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China's tech market

Podcast transcript #32: A successful story in China’s tech market

Find here the China paradigm episode 32. Learn more about how a foreign technology succeeds in China’s tech market with Andrei Prokhorovich and find all the details and additional links below.

Full transcript below:

Matthieu David:  Hello, everyone. I’m Matthieu David, the founder of Daxue Consulting and its China business podcast China Paradigm. Today I am with Andrei Prokhorovich – I hope I pronounced it well, it’s a Russian name. You are Russian, and you have been in China for a while. You had been in Yantai, you have been in Hong Kong as well. I think you are now in Beijing, Hong Kong. You are the founder and CEO of Eurasia Development, which is supporting the introduction of foreign technology in China, and I feel even more than this when I looked at your website and everything you do. That’s something I’d like to understand better.

From my understanding of what your company is doing, it is using technology, supporting the development, finding men, it could also support in setting up a factory in China, specifically – I have this feeling, but you will tell us if it’s correct or not – with Russian companies, and the thing that I would be very, very interested in understanding better.

Thank you very much, Andrei, for being with us. You are the current CEO of the company you founded in November 2012, so already six years. From my experience, where your company has more than four years, I think it’s a solid company. You have a standard model. You have found something interesting for your clients to do.

Would you like to tell us about the number of cases you have treated, the number of clients you have worked with, an idea with the size of your business, what stage you are in terms of development?

Andrei Prokhorovich:  Okay, Matthieu, thank you very much for the invitation. I’m really pleased, and it’s a big honor for me. Actually, I heard about your company a lot before. So, yes, I know a little about you.

Well, actually, I do live in Hong Kong. My company was established in  Hong Kong. Yes, I’m going there a few times a year, but most of the time I stay in mainland China. Actually, my company was established in 2012, but I’m living in China for 13 years. It’s like 90% of the time; I spend in China. I’m going to trips to other countries, but I’m living here, and my family is also here.

How did I start? I was born in Vladivostok; it’s a seaport.

Matthieu David:  It’s very close to China?

Andrei Prokhorovich:  Yes, far east of Russia, so very close and because of that, I have relations with some Koreans, Japanese, and Chinese companies back to the end of the 1990s when I’ve been a student, and I started to work. I established my first company in 2001. I also was a student and started to import some products from China.

In 2006, I moved to China. We established the first company in China in Yantai. Yes, everybody asked me, “Why, Yantai? Why not at Shanghai or Beijing or Shenzhen?” Well, it’s because of my Chinese friends. The first guy who I met, I mean the Chinese guy who I met, he was from Yantai. He invited me, and when I came, I just stayed here. I liked that city; it’s not big but –

Matthieu David:  So before, you don’t know Yantai. Just a couple of information, Yantai is in Shandong. You have Qingdao because it’s a more religious city, Jinan because it’s the capital, and then you have the Yantai which a business province, which is a very nice city, very industrial city. As far as I know, a lot of Korean companies have some economic interest in Yantai as well.

Andrei Prokhorovich:  Exactly. A lot of Koreans and Japanese companies set up in Yantai. Actually, the Yantai is now number 20 by GDP in China.

Matthieu David:  As a city?

Andrei Prokhorovich:  Yes, exactly, because it’s more than $100 billion. Yes, more than USD 100 billion GDP of the city.

Matthieu David:  Wow.Where are you now?

Andrei Prokhorovich:  Right now, I’m in Yantai. Yes, I’m in the head office.

Matthieu David:  Okay.

Andrei Prokhorovich:  Yes. Back to my story, if it’s possible, why I was making the import-export business in China? Why? Actually, the first time when I sought about the technology transfer in China, it was 2004. I was a young guy, and it was some meeting in Russia where some guys from venture companies came, and they told us about venture capital and the Silicon Valley and so on. At that time, I got an idea. China and Russia can be a good partner in this field because Russia produces a lot of very interesting technology, but Russia had some problems with commercialization, with the monetization of these technologies. At the same time, I saw some potential, huge potential of China 15 years ago. Back at the time, I see a huge potential.

Matthieu David:  Could you show what technology? What technology are you talking about in 2005 and 2006, you say?

Andrei Prokhorovich:  Yes. But at that time, I was thinking about technology, but I didn’t know which technology we can transfer, which was going to be our technology transfer in China, because, at that time, I have no idea how to do this business. Yeah, I have no money. I have no connections. I’m in networking; I had nothing. So it was just an idea. I started to make this idea come true just in 2011.

Matthieu David:  I see, so it took five years?

Andrei Prokhorovich:  More, It took seven years.

Matthieu David:  What did you do between?

Andrei Prokhorovich:  Exporting for business. We export from China construction materials, equipment and such kind of things to Russia, and then we scale to CIS countries – Belarus, Ukraine, Kazakhstan, Georgia, Armenia, and so on. So that’s where I made my first money. Then in 2011, I built up the business plan for technology transfer in China. In 2012, I established a company.

Your question was about some numbers, the revenue and the clients, and so on.

Matthieu David:  Yes, some idea of the size because it’s important for people who will listen to us to get an idea at which stage you are in terms of development. It’s a different story when you start when you develop, or when you are mature. At which stage are you currently? How many companies do you represent? How many cases do you get revenues, the team members? Any number to have an idea.

