Concern is building among American investors that China is edging ahead in the lucrative clean technology sector. And many have come to realize that one clear way for some young U.S. startups to survive against their Chinese counterparts is to partner with them.
Philip Corbin, CEO of FluxDrive Inc, said that his Sumner, Wash.-based firm is scouting a China-based partner that could help the company get its product sold and used in that vast market, while also protecting its intellectual property from Chinese competitors.
“Some of our investors are very keen into moving into China. So they’re pushing us into that direction,” Corbin told SolveClimate News. “[Companies] that have done business in China realize how fast the market is growing.”
FluxDrive started in 2003 to develop adjustable speed drive and couplings that increase the life and energy efficiency of rotating equipment in industrial machinery. The drive can make slight decreases in motor speed to cut energy use by as much as half, and can possibly be used in wind turbine motors.
The midsize company began to manufacture and sell its technology last year. FluxDrive now makes the speed drives in small batches for specialized value-added resellers in Seattle, Houston, Orlando and Columbus, Ohio — plus Canada and Brazil — but is ready to scale up its global production.
The firm made $150,000 in sales in 2010, but is aiming for a ten-fold increase this year.
“Were not looking to build there [in China], but we’re looking for partners that can take the product and help protect the IP in that market,” Corbin said.
Ideal for Young Firms
Peter Corne, managing partner at Dorsey & Whitney, an international business law firm that represents FluxDrive, said that Chinese partnerships would give U.S. startups access to financing that is unavailable at home and increase production to help them reach a competitive price point.
“There is a ‘valley of death’ problem at the early stage on how to get those technologies through to commercialization” in the United States, he said.
Corne, who is based in Shanghai, spoke to SolveClimate News from San Francisco before participating in a U.S.-China cleantech conference there in late May. The lawyer advises clients considering partnerships in China.
“It is not so easy to get funding anymore in the U.S.,” he said. “There is a lot more funding available in China at the moment.”
He added that collaborating with Chinese companies is ideal for early- to mid-stage cleantech firms whose technology does not already have competition in the overseas market.
“The key is to get production to a level [at which] the pricing point is commercially viable,” he said.
China invested $54.4 billion in private clean energy projects in 2010, the most of any nation, according to a March 29 report from Pew Charitable Trusts and Bloomberg New Energy Finance.
The United States, meanwhile, slipped from second place in 2009 to third last year, with $34 billion in total cleantech investments in 2010. Germany came in second with $41.2 billion in investments.
Corne said that Chinese investment would grow even more thanks to the country’s five-year plan for 2011 to 2015, which the government passed in March.
The twelfth-edition plan strongly emphasizes energy efficiency, renewable energy, smart grid technologies and electric vehicles to reduce China’s greenhouse gas emissions by 40 to 45 percent in 2020.
It calls for more than 11 percent of energy to come from non-fossil fuels by 2015. At least 7,000 megawatts of new wind capacity and 5,000 megawatts of new solar capacity are to be built, and $76.7 billion has been committed to build transmission lines for renewable energy plants nationwide.
China also aims to create more domestic consumers out of its 1.34 billion citizens, whose urbanization rates are expected to jump from nearly 47 percent of the total population in 2009 to 65 percent by 2030.
Dying on the U.S. Vine
Michael Moyer, a Dorsey & Whitney attorney based in Seattle, said that if cleantech startups don’t have commercial success in the early stages of product development, “there’s a good chance they’ll die on the vine.”
“A lot of great cleantech companies … are ready to be commercialized, but they’re having a difficult time finding the financing to get it commercialized themselves, or finding customers to create the market pull for their products and services,” he said.
“In China, because of the government-required initiatives, there is a market pull for these technologies that frankly doesn’t exist on the same scale here in the United States.”
Not Just for Startups
Chris Hartshorn, vice president of research at Lux Research, said long-established and multinational companies — not just startups — should also keep tabs on China’s clean technology drive and possible partnerships there.
In June, the Boston-based research and advisory firm announced its China Innovation Intelligence service to provide its clients with technology scouting and market intelligence from analysts in Shanghai, Singapore and Boston.
“There is a rapidly emerging innovative ecosystem in China that will either be the potential partners for overseas companies, or the future competitors for those overseas companies,” Hartshorn said.
“You have got a choice to either engage now and be aware of the innovation and technology being developed in China, or be surprised by it later when companies begin to compete globally.”
Research and development spending in China has grown more than 20 percent annually over the past 10 years, compared to 5 to 6 percent growth rates in Europe, the U.S. and Japan, according to Lux Research.
Hartshorn said he could not disclose how many companies were using the service since its launch in the first quarter, but he noted the initiative has grown more rapidly than any other Lux Research service to date.
“It is a clear indicator that we are certainly addressing a need when it comes to the confusion and fear that exists around China as an opportunity and a threat,” he said.
