Early this week, Google revealed the much hyped “gPhone”. As it turns out, gPhone is actually not a physical phone, but an open source mobile phone platform called Android based on the Linux operating system and developed by the Open Handset Alliance. As Google CEO Eric Schimdt put it, this is not just a single gPhone, but “a thousand gPhones”.

This is a brilliant move on Google’s part. Incumbent wireless carriers are notoriously difficult to work with, especially in the US. While it is understandable that they are entitled to recoup the huge cost in the massive infrastructure buildout, their heavy-handed practice in dealing with partners is stifling innovation and limiting consumer choices. By partnering with handset suppliers instead, Google has essentially staged a “coup” against the big wireless carriers underneath their noses. What a brilliant move! This should be good news to innovators in the mobile space as well as consumers.

Google’s move is not without risks to itself. By opening up the mobile handset platform, it is supposed to level the playing field for every participant. Though the chance is remote, there is always the possibility that a couple of guys or gals in a garage can come up with a “killer app” or disruptive business model that can render Google’s current model obsolete. It is a show of confidence from Google that they can keep innovating and maintain the lead by competing on merits. But maybe it is not such a big risk to Google afterall. With the gushing cash in its war chest, Google can always acquire the emerging leaders in the space and buy into dominance. While this is not the best scenario for economy in terms of job creation (a standalone company going to IPO creates more jobs as compared to being acquired), it may improve the odds for entrepreneurs working in the space.

It remains to be seen if Google can truly level the playing field for all rather than being a new “gatekeeper”. Nonetheless, this is overall a positive development towards invigorating innovation in mobile space. At last, I can sense hope in starting up companies in this space. Mobile applications can be an interesting space to watch over the next couple of years. For those aspiring entrepreneurs out there, do you share the same kind of hope or even a little bit of excitement?

Small stars

SPOTLIGHT
July 2007

The Singapore government is spearheading SME growth in China but this doesn’t make life trouble-free

 Large-scale – and generally state-linked – Singapore conglomerates have made their presence felt in China. CapitaLand and Keppel Land have both racked up successes in real estate, while in banking Singaporean state-owned investment giant Temasek Holdings has stakes in Bank of China and China Construction Bank, as well as in privately owned China Minsheng Bank.

Running beneath these billion-dollar deals, though, is a rich vein of Singaporean small- and medium-sized enterprises (SMEs). Hitherto dependent on multinational firms for subcontracting business, these enterprises are now positioning themselves in the China market with the help of the Singapore government.

SMEs contribute 42% of Singapore’s GDP, employing more than half of the city state’s workforce, according to the country’s Association of Small and Medium Enterprises. Most are involved in the service industries – catering, engineering, logistics and finance.

Hand of the state

Support comes through the “3C” – connections, competency and capital – framework devised by International Enterprise (IE) Singapore, a government agency under the Ministry of Trade and Industry tasked with making local SMEs competitive overseas.
IE Singapore has a total of 45 staff working in eight offices around China producing market research for Singaporean enterprises looking to establish their presence in China.

Tung Lok Group, a restaurant and catering firm, used IE Singapore when it first started exploring locations in China in 2004, said Andrew Tjioe, the company’s executive chairman. Tjioe oversees four upper-end restaurants, two in Beijing, and one each in Shanghai and Wuhan, employing about 280 people.

“They [IE] are well represented in several major cities in China,” he said.

Tung Lok Group was drawn by huge numbers of expatriates doing business in China, as well as an increasing number of made-good overseas Chinese returning home. Economic growth has created a “huge number of nouveau riche in China, like never before in the history. They are high-spenders,” Tjioe said. “We could not afford to miss the opportunity to share a slice of the growing market… China has the fastest growing restaurant industry in the world.”

Regional expansion

The Singapore government is keen to see SMEs expand beyond what Kathleen Hong, north China manager for IE Singapore, describes as the “limited domestic market.” China’s relatively underdeveloped service sector is a prime target.