Andrei Prokhorovich:  Okay. Let me go step by step, I will explain. Back in 2011, when I built a business plan, I was alone. It was just me. In 2012, when I established this company, it was two of us – my wife and me because my wife helped me a lot to build.

Matthieu David:  Chinese?

Andrei Prokhorovich:  She’s Russian but living in China with me. Just in 2014, we hired three persons. The first employee was hired in early 2014. For now, two of them still work with me and become my younger partners. One of them left, and he’s a Senior Consultant in Ernst and Young in Australia.

From 2014 until now, we have more than 20 employees. I’m talking about just Eurasia Development. We have more than 20 employees who are in charge of law, legal consulting like analysis, intellectual property lawyers and so on, also people who translate, also people who make the connections and communications with the Chinese partners. For now, we have more than 20 people.

The maximum revenue – and here we talk just about Eurasia Development, I will explain to you a little bit more. I separate these things. Maximum of what we have is about USD 20 million a year, but it depends.

Matthieu David:  $20 million U.S. revenues?That’s huge.

Andrei Prokhorovich: Yes.

Matthieu David:  Do you distribute cost? What’s your cost? Your cost is not only about consulting, right? You buy the technology.

Andrei Prokhorovich:  No, no. We don’t buy technology. We do mostly consulting, that’s the point. Sometimes if we talk about the business model, our business model is consulting. But sometimes we also get equity.

For example, some startups coming to China, or plan to come to China, and we have some big potential of them, and we think to cooperate, they need the help because they don’t know how to act in China’s tech market. They don’t know how the world works here, how you need to communicate with the Chinese partners, potential strategic partners or investors or government relations (GR), how to build it up, so we help them with all of these things. Just sometimes, we get equity from these projects.

Matthieu David:  I’m sorry, but I feel very, very surprised. Is it $20 million U.S. or 20 million RMB?

Andrei Prokhorovich:  U.S. dollars.

Matthieu David:  $20 million the U.S.

Andrei Prokhorovich:  Exactly.

Matthieu David:  You’re a millionaire.

Andrei Prokhorovich:  Not really, but everything depends – okay, let me explain. Some deals, some cases make us about $30,000. We work on some cases for one year or even more, and it can bring us about USD 30,000 of profit, $30,000 for a year, so it’s a small number. But sometimes if we’re talking about some M&A deals, and we helped to sell some companies to Chinese strategic partner or some big investor or wherever there could be some absolutely different number because we can get like about USD 1 million of bonus. That’s the point. It’s much better in this case.

Matthieu David:  Then, your company is extremely profitable.

Andrei Prokhorovich:  Yes, we are profitable, but we are growing. You see, as a foreign technology in China, we are investing. So my strategy is to use the profit which we get to invest in other projects. Like for example, we invest in Dodo Pizza. Maybe you heard about this, maybe not. It’s a really interesting Russian –

Matthieu David:  Yes, I’d like to know more. I went on your website, and I saw this case on your website. I have to find actually the notes that were prepared by my team on your company, we prepared, and we looked at your company deeply on the Internet, and we found that Dodo Pizza, right?

Andrei Prokhorovich:  Yes.

Matthieu David:  It’s a case of M&A, right?

Andrei Prokhorovich:  It’s not M&A, absolutely, because we’re entering into China’s tech market with this company together. Back in 2015, we started this project. We started to learn more about it. I wrote to the founder of the project.

Let me start from the beginning. Fedor Ovchinnikov is the founder of Dodo Pizza. He founded this company in 2011. It was a small pizza chain. The guy, he was a crazy entrepreneur. He had a dream.

Matthieu David:  Where is he from?

Andrei Prokhorovich:  From Russia.

Matthieu David:  From Russia?

Andrei Prokhorovich:  Yes, from a very small Russian city.

Matthieu David:  Most of your clients are from Russia?

Andrei Prokhorovich:  Mostly, yes. Actually, the first deal which we closed in China was the project from Georgia. I mean the country Georgia, not the state.

Matthieu David:  Basically, the CIS, right?Soviet Union countries?

Andrei Prokhorovich: Yes, exactly. It was a biological project. We’re trying to see what China’s tech market needs. Like for example, just 20 years ago, China doesn’t drink milk at all, right? But now they drink a lot. After milk, comes some yogurt. Even six or seven years ago, some sour cream factory was established and built up in Shanghai and so on.

In late 2014, we see these, like five years ago, we see that China’s tech market is growing, so we will start thinking what China will need in this case, and we get an idea. Maybe something for the new product, maybe something for the sour cream or something like that or yogurt. We have connections. You see, my company has big connections all around Russia and CIS countries. Also, with Georgia, we have connections with the Academy of Science of Georgia. We followed some interesting project there; it’s bacteria. Georgia, for thousands of years, had been drinking milk and making some products from this, so they have interesting technologies in this field.

We find some company – not a company actually. It was one of the few engineers who are working on bacteria. We took these engineers, we took this bacteria, brought them to China, made the joint venture in China, attracted a little bit more than USD 5 million to this project, built up the laboratory here in China, in Yantai.

Matthieu David:  In Yantai?

Andrei Prokhorovich:  Exactly.

Matthieu David:  Is it that most of your projects, I believe, are in Yantai? Is it your strategy?

