Go local

    Many US dotcoms in China are criticized for being slow in localizing. As Chinese companies swarm into Japan, they are also facing similar issues.

    Internet analyst Lu warns the Chinese and Japanese markets are vastly different.

    The business community in Japan is highly interconnected and it is difficult for a foreign company to integrate into it. The legal environment is also very different from that in China.

    In addition to good products and services, the key to the success for companies like Neusoft and Kingsoft largely lies in local partnerships.

    When Neusoft was founded in 1991, it sailed through with the help of Alpine, with which formed a joint venture. Later, Neusoft also has Toshiba as a strategic investor.

    Neusoft's Liu says his company will seek more investment from Japanese partners this year to expand its business lines.

    Neusoft has more than 100 employees in Japan and most of them are Japanese. The CEO of Neusoft Japan and managers of finance and technology wings are all Japanese.

    "The key for us is to build trust in the local market and grow with the local people and in the framework of local rules," says Liu.

    Compared with Liu, Kingsoft's Lei does not visit Japan that often, relying more on conference calls with executives of the Japanese venture. But he, too, believes trust and partnership are pivotal.

    Lei spent almost two years to find the right people for his Japanese business and finally found a Japanese executive, who used to run his own gaming software firm and had rich experience in Japan's software distribution network. Kingsoft also offered local managers stakes in the Japanese firm as additional incentives.

    Innovate and win

    As latecomers, Chinese companies have to work extra hard to enter foreign markets, but their innovative business models in the domestic market could help.

    When Kingsoft opened its Japanese business in 2005, it faced challenges on several fronts: Microsoft had an overwhelming dominance in the office automation software market and companies like Symantec and Trend Micro led in the anti-virus segment.

    What Lei did was that he took advantage of the Internet to cut distribution and sales costs. In the first year, Kingsoft offered free downloads and upgrades on the Web, which attracted thousands of customers. By the time it began to charge users from September 2006, Kingsoft had already clocked up a huge user base. While Microsoft Office suite sells at around 50,000 yen ($421), Kingsoft's WPS is priced at just 10 percent of that.

    "As a latecomer, we must have a business model different from established rivals, and the online platform was our solution," says Lei.

    Experience in developing products for the local market is also something Chinese Internet companies want to use when venturing into Japan.

    In the first stage of Baidu's development in China, attracting young users with its music search service was the key, while in the later stage, it developed a distribution model that allowed the company to take its services to thousands of small and medium-sized companies and beat Google's online sales platform.

    "With our proven strength in Chinese search services and our focus on delivering the best user experience, we will be able to provide Japanese users a quality alternative to existing search engines," says Baidu's Li.

    (Source: China Daily)