well change in the coming years if Chinese Companies decide to expand to European and American markets to increase there visibility, such as Alibaba has been recently trying to do.
What are your thoughts on Hangzhou given it being the home to Alibaba, Kuaidi, Tmall and more?