Why US Tech Firms Are Doubling Down on Asia

VCs in the U.S. are dedicating Asia specific funds and increasing their overall foreign investments


BEAM Team

11 Jul, 2017

Why US Tech Firms Are Doubling Down on Asia | BEAMSTART News

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International tech firms from around the world will descend upon Hong Kong this week for three days of intensive pitching and networking at the RISE technology summit. Business cards will be exchanged, WeChat QR codes scanned, hashtags thrown around, some funds raised and maybe a few fortunes made.

One of the most prominent tech conferences in Asia, this year the number of RISE attendees from America have doubled, say conference organizers. Tech titans like Uber, Google, Airbus, Stripe will take to the stage. US firms are aware of the market potential in Asia through their Chinese challengers known as BAT: Baidu, Alibaba, and Tencent. At the same time, US firms are also looking to diversify their business operations because of the uncertainties back home.

U.S. Tech Firms Find Success In Asia While Facing Challenges Back Home

Internet domain registrar and hosting company GoDaddy is one firm planning to make a splash at RISE this year. The U.S. web service launched in 11 countries in the region last year and their Asian customer base has grown 20% year-on-year. CEO Blake Irving credits much of its rapid adoption in Asia to the number of computer engineers educated at U.S. institutions. “The reason was mind boggling to me. Our visa policy in the United States ends up sending many students home after undergrad or graduate school -- and they bring GoDaddy (back) with them.”

Trading information about GoDaddy Inc. is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Michael Nagle/Bloomberg

While these repatriated students have helped his business, Irving is very outspoken about the damage done by US immigration reform. GoDaddy, like many American tech companies relies on foreign talent. In 2016, his company applied for 36 H-1B visas – which allow U.S. employers to hire foreign nationals for a limited period -- but only half were approved. According to a post on the White House Blog during the Obama administration, the U.S. has over half a million unfilled jobs in information technology across all sectors of the economy . Irving is an advocate of raising the cap. Last year the Department of Labor issued about a third of H-1B visas requested. 75% of those selected were through a lottery system. He specifically points to roles that require PhDs in mathematics, physics, and computer science. “We don’t have enough of those to fill our top jobs,” he said.

Crunchbase, a Silicon Valley firm that tracks companies, people and deals internationally will also be at RISE. They’ve noted a significant increase in Asian companies added to their database by venture capital investors and other community users. With employees from seven countries around the world, the company is getting hammered by the visa program. “The process is incredibly delayed and laborious, not to mention stressful even for our existing international employees to obtain continuing sponsorships,” said CEO Jager McConnell. As a growing company, “the additional time and money required makes it a challenge to keep our talented staff together.” He believes this cost will become increasingly burdensome for startups based in the U.S.

CEO CrunchBase Jager McConnell speaks onstage during TechCrunch Disrupt in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)

As a result, some newly formed tech companies are ruling out the U.S. to launch their business.

Tech Startups Leaving U.S. To Launch Business

Ric Cheng is a co-founder of Gekko Lab, a company that builds data analytics solutions for financial institutions. Gekko’s other co-founders are from China and the UK. The duo started building their company when they were students in San Francisco. They decided to move their startup to Hong Kong last year because of the “difficulty to obtain US working visas and uncertainty of the policy,” said Cheng. “It’s a simpler process for obtaining working permits in Hong Kong and we wanted a base where all our international team members, financial analysts and data scientists, could work together in one place.”

Cheng is happy about their decision because they have easy access to customers with a high concentration of enterprises and regional headquarters. He also pointed to the “proximity to Shenzhen where we can tap into a lot of talented engineers for expansion.”

Shenzhen is pivoting from its legacy as ground zero for China's manufacturing boom into a center for research, development and production of advanced technology. Photographer: Justin Chin/Bloomberg

More U.S. startups are setting up shop in Hong Kong

According to research from InvestHK, a government organization that supports the set up and expansion of overseas companies in Hong Kong, more than 20% of all startups here have founders with U.S. origins, the biggest foreign group , followed by the UK with 13%.

“British (firms) are dealing with Brexit uncertainties at the moment,” explained Charles Ng, Associate Director General of InvestHK. As to why Americans like to come here to do business, “we are very similar to New York as a global financial center, we are a regulated platform and more importantly I think people come here because of the B2B opportunities.”

Origin of Foreign Startup Founders in Hong Kong in 2016

He uses banking and insurance as examples of antiquated businesses needing to reinvent themselves with the help of fintech startups. Some 79.9% of Hong Kong’s GDP is made up of financial services, according to Ng. Robo-advising using artificial intelligence with data collected from machine learning is well sought after, “so that banks can redeploy staff for other areas,” he said. Added to that, the advent of the stock connects and cash clearing between international currencies requires more secure block-chain technology.

Demonstrators hold American flags during a rally near Trump Tower (AP Photo/Mary Altaffer)

The current political environment in the United States clearly presents a challenge. President Trump’s “America First” campaign and Executive Order to crack down on visa abuse could lead to a significant curb on foreign workers -- though some point to an alternative: applying for O-1 category classification. But immigration attorney Danielle Nelisse disagrees. “The bar is much higher for the O-1.” She was referring to the fact that individuals are required to demonstrate an extraordinary ability in their perspective field and have been recognized nationally for those achievements.

Unicorns in Asia have been outpacing their U.S. Counterparts

While California’s Bay Area is the epicentre for technology in the U.S., Crunchbase found that 83% of financing took place outside of Silicon Valley last year. Moreover, unicorn companies founded in Asia have consistently outpaced their U.S. counterparts since 2014. “We are already seeing VC funds traditionally focused on U.S. startups creating Asia specific funds and increasing their foreign investments overall,” McConnell observed. He expects this trend to persist.

As long as students continue to be turned away from the U.S., more will be looking east to flex their entrepreneurial muscles. Especially with the support of competing governments in Asia all offering incentives to attract new recruits with disruptive, cutting-edge ideas.

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