Andrei Prokhorovich:  It used to be because you see I cooperate a lot with the technology parks in China. Maybe you know their organization, which is called Tourch.

Matthieu David:  I’m not familiar with it.

Andrei Prokhorovich:  It’s a Government Association of Technology Parks in China which includes more than 100 –

Matthieu David:  How do you spell?

Andrei Prokhorovich:  T-O-U-R-C-H. I remember an image.

Matthieu David:  Okay.

Andrei Prokhorovich:  Maybe I have some more logo.No, no. I can send the link in later.

The point is that’s the biggest association of technology parks in China. China invests a lot of new technology, in fundamental science, and also in the acquisition of technology or buying, as I say, brings in from different technology fields all around the world. I cooperate with them for a while – not a while, many years actually. This is one of our strategies. We know how to cooperate with these government technology parks in China, and these technology parks in China give very good conditions if you enter China’s tech market.

For example, if you rent the office in Shanghai, it costs a thousand dollars. I’m sure that your office is pretty expensive, right? But if you come to the Technology Park in China and if you prove that your project is interesting, they can give you the office for free, or free space for three years, like 100. Do you want 100 square meters? Okay, 100 square meters in the beautiful building, the glass, free for three years and so on. And sometimes also they can cut your taxes like income tax and so on.

Matthieu David:  How much can they cut?

Andrei Prokhorovich:  About 10%. From 25 to 15%, yeah.

Matthieu David:  Okay, to the people who are listening to us, the tax in profit in China is 25%, and some technology park in China can reduce to 15%.

Andrei Prokhorovich:  To 15%, yes. Also, they have the grant programs, which if you bring the company into China and you start some research and development here, important or not that important, it depends on you. But you have engineers here, and you make research and development, you can also participate in some grants programs which give you the money. Like for example, our partner just received USD 1 million as a grant.

Matthieu David:  That’s huge.

Andrei Prokhorovich:  Yeah, for him, it’s free money. He can use it for business and development.

Matthieu David:  Let’s be more specific. What kind of company can get this grant, and what do you have to commit to for this grant? I interviewed an entrepreneur before who raised money from Their office, even the technological staff, and what they do actually, they receive the grant, and they have to create the jobs. They have to stay in the technology park in China. And they have to create a certain number of jobs based on a business plan. What’s your experience with getting grants from the Chinese government as a foreign technology in China? This is something I don’t know precisely because the company he was managing is a Chinese company. As a foreign company, as a foreign technology in China or joint venture, when you get a grant, what do you need to commit on?

Andrei Prokhorovich:  Actually, for now, it’s going to be the same. It doesn’t matter if your company is established in China, even as a joint venture or wholly foreign-owned enterprise, if you establish a company in China and make some research and development. Of course, they have some requirements. How many people should work on the research and development department, and so on? But in the case from grant to grant, from province to province, and from program to program, it’s usually a little bit different.

Matthieu David:  Do you know the different programs all over China?

Andrei Prokhorovich:  We don’t know all of them but, as a foreign technology in China,  now we are working on that. I think until the end of April we’re going to have the list of most programs in China because we have to provide this as a service in the future too.

Matthieu David:  As far as I understand, you try to understand the environment in China, what industries can work – you talked about milk and a bacteria from Georgia, a company dealing with bacteria – and you look at the grants, the ecosystems, technology parks in China, and then you reach out to the companies which is mainly within Russia and CIS, to tell them, “Why not hire us in order to enter China’s tech market, products in China, and set up the Chinese presence or the Chinese factory for the world or to sell in China?” Is it your model? Is it how you work?

Andrei Prokhorovich:  In some cases, yes. Actually, I want to make clear one thing. We don’t do factory setup. We’re helping to construct because, for example, some hardware project is coming to China. They produce, for example, some kind of hardware product. I don’t know, it’s a robot, or it’s a drone or whatever. So they have some really important parts. They have intellectual property, and they have the know-how, which they don’t want to open the other companies. So the goal is to find reliable producers in China who already produce some parts. Like for example, it could be 10 different factories that produce different parts of the product, and then we make one place where we set it up. We combine it together.

Matthieu David:  Assemble.

Andrei Prokhorovich:  Assemble the final product, yes. So over there we hold the know-how.

Matthieu David:  I was talking with a big firm, and they were telling me that a lot of foreign businesses are mainly about assembling different products in China and then exporting those things within China’s tech market. But not producing every part, it’s mostly assembling.

Andrei Prokhorovich:  Exactly.

Matthieu David:  I get more and more clear about what you do. The thing is I’m still uncertain about how you can manage so many things. You’re 20 people in your team. They have this core competence of regulation, know how to assemble, or they knew how to find the right people. What’s the model? You coordinate to find the right people, find the right partner, or is everything internalized, which must be very hard?

Andrei Prokhorovich:  Most important in what we do – actually, in some cases, our company is the same. We sell information; we sell knowledge. That’s the most important thing. Because most of the companies in Russia, actually in other countries too, they don’t know how to work, how to manage your business in China. They don’t even know how to introduce China’s tech market. So what do we do?

When the clients come, we’re checking their technology. First of all, checking in China. Because maybe there is some competitor technology which, unknown in the Western market, already exists in China. So we check the SIPO, it’s an administration of the intellectual property in China. We have full access to this database. So we check the patents, copyrights, trademarks, and so on. So first we check this part.

