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Why Shenzhen is a hotbed for startups

Shenzhen which used to comprise of a small fishing community in the outskirts of Hong Kong has now developed into the foremost electronic manufacturer of the country and earned the moniker of ‘China’s Silicon Valley’.

This drastic transformation was largely due to the efforts of Deng Xiaoping, Party Leader from 1978 to 1989. In May 1980 Deng Xiaoping designated this area as the first SEZ or Special Economic Zone in China. He is often referred to as the farther of Shenzhen and a statue of him takes pride of place in Lian hua shan Park overlooking the Futian central business district.

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The city of Shenzhen completed more skyscrapers in 2016 than the United States and Australia combined.

In 2017 the city of Shenzhen is one of the fastest growing cities of the planet and a global manufacturing hub which produces a host of electronic items like drones, electric cars, smartphones, cameras, computer, hardware, software and more. If you are thinking about doing business in China then keep reading this post where we are going to discuss some of the reasons why Shenzhen has grown into a hotbed for start-ups.

Shenzhen which has over 12 million inhabitants (although this figure doesn’t include many of the migrant workers) is now one of the fastest developing cities in the world. Back in 1979 less than 30,000 people called this region their home. The sweeping economic reforms by the communist government played a crucial role in the miraculous transformation of this city which has now become the financial capital of South China. Home to the Shenzhen Stock Exchange, numerous tech firms and accelerators this international hub for start-ups has made it into Inc’s list of Best Global Cities of the Future. This city also receives visitor footprints from a number of nearby cities like Zhuhai, Guangzhou, Hong Kong and Dongguan which is why it is presently flooded with an influx of professional technologists from all around the region.

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Shenzhen receives strong support from the Chinese Government

The government of China has put in lots of effort towards transforming this city into an international manufacturing hub. This city comes with clusters of factories which have converted Shenzhen into a one-stop-shop for loads of pioneering projects involving start-ups. Back in 2009, the ChiNext Board was started by the Shenzhen Stock Exchange which is similar to a NASDAQ kind of exchange for growth driven high tech start-ups. Its objective is to lure the inventive and fast growing enterprises to establish their bases in the city.  The listing rules of Shenzhen are comparatively lax compared to the rest of the country and as a result the listings rose from 28 (in 2009) to a whopping  295 (in 2016) with about 70% of the listed companies belonging to the manufacturing sector and the majority of the rest in the IT sector.

Some of the most renowned names in hardware industry from Shenzhen are Oaxis, Foream, SZBeacon and Lepow all of which benefited from the low cost mass production and the strong network of crowd funding platforms.  The city is also home to some of China’s tech giants such as Huawei, ZTE, Coolpad, Konka and Tencent to name just a few. The strong supplier base is also an important factor in boosting the reputation of this city as a prime manufacturing hub.

Shenzhen is a city of plenty

If you are trying to find a manufacturer or supplier then you don’t need to look beyond Shenzhen. This city comes with a number of malls such as the SEG Market of the Futian District where you can lay your hands on just about anything be it drones, hardware, phones, circuit boards, cameras, LED lights and even OEM goods. The electronics market at Hua Qiang Bei Commercial Street is the largest electronics market in the country.

The SEG market and surrounding malls occupy an area of 70 million sq ft with some 20 shopping malls dedicated solely to electronic items.  Each one of these malls is packed with countless independent retailers operating from competing stalls.

No matter if you are in need of a hardware producer or an injection moulding specialist, there are several factories which would ensure that your required product is made within a few day’s time. Moreover, Shenzhen produces about 90% of the planet’s electronics so you will be able to find experienced packers and shippers at a very cost-effective rate.

Get your capital from crowd funding

Crowd funding is one of the major reasons behind the massive development of the start-up ecosystem in Shenzhen. It might be surprising for you to learn that China has over 280 registered crowd funding platforms out of which 75% is still active and functional. Almost half of these crowd funding platforms have their bases in Shenzhen including the more famous ones such as RenRentou, Angelclub, Yunchou etc. These platforms annually raise a fund which amounted to $2.12 billion in 2016 and this is surely a very exciting prospect for all hardware start-up enterprises. The upcoming entrepreneurs can tremendously benefit from the crowd funding environment where they constantly receive feedbacks from both customers and investors in the pre-order stage. This positive feedback loop would help the hardware start-ups to gain priceless insights regarding the nature of their production and how to enhance it.  It can be confidently stated that the crowd funding campaigns can greatly power the nascent stage of the production.

Conducive ecosystem and supply chain

So many start-ups are thriving in the city of Shenzhen because of the favourable ecosystem there. This is a city which is equipped with a complete supply chain for quick product development and production. Finding PCB production, moulding, ID design or sourcing services is a matter of simplicity in Shenzhen. You don’t need to worry about spending a lot of time on sourcing your hardware, since you will be having direct access to the factories manufacturing those parts.

The taxes aren’t going to be overwhelming

One of the best parts about doing your business in Shenzhen is that, China is pretty entrepreneur friendly when it comes to taxes. While in the US you’d pay a corporate tax of 39%, in China the tax is as low as 25%. Moreover, according to a report by the Organization for Economic Cooperation and Development, you don’t have to pay any tax on the interests earned on your bank accounts. China’s dividend tax rate ranges between 5%  – 10% so you don’t need to pay any tax on capital gains.

Shenzhen is the Silicon Valley of China

Thanks to the easy availability of inexpensive parts, manufacturers, labour, shipping and crowd sourcing, Shenzhen is rightly regarded as a wonderland for entrepreneurs. All you need to do is create a prototype and start a crowd funding campaign. If your idea is good enough and if your Kickstarter campaign succeeds, you are all set to start the manufacturing process. HAXLR8R  ( hack-cellarator) a hardware start-up working on wearable and robotic has stated that the prime reason behind their move to Shenzhen from San Francisco is because Shenzhen is the Silicon Valley for hardware. A number of other San Francisco based companies such as Voltera followed suit and moved their manufacturing unit to Shenzhen.

Sheer number of hardware accelerators

The manufacturing hub of Shenzhen comes with a largest number of hardware accelerators in the country. This automatically implies enhanced access to leadership, mentors and human resources. Of course this service isn’t free but they will help inject the expertise and know how into taking your innovative idea to market.

Easy access to small quantity manufacturer

Unlike Taiwan or Shanghai which is the hub of big manufacturers, Shenzhen is a city which has loads of small and medium sized enterprises (SME’s) who are more than eager to take on the low forecast jobs which most small hardware start-ups require. So if you are still about to establish your foothold in the market then moving your manufacturing unit to Shenzhen can be an excellent idea.

Extremely low Bill of Material

The price of hardware and materials in this city is almost half of what you’d expect in the factories of suppliers of the US. The material costs are also much lower than that of the other manufacturing countries in the east such as Japan or Taiwan. Even if you keep a close tab on quality control, you’d still be able to save a lot of your start-up capital and with access to everything you need on your doorstep you will surely save plenty of time sourcing the correct parts and negotiating with manufacturers.

Conclusion

Shenzhen has it all. The geographic location provides it with a comprehensive transportation and shipping network. While a thriving tech industry puts all the hardware resources as well as technical expertises on your doorstep. All this adds up to make Shenzhen one of the most friendly cities in the world for tech start-ups.

Author Bio
James is an avid tech enthusiast living in the City of Shenzhen. When not blogging about tech trends he is busy juggling a job in online marketing with taking care of his boisterous dog Charlie and launching a custom phone cases business, made2b.com
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One comment

  1. China is a real miracle. It is really impressing how country with communist ideology is able to gain such economy level

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