The 2006 SME Development Survey, compiled for the Singaporean government by the DP Information Group, listed China among the top three destinations for Singaporean SMEs seeking to expand abroad.

To guide companies into China, IE Singapore has developed an internationalization road-mapping program that helps companies build long-term strategies to break into new markets, while an international partners’ program matches Singapore-based SMEs with those in their target markets.

“Such partnerships can achieve economies of scale and maximize chances of success for the SMEs in overseas markets,” Hong said.    
In order to facilitate partnership-building at local level, IE Singapore supplements its educational and information sharing activities with government level exchanges. Economic and trade councils have been established with five Chinese cities – Tianjin, Shandong, Liaoning, Sichuan and Zhejiang – allowing business networking opportunities with officials.

The government has encouraged support from trade associations as well as from law and accounting firms. A SME securitized loan scheme was established in 2005 and has generated US$65 million in loans for some 400 SMEs.

In 2006, the government worked with the Action Community for Entrepreneurship (ACE) to set up the first private equity trading platform (OTC Capital) to offer SMEs a more cost-efficient way of raising capital.  

Commercial banks have also been encouraged to assist. In March 2007, the Singaporean operations of HSBC introduced a fast-track financing package for SMEs which bases repayments more on the company’s earning potential than its current assets.

Government guidance and encouragement has paid off on the ground in China, according to Koh Chin Yee, director of the Singapore Chamber of Commerce and Industry in China, a non-governmental organization representing Singaporean business interests.

An example is Raffles City Mall in Shanghai, which was built by CapitaLand but has generated commercial opportunities for a host of smaller businesses.

“When a big player enters China, several smaller players may ride on the waves… Many Singapore-based retail enterprises came in,” Koh said.

Upper crust

One of these, BreadTalk, actually chose the worst possible time to enter China, with executives making their first visit to a local bread market in the midst of SARS in May 2003.

But the company – which had just raised capital through a stock market listing but was now under pressure from investors to expand regionally – pressed ahead and opened its first outlet in Raffles City in November 2003. Four years on, BreadTalk shops can be found in 15 cities in China.

“The Singapore government has also supported us greatly, from our startup to our expansion abroad,” Frankie Quek, chief executive of BreadTalk’s China operations, said.

One of the resources used by the company was IE Singapore’s familiarization seminars.
“There are many different ways of working and living styles compared to Singapore… IE Singapore and the Singaporean embassy in China provided us with market information to help us devise our incentive schemes to draw Chinese customers,” Quek said.

Grouping of Singapore-based enterprises has also helped reinforce the country’s brand name.

Strong management skills and fast adoption of modern, global practices have helped distinguish Singaporean companies in China, Michelle Peng, marketing manager at Frasers Hospitality, said.

It was this brand strength that helped Frasers compete in an expanding market for serviced residences among local expatriates and wealthy Chinese in major cities like Shanghai and Shenzhen. The company is still relying on its reputation for professionalism and reliability as it expands into emerging centers such as Chengdu, Nanjing and Tianjin.

How to stand out

“In China it is all about building a brand to set yourself apart from the competition,” Peng said. “There are strong local boutique names in Shanghai but no one with the brand name.”

The Singapore brand has worked to the advantage of Tung Lok Group too. Tjioe has found that Singaporean companies are known for being law abiding and their executives honest, upfront, hardworking and trustworthy.

The relatively close cultural backgrounds of China and Singapore can also be a big help, with cultural affinities helping Singaporean firms gain business from Chinese companies seeking to tap into an international network.

“This enables Singapore companies to act as a bridge between Chinese companies and third country partners,” IE Singapore’s Hong said.

The combination of cultural affinities, corporate values and government assistance were the ingredients for success for Origami, a Singaporean software startup operating in China. Origami works closely with Infocomm Development Authority, a government body responsible for technology strategy inside and outside Singapore.

“Our competitive edge has been blending our global experience and technology innovations with an understanding of local Chinese relationships… Singaporean IT service companies can get business on the mainland because they’re trusted to deliver on time and to standards,” Origami CEO James Ong said.