Also, of course, we check the market. Then we go further. They’re making some legal research because some of the foreign technologies in China are prohibited. I mean not technology – international investments, foreign investments in China.

Matthieu David:  As you said, it is encouraged so that it can be 100% foreigner. It is tolerated, and it is forbidden. For instance, agriculture is very difficult to enter, so most of it is forbidden. And of course, everything which you need to work on is forbidden for a foreign player, like in a lot of different countries, it’s forbidden for a foreign player to produce work in the country. So yeah, we have three different categories. First, you check that.

Andrei Prokhorovich:  Yeah. We check. Actually, China has four categories.

Matthieu David:  Okay. What’s the top one?

Andrei Prokhorovich:  I don’t remember how to say that in English, but it’s prohibited, which we cannot do anyway in China, such as mobile telecommunication products.Or restricted, for example, car making. All the car producers, when they come through China, they share, give the 50% or sometimes even 51% of the shares of the company to China government companies. At the same time, they bring know-how, they bring all intellectual property, they bring their engineers, they teach local staff how to do these products. So it’s like a ticket to enter China’s tech market. Okay, two more. It’s when it’s allowed to do business in China. And one more, when it’s preferable when the government helps you with this program.

So which of these kinds of things? Because over there are also many, many details. Just like last year, we have an interesting case with – can I say the name or not? Maybe I’m not going to say the name of the company, but it’s a very famous company in Russia. It’s an IT project, very famous. It’s like one of the 20 best IT companies by the Forbes list in Russia.

Matthieu David: What kind of IT? Is it like CIM? Is it like Cloud?

Andrei Prokhorovich: If you don’t mind, I’m not going to say because if I say, I’m sure that all people will understand, but we have this strict NDA about this. I’m sorry. But maybe later, when we meet we will discuss this. The point is that it was very interesting.

When we check first the wall, is it restricted or allowed to come with such kind of business to China? It was allowed. But when we started searching more deeply, they would need to have some license for it.

Actually, I will explain its IT platform. They need to get some licenses such as ICP, AGI, and so on.And such a kind of license, just joint venture companies can get. Whereas at least 50% owned by the Chinese. So our mission is to understand how to bring this company to China.

If you give me one more second, not just legal research is important, because it’s much more important to get feedback from the Chinese experts. And this was your question, do you find the people? Yes, that’s what we do. For the whole time of our job, we build up big networking of the Chinese experts. We have more than 200 Chinese experts who work in different fields, technology fields as AI, biotechnology, medical technology, big data, and so on. So we have the experts who work in this business in China. So we can come to them and get their feedback about foreign technology in China.

Is it acceptable? Does China’s tech market need this technology or not? And then we build the strategy – how to soft land and land this company in China, how to scale, or maybe we need to go straight to some strategic partner to scale much faster. Your example was about JD and the company who got the grant. It’s a great opportunity for scaling in China if you have a partnership with JD or Alibaba or Baidu, such as big companies.

Matthieu David: You say, 200 experts. How do you interact with them? Because you don’t hire them, right?

Andrei Prokhorovich: No.

Matthieu David: They are experts. How do you keep in touch with them, make sure that you keep the connection? Because you don’t always have a product for them, how do you enter the relationship and the connection?

Andrei Prokhorovich:  Sometimes it’s friendship, first of all, yeah. Maybe it’s the position of my life to make more friends as I can.

Matthieu David:  There in Yantai?

Andrei Prokhorovich:  No, no, no. All around China, yes. All around China – Shanghai, Beijing, Shenzhen, everywhere. We cooperate a lot with Guangzhou province. It’s Guiyang City because the center of the big data in China is Guiyang. Like at the end of May, we’ll go there, we meet with somebody, the companies, and not just the companies, with some government people, officials over there, and we cooperate with them a lot. This end of May, I will bring there eight Russian projects. Different like it’s virtual reality, artificial intelligence in China, big data projects, new retail projects, and so on.

One more thing about interacting – you asked me. You see, in some cases, we copied their venture capital. Look at the venture capital companies. The company who manage, for example, USD 100 million, like an investor, or usually about three to four people manage this. All other people who consult them, it’s the people who outsourced, or it’s the experts. It’s a networking, which works with them, cooperate with them. Sometimes you can pay them; sometimes you can motivate them differently. So in some cases, we copy this model.

Because we also see the future of the company, we are thinking about establishing the venture fund in the future who want to invest in the projects which come to China’s tech market. Because actually now, we’re not ready for this. Anyway, as a foreign technology in China, we are learning more and more about China and how to work here, and we need more successful cases here. But when are we going to be ready? Yes, we have that such kind of plan.

Matthieu David:  Okay, let’s talk about specific cases. You began to talk about Dodo Pizza, but I am on your website, and I got a print screen of your portfolio, SkyEng, Hudway, PharmZnanie, BIOTEX AGRO, UNA Wheel, CG Bio-Med Research, “UralArm” Project Group. Could you tell us what you did for a couple of them, the ones which would be a good illustration of what you do?

