Product Development in Shenzhen: Should You Move to Hong Kong?
December 12, 2014 Leave a comment
China’s emergence as a manufacturing powerhouse over the last decade was quite the debut. Besides surpassing the United States as the world’s largest producer of manufactured goods in 2011, China also managed to double their GDP per capita and in turn, greatly improve the nation’s standard of living. To put this into perspective, this is a feat that took the United Kingdom 150 years (McKinsey).
Zeroing in on Shenzhen, a Pearl River Delta mega-city that has sprung up from its humble fisherman village beginnings in the past 30 years, the hardware movement is in full swing. Deemed a ‘maker’s paradise,’ Shenzhen is now home to 15 million people and has become a hub for sourcing and product development.
While some startup founders, such as Zach Smith (co-creator of affordable desktop 3D printer Makerbot), has relocated from the US to Shenzhen years ago, some founders are still making routine trips across the globe to engage with Chinese manufacturers. And just south of the border, Hong Kong-based entrepreneurs enjoy the city-state’s close proximity to the manufacturing hub.
For hardware entrepreneur Martin Kessler, living in Hong Kong not only guaranteed a westernized way of life but also an easy trip across the border. As the founder of Phonejoy, a bluetooth game controller for Android phones, Kessler began looking for manufacturing partners in Shenzhen after their project was successfully funded on Kickstarter in January 2013.
On average, a trip to the factory took the Phonejoy team about two hours, which included public transit and a border pick-up from his manufacturing contact. Having quick access to Shenzhen is a leg-up for entrepreneurs like Kessler, as sourcing, production costs and quality in Shenzhen is far superior to the United States.
“You could do prototyping in the US almost just as fast as Shenzhen, but when it comes to mass manufacturing like doing the molds, it costs five times as high. To many people’s surprise, the quality’s also not as good,” said Kessler. “If I’m doing plastics in the US, it’s hard to find someone to do the same quality as in Shenzhen, even though you’re paying three times as much.”
Hardware product development is both cash intensive and prone to set backs, and like many other entrepreneurs in the space, Kessler had to redesign the molds four months after they were completed. This process took another two months to complete, and Kessler said that being close to the factories made ironing out design kinks much easier.
“If I were in the US during this, I would have had to fly in 6-8 times within the first year to develop the product, it’s incredibly disrupting,” he said. “Besides the jet lag, you’d have to find accommodation and stay for several days where you might not be able to get any work done. Here [in Hong Kong], you can just take a day trip.”
While quick excursions into Shenzhen may prove to be difficult for foreign startups, some still managed, despite being based thousands of miles away.
Hans Stier, the creator of the world’s first ‘roast-grind-brew’ coffee maker Bonaverde, shared his experience making multiple commutes from Germany to Asia. Like Phonejoy, the Berlin-based Bonavede had also successfully raised funds via Kickstarter ($680,000 of their $135,000 goal) in December 2013 and looked to South Korea for manufacturing partnerships.
After making seven trips to Korea, Stier realized that they had hit a brick wall as the manufacturer was, time and time again, unable to deliver the quality standards he had in mind. The set back for Stier was almost fatal, as Bonaverde team had to file for insolvency with the factory.
Refusing to call it quits, Stier set his sights on Shenzhen and then flew back and forth from Germany to China eight times over the span of 10 months. “It normally is a 12-month process to make a deal with an original equipment manufacturer, but we were able to do that in six weeks time due to the trust we found with a Shenzhen partner,” he said. “In the end, it’s a gamble so you need to find the right partner.”
In typical hardware startup fashion, Stier kept costs low by booking flights with multiple stops which included travel times totaling 50 hours, with 11-hour layovers in Dubai. As painful as that may sound to some, Stier said he found working on the plane efficient and distraction-free.
Besides meeting with partners face-to-face on a regular basis, foreign startups may still run into cultural barriers with Chinese manufacturers. Stier solved this problem by hiring a Hong Kong-based service provider. “It is an absolute advantage to have people on the ground in Hong Kong, so we partnered with a Hong Kong family that holds both passports and oversees processes for big manufacturers,” he said. “They understand where to get the best prices and can pick up on quality issues when they arise.”
While there’s always the chance that their Hong Kong partner could manufacture their product from beneath them, Stier said that handing over Bonaverde’s intellectual property was essential to getting quotes. At the end of the day, it all boils down to trust.
While Hong Kong founders, like Kessler, are able to zip back and forth from Shenzhen on day trips, foreign startups have to do a little more hoop jumping. Still, entrepreneurs such as Stier has proved it very plausible, if you don’t have qualms battling jet lag, relying heavily on an intermediary or employing a healthy dose of perseverance.