Despite the obvious progress made by Singapore companies in China, challenges still remain.

For the likes of Frasers Hospitality and Origami, finding good Chinese partners is an issue. Similarly, BreadTalk has experienced problems recruiting local staff who are up to the job. Quek also cites rising rental and labor costs in big cities as particular annoyances, as well as the abundance of copycats.

“We have to protect ourselves against people using measuring tape to measure our outlets’ counter height, and stealing our branding story boards,” he said.

These complaints are similar to those of SMEs from all places seeking to enter China, according to Hong. She has found that strong overseas competition, a lack of overseas business knowledge and contacts and a lack of external funds and manpower for overseas expansion are the other frequent bugbears.

The big picture

Singapore has no shortage of programs to help its SMEs gain market share in China but businesspeople agree the best thing Prime Minister Lee Hsien Loong’s government could do is strike a free trade agreement (FTA) with Beijing.

Free trade agreements negotiated with countries around the world have proven to be “superhighways that connect Singapore to major economies and new markets,” Koh said. He also stressed that, in addition to tariff concessions and faster market entry, an FTA with China would give Singaporean firms preferential access to certain sectors and better intellectual property protection.

As it stands, most Singapore firms are doing well. The top 500 SMEs increased total revenues by 30% to US$8.7 billion over the past five years, and almost doubled net profits to US$409.6 million.

Future growth is likely to follow a similar pattern to that of the past – success built on the back of strong government support mechanisms. This is particularly true of China’s hard-to-navigate business environment but, that said, there is only so much that grants, guidance and cultural affinities can do.

Singaporean SMEs will continue to face challenges in China and, given the city-state’s limited market for ambitious players, the pressure to succeed will only rise.

China Claims World’s First 4G Technology Rollout.

A trial run of fourth-generation mobile technology has been launched in Shanghai, China. Although over 80 million customers were anxiously waiting to switch to 3G, such networks and services are still not available in China and have been constantly delayed by the Chinese government. But now it looks like people from China are going to get something much better than 3G. As a response to the delays, engineers have moved on to developing the ultra-fast 4G technology that provides wireless services at considerably faster speeds. The technology will improve high-quality images and data services, possibly also allowing features such as multi-channel high-definition TV broadcasting.The trial of the fourth-generation technology in Shanghai cost 150 million yuan (approximately $19 million) and according to the Chinese government, it was the first rollout of the 4G in the world.”It testifies that the technology we’ve developed is feasible and brings us one step closer to put it into commercial use,” the China Daily quoted You Xiaohu, a leading expert involved in China’s 4G development program, as saying of Sunday(Jan.28.2007)’s trial.

ON March 22, SVC Wireless organized a workshop on in the intellectual property protection system in China.  SVC Wirless Legal Advisor Elizabeth Chien-Hale provided the overview of the IP protection system in China.  There are good registration/application procedures in place in the patent, trademark, and copyright areas.  Ms. Chien-Hale also discussed the current enforcement system in China, mostly through the administrative route or through the judicial route. 

The guest speaker is the managing partner Mr. Xiaoguang Cui from Beijing Sanyou.  Mr. Cui is one of a handful IP attorneys who have worked in the IP field in China from the very beginning.  He discussed with us a detailed case study of a recent patent infringement case filed in the Beijing Intermediate Court.

The session generated much discussion.  The audience had many questions regarding the Chinese system, and drew comparisons between the Chinese and the US systems.

SVCWireless Entrepreneurship Workshop Serial (II)
-  Entrepreneur Incubation Skills: how they think, live and work

Here in the Silicon Valley, you hear lots of successful stories that creative people build up their own companies: Intel, Microsoft, Yahoo, Cisco, Google, Marvell … You get excited. You have the passion to be one of these brilliant entrepreneurs. Most of all, you want to make a big impact of your life! But where do you start? What skills are needed to be successful? How to avoid pitfalls? Where do you get help?…

Welcome to the SVCWireless Entrepreneurship Workshop Serial. Bring your questions and communicate with top attorneys, accountants, VCs, and entrepreneurs in the fields. Get first-hand information on corporate laws, financing, taxation, entrepreneurship skill, VC, equity allocation and more!