Andrei Prokhorovich: Okay, let’s start with my favorite one. This project, I start talking about it, but I didn’t finish, it’s Dodo Pizza. Actually, it’s an IT company who’s making pizza. For now, the company has more than 70 IT developers who build Dodo IS (it’s like Information System), who manage the whole business. It’s very interesting. In the core, it’s an IT company. The final product for their final customers, if we talk about B2C, it’s a pizza. But IT system helps to manage all the processes. Yes, I invite you to visit us because I think maybe next month, we have the grand opening of the new pizza shop.

Matthieu David:  In Yantai?

Andrei Prokhorovich: No, no, no. In Yantai, we have one. We opened in Hangzhou, in downtown. It’s a very good place. We opened a new pizza shop which doesn’t have cashiers. You cannot pay by cash or cards there. That’s all. And also, we’re implementing the Artificial Intelligence in China for quality control and such kind of things. So, it’s an interesting new retail format. So, I invite you.

What did we do with the project? In 2015, we started cooperation with this project. My team and I started preparation of the strategy on how to bring the company here. We started from market analysis. We analyzed the market of the pizza and who we’re going to compete with, and how we need to change the recipe of the product to the customers.

Then we localized the IT system here. It’s also an interesting story because you need to use local systems, and so on. We localize their system; we adopt the product. We established our company here, and in 2016 we launched the first pizza shop in Yantai for a market test. And the format which we started here, actually, it’s acceptable in all countries where we work now. For now, Dodo Pizza works in 12 countries.

Matthieu David:  In Yantai, can you give us a bit of an idea of how big the shop is, how many clients you’ve got every year within the shop?

Andrei Prokhorovich: Okay. I will tell you the maximum work we have. We have about 200 orders a day. It’s not that much. The revenue is pretty small. The maximum revenue which we get, it was about 250,000 RMB a month.It’s not that much. Actually, it’s a very small amount of money.

The pizza shop is pretty small. Its totality is 110 square meters, including the kitchen, so it’s small. Anyway, the point is that the format which we started here is not really good for China. Yeah, we became profitable on the seventh month after launching –

Matthieu David:  Which is very good.

Andrei Prokhorovich: Yeah, which is very good for this kind of project, but the return of investment is very slow, very low. So we need to change something.

Matthieu David:  I see. So what you are saying is that you are cash flow positive. Meaning, you cover your costs. After seven months, but because you don’t have a big or high margin, it will take a long time to pay for the first six months of investment plus the initial investment you have made. Is that what you say?

Andrei Prokhorovich: Exactly. Our business model is not just a corporate chain. We also plan to franchise. And for this, we need a lot of potential Chinese partners who are going to be a franchise, who’s going to buy then pay us a royalty, and they will be happy in the future. But if ROI is pretty bad, then they’re not going to be happy, and our brand is not going to boom.

So we changed the format. It took us two years to collect that data, to understand what we need to change. Last year, we made a new strategy. We changed everything. And now, this pizza shop will be opened in Hangzhou in one or one and a half months.

Matthieu David:  Wow. Nice. Can you tell us more about what’s specific for this pizza restaurant? You said it’s an IT company. Does it mean that you have very few people in the shop? Does it mean that everything goes online and you can deliver? What do you mean to be an IT company at your pizza restaurant?

Andrei Prokhorovich: Yes, there is an IT system which helps you. It’s collecting all the data. It has very friendly interfaces for the workers who work in the pizza shop, on the employees. And of course, it’s connected to some systems for delivery, so it’s an auto format. There’s a bunch of things I think I can show you how it works in reality. If you come to the pizza shop, I’m going to show you how it works.

In the future, of course, we’re going to implement much more innovative things such as AI, as I told you before, it’s already tested. We trained the MiraLink in Russia, and we will implement it in a Chinese pizza shop. Short explanation: every pizza is coming out from the oven should be checked by the shift manager if the quality of the pizza is good enough to give it to the client or not.

Anyway, it’s seconds. It’s a time of the manager in the pizza shop. So we put the camera with MiraLink which was trained and understand which pizza is good enough, and our standards make it, or it’s not good enough, and it’s not made by our standards.

Matthieu David:  Okay. So, by visual – I don’t say facial because it’s not facing – but by visual recognition, you’ll know if the pizza is made of the ingredients you want to use, it’s big enough, and so on. I see.

Andrei Prokhorovich: Yeah.

Matthieu David:  Is this already working in Russia?

Andrei Prokhorovich: Yes, it’s tested in Russia. Also, of course, in the big cities in China, if you stay in the place where there are lots of people coming to the pizza shop, you need to cut the time for their ordering and such kind of things, and China is really good at this. China, actually, now has lots of new business models which now we are copying. Everybody was talking before that China copy, and it was actually one of the biggest problems for us to bring projects here because the founders and investors, they are afraid of China. They said, “Oh, they will steal everything. We’re not going to go there.” So it was one of the biggest barriers.

But now, we see an absolutely different situation. China is making its own business models, so now we also learn from them. We also set up like a WeChat mini program for our Dodo Pizza, and so on. I will send you the link, so you will see how it works.

Matthieu David:  How do you work with Dodo Pizza? Do they pay you to operate and they hire you? Do you take equity in the company? Do you take the license in China? What’s the deal with such a company?

