The Scale-Up vs. The Start-Up
Despite the UK's long history of "imperalism," or rather, globalisation, as we like to say in modern times, the UK has not yet scaled into other nations with the tenacity of its former historical precedents. According to Sherry Coutu's 2014 Scale-Up Report:
"The key metric for successful economies over the next 20 years won't be how many new companies they can create, but how many of those companies they can get to scale."
"Essentially, Sherry Coutu is calling for a significant pivot in the UK's industrial policy. Whilst promoting entrepreneurship and start-ups is clearly important it won't be enough in itself to ensure economic growth."
One of the challenges for UK companies to scale into other nations is something that it shares with South Korea in order to expand outside its own nation. South Korea is a fertile hub of startup activity, however most of their innovative startups, once they receive traction, becomes readily cloned by the US, and while the US clones move onto multi-million dollar or billion dollar valuations, the South Korean innovators are trapped within the ecosystem of their own nation. One of many examples is CyWorld, the social network founded by students at KAIST University in 1999, was cloned via Friendster in 2002 and then via MySpace in 2003 and later by Facebook in 2004.
Generally, being "first" in the market is not necessarily a sign of being able to scale successfully into other nations. As friends in Germany tell me, the largest obstacle in German startups' ability to scale into other nations is the language barrier, and the most successful German startups speak English at their home offices.
If we take the recent example of Uber vs. Hailo- Uber has created a revenue model out of "hitchhiking" whereas one of the criticisms of Hailo was that it focused on the needs of the London cabbie, rather than on its customers, but then was unable to adapt to New York City's infrastructure in which most NY cabbies were not as high tech as London cabbies, and did not even possess smart phones. Also Hailo was said to be halted by Uber's investors who were given a condition not to simultaneously invest in competitor companies and then finally quickly exited the entire North American market by saying it could not compete with Uber's monthly burn.
Interestingly, as a side note: Uber, although they operate in 230 cities around the world, they make the majority of their income from just 5 cities: San Francisco, New York, Los Angeles, Chicago, and Washington D.C.
In contrast, China has a population of 1.4 billion people- it's a huge market to conquer, closely followed by India with a population of 1.3 billion. In comparison, the UK has a population of 64.1 million, the US: 318 million, Japan: 127 million and South Korea: 50 million.
One of the obstacles into scaling into South Korea and China is that one cannot do business there or open shop without government approval and partnership with one of their top corporations.
When Walmart tried to scale into South Korea without corporate partnership from one of South Korea's chaebols: Samsung, LG, the Shinsagae group et al, they were immediately ousted and the chaebols banded together to form E-Mart.
Similarly, navigating through the many laws present in China is like diving into an endless swamp, and a company cannot scale into China without help from a partner company.
Jack Ma, Chairperson and Founder of Alibaba, has infamously said, "You can fall in love with the government, but don't marry them." Governments, according to Ma, have a level of bureaucracy and inefficiency that makes them cumbersome for emerging startups to scale into a nation, but you still need to play by their rules.
Instead of focusing on the US market to initially scale into, perhaps the UK should begin with its entry into the ripe Asian markets: particularly, South Korea, Japan, Singapore, Hong Kong and China. These markets alone have a demographic of more than 1.7 billion people.
Although China is an indomitable tiger to be tamed, scaling could merely be a simple problem of a mere language difference, as is the problem for many South Korean and Japanese startups. As the monthly burn rate to scale into these nations would be significantly lower than entry into the US market with a potential upside of multi-billion dollar valuations once those markets are captured, it is something UK startups should consider.
By Sierra Choi, Director of Marketing
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