Date: April 10, 2007 (Tuesday)
Time: 6:30 - 7 pm, Registration and networking
 7:00 - 9:00 pm, Workshop
Venue: Fenwick & West LLP, Silicon Valley Center
 801 California Street, Mountain View, CA 94041
  (650) 988-8500
Fee: Regular member: Free
 Associate member: $20 RSVP, $25 at the door
   Non-member: $20 RSVP, $25 at the door
   Student: $5 (Student ID required)

RSVP:
rsvp@svcwireless.org with the following subject line: “4/10: Your Name”

Moderator:
Bob Fu-Yuan Lin, Founder of Multi-Dimensional Venture Partners and co-founder of Capital Multiplier International
Panelist:
William Wattmeter, Co-Founder & CEO, eXS Inc.
Henry H. Wong, Founder & Managing Director, Diamond TechVentures LLP
Steve Wallenberg, Founder and V.P. of Business Development, Dash Navigation, Inc.

Contact and more information:
Yuan Tian: yuan.tian@svcwireless.org

Silicon Valley-China Wireless Technology Association
Web: http://www.svcwireless.org
Email: membership@svcwireless.org

For a few years, I have been hearing people saying that mobile phone will be the convergence platform that has all the features integrated. Yes, we see it’s happening. This was the dominating topic in the seminar “What Is The Cutting Edge In Mobile Devices? – The Practice and Future Trend”.  In the seminar, the consensus was that mobile phone would have many features integrated together, from MP3 to GPS. The panelists mentioned three contributing factors – mobile phone’s large install base, reduced cost of new functionalities and products with targeted feature sets to appeal different consumer bases.

I agree that the mobile convergence is the current trend. But I feel wary when I hear people saying “mobile phone will do everything”. Mobile phone will do a lot of things, but it cannot do everything. If it does, innovation is stopped. Why?

To foresee the future, we would better understand the history. There is a famous saying in The Romance of the Three Kingdoms, “The world under heaven, after a long period of division, tends to unite; after a long period of union, tends to divide. This has been so since antiquity”. History has stunning similarities. Before 80’s, computers were centralized. In 80’s and 90’s, PCs broke the centralized model and flourished. However, in recently years,  more and more computing is done on network servers and Google is challenging Microsoft’s status quo. It is interesting to observe such similarity.

Why does history show such pattern? A centralized system has better control and less cost, but less variety. A decentralized one has less control, more cost and more variety. When a well controlled system has been running for very long time, its bureaucracy and lack of variety slow it down and it is deemed to be replaced by a decentralized one. Similarly, a decentralized system shows its weakness when its disorganized and chaotic nature make it inefficient. At that time, a centralized model will replace it. Innovation, or in general, a human’s desire to do things differently,  is the driving force that makes all the changes.

This is and will be the trend. When after years, Google’s search results look the same, things will change. When after years, people cannot easily add a function into a feature-loaded cell phone, things will change. New model will always break the old one and innovation will prevail.

Eugene

[ Posted on behalf of Mangesh Kolhatkar of Programs Team at SVC Wireless]

The event was hosted at Fenwick & West LLP in Mountain View On February 28, 2007

Presenters:

From SVC Wireless Technology Association: Yuan Tian, Dr. Wen-Pai Lu

From Fenwick & West: Fred Greguras, Andrew Luh, and Lily Toy

From Jun He Law Offices: Jie Chen (visiting from Beijing)

Introduction

The workshop was the first in a series on Entrepreneurship and focused primarily on incorporation issues with a sub-focus on incorporation of Chinese subsidiaries. Several other workshops, that will closely mirror the actual evolution and life of a technology startup, will be offered during this year, designed to provide useful, pertinent information for existing and future entrepreneurs that have a connection with China markets and/or wireless/mobile technology focus.