Andrei Prokhorovich: Okay. I have equity in the company, in the project – I mean in the Chinese part of the project because the company is now growing all around and I’m just in charge … not in charge. I used to be in charge because I used to do all of this project, but now we have the CEO of the project which also grew up from my first pizza shop. So in our first pizza shop, it was not just testing. It’s also for preparing the staff, the management of all levels. And now we had the people who grew up in the pizza shop; they are building a new detailed project. Now they have their office in Hangzhou.

Matthieu David:  Did you finance them with your own site or this company was able to actually pay for the start, for financing the lead, for financing the first job, and so on?

Andrei Prokhorovich: At the beginning, I financed that. In the beginning, it was my investments. Not big. It’s like about half a million and much more, about half a million USD. Then, from last year, the global Dodo Pizza office started investing in this project. And the next step, I plan to attract more investments for scaling, for growing a little corporate chain, like for example, 10 pizza shops, we can open in Qingdao or some other big city. And then we’re going to be ready for selling their franchise.

Matthieu David:  I feel that you have been very involved in this project. My question is, if you are as involved as you are on this product, Dodo Pizza, how can you have so many projects? Are you sleeping? Are you taking weekends? Are you awake all the time? How do you manage your company because I feel you are very involved with your projects? You can talk about them in detail.

Andrei Prokhorovich: Actually, I’m not involved in all projects totally. Anyway, some projects I’d prefer because I invest there. Some projects we work with, and we consult them, but we have a team who do this job. I’m just building up a strategy way, strategy vision how to work with these and where to go, or which connections we need to turn on, to which expert we need to go to finalize the strategy, or to understand how to work here or here.

About the sleeping, yeah, I sleep not that much, unfortunately. But I get used to. Weekends, well, for the last nine years, I’ve been on a trip with my family for fun just one time. It was last year. For nine years, I didn’t go anywhere. I just work, work, and work.

Matthieu David:  And you went to Qingdao?

Andrei Prokhorovich: Good joke. No, we went to Turkey.

Matthieu David:  My question about how you manage your company is that I understand you invested in Dodo Pizza, so I think you may have been much more involved in it. But how can you scale your business if you are so involved in the project?

Andrei Prokhorovich: You need to prepare for the team. The most important is the people. Every business is always about the people; you know that. So our focus is to find and prepare the right people, one of the focus on every business. Because if we talk about the SkyEng, it’s just a consulting. We consult them on how to do this and this.

Matthieu David:  There are two of the projects. SkyEng is purely consulting. Do you have another project where you were very involved in the operations in China?

Andrei Prokhorovich: Mostly, it’s Dodo Pizza. For others, it’s consulting and different consulting. Some of them just need intellectual property strategy, so we are thinking about how to protect the intellectual property, so it’s not going to be stolen and so on, just sometimes to sell it. Because you see, technology transfer in China …

Let’s define what is technology transfer in China. For this, we need to define these two words. What is technology? It’s knowledge. It’s know-how. It’s all kind of intellectual property objects. What is a transfer? It’s a selling, buying. It’s licensing, sub-licensing, and franchising. So that’s what we do for most of the companies. We consult them how to take their foreign technology in China, how to soft land it, and find the right partners, hire the people inside, and find the right partners in China.But we’re not making the business development for them.

Matthieu David:  I see.

Andrei Prokhorovich: That’s why we don’t spend much time on this.

Matthieu David:  Talking about being in Yantai, I always say that if one foreigner was in a certain city, it could actually try to support a lot of foreign companies to establish in a certain city. For example, in Yantai, how many people live in Yantai?

Andrei Prokhorovich: Yantai, if we talk about downtown, it’s about two million people. But if we talk about the whole Yantai, it’s about 7.2 million people.

Matthieu David:  That’s huge. That’s the size of Belgium. That’s the size of a country.

Andrei Prokhorovich: Yes.

China's tech market

Matthieu David:  So, you could actually be a Russian citizen to get all the businesses from Russia, and even maybe much more businesses from overseas and so on. Do you think there is a strategy for you to say, “I am the Yantai guy, I am the one you need to go through who are going to really have the connections, understand Yantai, to be in Yantai and develop in Yantai”? Do you feel that that’s too narrow, there’s not much growth there?

Andrei Prokhorovich: It depends on the project. For example, if it’s going to be like some agricultural project like BIOTEX AGRO – you can see it also in my portfolio on the website, it’s an agricultural project – in this case, of course, Yantai is good because Shandong Province is an agricultural province and you can find a lot of customers here, find new customers. Also, there are some laboratories for testing the soil, and so on. So, in this case, yes. This is a good one.

But if we talk about big data projects, of course, it’s better to go to Guiyang because you know that China is growing by clusters, when it’s going to be the export-oriented economy, when they think about just to export. Remember there were cities, like the city which produce – I don’t know – suits, and the city which produces lighters, and so on. But now, in high technology they grow in the same way, like a city of big data, Guiyang; the city of hardware, Shenzhen; Artificial intelligence in China, mostly in Beijing; biotechnology is mostly in Shanghai, and so on. So it depends on the project.

In many cases, I advise, if it’s necessary to rent in Yantai because the costs are much lower here – the cost for living, the cost for the employees, costs for the rent, and so on. So for the first entering, for the soft landing, maybe Yantai. Not for all, but for some projects, it’s a very good position.

Matthieu David:  I’m going to surprise you but the first company I started, I was thinking of starting in Yantai. The reason is that there was a very famous French, Mr. Amber, you may know him, who was advertising a lot about Yantai, so I went to Yantai. I was in Beijing. I went to Yantai, met with him. And then I found out that actually, the help of the government was topnotch. Actually, it was pretty much the same process. The disadvantage I would have is that I would have to move everything from Beijing to Yantai. It would be more difficult for me to recruit people. It would be more difficult for me to be in an international environment where I could get more clients, it is easier for me as well. It was another business. Actually, it would be more complicated.

I have another friend who started a language school. He registered the company in Jinan because his wife is from Jinan, and that’s so troublesome because they live in Beijing and they have to go for everything which is administrative, they have to go to Jinan. Not far from Beijing, but still they have to travel to Jinan.

I understand the cost, but at some point, you also need to have access to China’s tech market. Also, you need to get access to talent, and a lot of talents want to be in Beijing, Shanghai, Guangzhou, or Shenzhen. I’m not saying there is no talent in Yantai, sure there are. But maybe they are expensive as it is in other cities because they are very scarce. The cost topic – I understand in terms of offices, I understand in terms of cost of living, but it has a downside which is the access to China’s tech market and the life of every day. What do you feel about what I’m saying now?

Andrei Prokhorovich: Yeah, I totally understand you. Talents, yes, sometimes it’s a problem to find talents here. But for this, if we talk about my company, we’re searching for talents all around China and Russia, and then Ukraine and wherever. Yeah, we’re looking everywhere, and some of them are coming to Yantai. After Shanghai and Beijing, we have the people who come here to work with me.

If we’re talking about the access to China’s tech market, it depends on the technology, and it depends on the product which you work with because now everything is online. A lot of my staff works online. Like for example, we have now in our company people who don’t like to work in the office. Productivity is much higher when they work at home or wherever they want to, but not in the office, because people feel uncomfortable when they’re staying with other people. Yeah, there’s such kind of people. And they see if I put him to the office, his productivity go down. If he’s sitting at home, his productivity goes up. So, why not work at home? I don’t care. I need the result. So, for me, it’s not a problem.

So we can work. Like for example, last six months I wasn’t in Yantai even more, no. I just came back to Yantai, and I’ve been here last time in August. So from August to March, I’ve been everywhere – Shanghai, Moscow, Russia, different cities, and so on, but not in Yantai. But everything is working. Like for example, one of the directors of the Eurasia Development now, he moved to Russia for, I think, maybe for one or two years. The other one, like chief operation officer, I think that we’re going to open the small office maybe co-working in Beijing, and he can move there. We can work this way.

Matthieu David:  I see. Talking more specifically of what Russia and China can bring to each other, Russia has been very strong in technology and the first country of being outside in the space with Sputnik. A lot of technologies have been developed in Russia. On the other hand, China is a big giant in China’s tech market, as we say, Artificial intelligence in China, and so on. Which field do you feel are the most promising between Russia and China in terms of technology?

Andrei Prokhorovich: Thank you. Good question. Mathematics. Russians are very good at mathematics. If you take a look at the Mathematics Olympic Games, for the last five years, I think Russians won from universities, guys from universities. So, it means that they are good in algorithms, also an AI algorithm. At the same time, Russians specialist is much cheaper compared to Europe or compared to the U.S. like big data scientists. These people cost a lot, and Russia has that. But actually, let’s talk not just about Russia. If we talk about Artificial intelligence in China, it’s also Belarus. They have lots of interesting projects and lots of data scientists and AI researchers who work in Belarus.

Of course, Russia is a big market. We focus on that, but for the future, we think we need to go global. Because anyway, you see most of our clients is the startups. I mean the startups, not the early stage, the startups of the late stage, like after round A, and so on, who already have some money and can pay us for consulting.

In this case, we need to take a look at all over the world because the U.S. has much more startups. But at the same time, some of them want to enter China’s tech market, and they also don’t know how to work in China. We already have the client. Actually, they are from Russia, but it’s already an American company. We have two clients like that.

Matthieu David:  I see. You are mainly working for foreign companies entering China. I believe that you have tried to or thought about already supporting Chinese companies going overseas, Russia maybe most specifically. Some Chinese companies are doing very well in Russia – VHK, AliExpress, for instance, for the Russian market. Have you already begun on serving Chinese companies to go to Russia and do you have cases to share with us?

Andrei Prokhorovich: Actually, we started to think about this back in 2014. 2014 we started to think about this. We went to some Chinese companies and said, “Hey guys, we can make scouting for you. We can research and find some technologies, products, and startups. You can come to China which you can acquire or whatever.” But Chinese companies which we found at that time, they weren’t ready for the pay for the service. So we said, “Okay, maybe you need more time.” At the same time, I see that it’s a huge potential. It’s just incredible. How many Chinese companies in the future can go overboard, especially to CIS and Russian market? I see these and, as a foreign technology in China, we are preparing a platform for this. We’re not serving these – 

Matthieu David:  Not yet?

Andrei Prokhorovich: Not yet. This year, right now, we have a negotiation with the Chinese company. It’s a big Chinese company. It’s already unicorn. We have a negotiation with them, and maybe next week we plan to sign the contract. Now, we’re discussing and finalizing the details. If we do this, it’s going to be our first case when we go with a Chinese company to Russia. But now we don’t have such kind of cases.