Over 70 participants very well attended the first workshop. The evening began with a brief presentation on SVC Wireless Technology Association by its President, Dr. Wen-Pai Lu, who was introduced by Yuan Tian, Director of Entrepreneurship Programs. Wen-Pai explained that in addition to the current series, the association continues to offer regular seminars and an annual event that feature presentations, panel discussions by industry leaders and technology professionals drawn from the Silicon Valley or visiting from China or other Asian countries.

The four panelists then began the workshop by presenting each of the following sections in order:

1. Formation Matters (Lily Toy)

2. Chinese Subsidiary Incorporation Matters (Jie Chen)

3. Vesting, Stock Options (Andrew Luh)

4. BoD Composition, IP & other legal Issues (Fred Greguras)

Formation Matters

Incorporation of a company offshore has advantages and disadvantages. The biggest advantage is eligibility for access to capital markets in Hong Kong such as an IPO on the HKSE. Chief among the disadvantages, though is that taxation, corporate structure, initial incorporation can be much more complex and also expensive.

Incorporation in the US can be either as an LLC (Limited Liability Corporation), or as a C- (or its subchapter S-) Corporation with incorporation either in California or in Delaware. A majority of Technology startups in the Silicon Valley (22 of 25 in the most recent quarter, 4Q2006) are incorporated in Delaware owing to its corporation friendly laws, although there are no significant tax benefits to incorporate out-of-state. Either kind of incorporation limits personal liability. LLCs offer the added advantage of personal pass-through taxation (which is also possible with S-Corporations), yet are limited in their ability to grant stock options, therefore making investors from the VC sector uncomfortable with such a structure. VC investors tend to have the highest level of comfort with Delaware incorporated companies, probably due to a rich precedent.

A Stock Option Plan must be created very early when a company is incorporated as a C-Corporation either in CA or DE.

A third option is Offshore Corporation such as in the Cayman Islands. This option is most often used by China focused businesses. It is crucial that such formation offshore be done earlier, as US tax consequences due to a delay in offshore corporation formation can be severe.

Chinese Subsidiary Incorporation

Chinese subsidiaries can be either WFOEs or Joint Ventures (JVs). A Chinese partner is required for a JV. However, a WFOE is preferred as it facilitates 100% foreign ownership. Special Structures are used in Restricted Areas (such as Internet content companies). A Cayman based company with a Chinese subsidiary, under certain conditions can not only meet Restricted requirements but also withstand eventual SEC scrutiny as it arises.

Incorporation for JVs or WFOEs is similar and requires Ministry of Comm Approval (usually Local sufficient, sometimes Central may be required), followed by SAIC registration for grant of Business License, then Post-Establishment Registrations, and finally Capital Contributions. Capital Contributions differ slightly from the US in that each shareholder is required to make contributions of a minimum of USD100,000.

Depending upon whether a company is deemed “Encouraged”, “Allowed”, “Restricted” or “Prohibited”, ownership of foreign investors may be curtailed to under 50%.

Other issues to consider are Foreign Exchange restrictions (China Government controls ForEx) and careful, practical measures to ensure IP protection.

Organizational Matters

A simple way to incorporate is to hire an agent who files initial Articles of Incorporation and later resigns and appoints Board member(s). The BoD then approves a series of items in its organizational resolutions such as bylaws, stock purchase agreements and stock option plans.

In setting up capital structure, it’s advisable to keep it simple, say by using a 1X pattern and typical dilution concepts.

Founders can be issued 3-5M of common stock depending upon number of founders. Other issues to be cognizant of: Vesting schedule, 3- or 4-year with cliff then monthly, Right of first refusal until IPO of Founders stock, compliance with Federal and State Securities laws.