At the same time, I feel that it will grow. China’s tech market will grow because you know the political situation in Russia. Now they have bad relations with Europe and the U.S., and because of this, technology transfer from the western countries to Russia is closed. Even if we try to remember, like in the 1930s, it’s a stallion. Most of the factories in the 1930s and 1940s in Russia were built up by the American and Europeans according to American – these technologies. And it wasn’t stolen. The Germans, French, and the U.S., even Ford. Did Ford supply all the projects to Russia? Yes, he sold it. But now, the western market is not selling the technologies to Russia. Sometimes like Siemens try to play this game or some other big companies trying to do this, but mostly it’s closed.

At the same time, we can see that China is growing. It’s becoming the technology superpower. Of course, some of the projects, some of the foreign technologies in China such as robotics in China, for example, because I’m sure that in a few years, China will be number one in the world in robotics, I mean industrial robots.

By the government plan, by 2020 they plan to build 50% of all industrial robots in the world, so it’s a big number. They already acquired KUKA. There were just three big producers in the world. Two of them are Japanese, and one of them is German, KUKA, and it’s already acquired by Midea. It’s a Chinese company. So they do a great job.

At the same time, Russia will need this. So yeah, we can play in this field. We can bring Chinese technology to Russia in the future. So, yes, we’re preparing.

Matthieu David:  Is it a big market enough for a Chinese company? I feel that when you talk about the French market to the Chinese company, it’s too small. It’s only 67 million people. It’s like the size of maybe even last. Russia is about 150 million. As I remember, CIS I don’t know, maybe 250. How many people in CIS?

Andrei Prokhorovich: Russia is about 146-148 million totally, and all CIS is about 250 million.

Matthieu David:  Is it big enough for Chinese companies?

Andrei Prokhorovich: It depends on your foreign technology in China and the company, of course. But the Russian market is also pretty hard. Of course, the European market is much better for Chinese and they, of course, focus on the U.S. and the European market. But the third largest market is Russia in this case. The problem is that the economic situation in Russia is not that good. So, yes, it depends on the product.

But for example, some medical products can be sold a lot from China to Russia. As I remember, Russia is importer number one of Chinese generics. I should research this information. I’m not sure, but Russia is a pretty big market for China in this case.

Matthieu David:  My last question, because it’s already one hour, how do you stay up to date? I feel that you have a lot of knowledge about the tech box. You tell me biotech is more Shanghai, Artificial intelligence in China is going to Beijing. You have all this knowledge about China. How do you stay up to date? Do you read in Chinese all this information? Do you read in English? Do you talk to people? Do you meet a lot of people? How do you gather all explanation and stay up to date?

Andrei Prokhorovich: My main mission in the company and maybe in my life is communication. I communicate a lot with all kinds of people. Yes, I talk a lot. Every day, I’m always on the phone or by Skype or Zoom meeting, and I talk, talk, talk, and trying to collect this information and make some strategies. Yes, this is what I do – communications. I communicate in English mostly. My Chinese is not that good. When I came to China, I knew just two words, which is nǐ hǎo and xièxie. The third word which I learned was gānbēi. That’s how my business started.

Matthieu David:  Do you have to drink a lot in China?

Andrei Prokhorovich: I used to. Before I came to China, I didn’t drink a lot at all. But Shandong Province is the most drink – 

Matthieu David:  You do it for business, right? Is it for business?

Andrei Prokhorovich: I used to do it, but I quit drinking in 2013. I don’t drink alcohol.

Matthieu David:  Is that accepted by business people in China?

Andrei Prokhorovich: Yes. Sometimes they look at you like this. But it also depends. On the south of China, they don’t care. They ask you one time, “What do you drink?” like wine, baijiu. If you say, “I don’t drink at all,” they say, “Okay, no problem.”

In the north of China, yes, sometimes they look at you like this like, “Why don’t you drink? Drink with me for respect,” or something. I say, “Guys, sorry. I don’t drink at all because…” I give them some reasons like, “I need to take care of my health. I am preparing for the kid” or whatever.

Matthieu David:  Yeah. I actually feel pretty well tolerated to be a bit different. In Chinese business, people are very tolerant of foreigners who have different habits.

Andrei Prokhorovich: The people in China changed a lot. For these 13 years which I stayed in China, people changed a lot. I meet a lot of Chinese who are open-minded. Such great people, like our chief communication officer, he’s a Chinese, but when I’m looking at him – sometimes I think he’s not from China because he’s more open maybe than me.

Matthieu David:  And maybe you have changed as well.

Andrei Prokhorovich: Yeah, probably.

Matthieu David:  Thank you very much for your participation in this China business podcast.  It was very impressivefor everything you’ve done. I discovered the company. I just want you to know that what I prepared, and to the interview, I’m very impressed.

I’m looking forward to meeting with you in person when you are in Shanghai, and maybe I would go to Yantai.

Andrei Prokhorovich: I hope to see you in one month.

Matthieu David:  Good. Thank you very much. Have a good weekend.

Andrei Prokhorovich: Thank you, Matthieu. Bye-bye.

Matthieu David: Bye, everyone, see you in the next episode of our China marketing podcast, China paradigm.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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