Founders Vesting can be a tricky issue to manage. Company must have right to repurchase shares and file 83(b). Company must also impose vesting pre-financing and time vesting while providing up-front vesting commensurate with various factors such as value of contributions to company. Vesting acceleration should also be addressed early when acquisition is a plausible exit.

Equity Incentive Plans can be either ISOs or NQSOs. 20% to 30% shares (of fully diluted corporation) can be reserved for equity compensation made to eligible members including employees or service providers such as Board members, consultants, advisors etc.) Most Private companies choose to award ISOs while public companies use NQSOs. The latter carry significant tax disadvantages such as double taxation. ISOs are available to employees only and are subject to disqualifying dispositions.

Board of Directors

The BoD is the governing body of the company. Each member has one vote only (regardless of ownership). It is advisable to keep board size small initially (no more than 3) including one founder. An outside director can be brought in following a follow-on funding round such as Series B or promoted from within the Advisory Board.

Company Naming Issues

First visible and legal exposure to the company must be protected by all types of protection such as trademark and trade name filing with Secretary of State (CA and DE), Federal PTO trademark protection, Domain name registration. If disputed by an existing entity, it’s advisable to switch rather than fight at startup time. However, an offensive strategy implies ensuring protection at all levels as stated above and asking those who infringe to “cease and desist”.

Clean Break from Prior Employer

California Labor code is very specific in stating that any inventions that resulted from work at a prior employer are that employer’s property. This restriction extends to moonlighting by founders and/or others, and also applies to solicitation and to the hiring of employees. So utmost care must be taken when forming a company that there is no violation of California Labor laws.

The evening closed with a Q&A session pertaining to the topics discussed (where possible, these have been incorporated within the above report.)

Min Pao released the March 10 event news on Sunday Newspaper. You may also review the news on their website:
http://www.mingpaosf.com/htm/News/20070311/sf4b.htm

It also appeared in their electronic version. Look for B03 at the lower right corner.
http://www.mingpaosf.com/htm/News/20070311/bpage.htm

World Journal should release the news this weekend. I will notify you when they release the news.

Good job everyone.

In Silicon Valley, we are fortunate to have many organizations that provide exciting events with themes on technology and entrepreneurship. So, what’s different about SVCWireless? This is the question we should always keep in mind. As an organization, it’s important to understand what our core competence is.

Since its inception, SVCWireless has brought together industry leaders and provided leading edge wireless technology seminars that nurtured entrepreneurship in this field. Unlike AAMA, HYSTA, TiE, SVASE, we focus on educating our members with latest wireless and mobile technology trends and their applications. In the meantime, we support our members’ entrepreneurial activities by providing hands-on workshops. Our strength lies in our expertise in mobile wireless industry and our deep ties between Silicon Valley and China.

By focusing on our strength, we are well positioned to become the leading organization in mobile wireless industry and build bridge between Silicon Valley and Greater China. And most importantly, we will be able to provide unique values to our members and build a strong community. We welcome your thoughts and comments on this subject.

We had a great event on March 10!

We always put great effort to promote our SVCWireless events and build our brand name. The March 10 seminar “What Is The Cutting Edge In Mobile Devices? (The Practice and Future Trend)” met our goals with a big success. We successfully invited reporters from World Journal and Ming Pao to interview with our V.P. Marketing, Helen Wang, and to write articles in the newspapers about the event.

We had a recorded turnout of over 80 attendances at the event. Thanks to our distinguished panelists who presented their valuable insights on present and future trends in the mobile devices. The highlight of the event was the introduction of a new touch screen base multimedia smart phone. A so-called “iPhone killer”, the smart-phone offers many exciting features and userblities that are unmatched by today’s standards.

Audiences are enthusiastic about the topics and participated wholeheartedly during the Q&A session. Many stayed behind to talked with our panelists and caught a glimpse of the new smart-phone. One attendee pointed out, “This is the best event I’ve attended and I look forward to more good events from SVCWireless.” That pretty much says it all.

Great job, everybody. It took a tremendous team effort to make this event a great success. My kowtow to you all!

Regards,

Pablo Chu