For Linktone's Raymond Yang, China is the place to be

CEO Raymond Yang is in a good mood as he meets me in the Beijing branch of his Shanghai-based company. This is not surprising given the unexpectedly strong first quarter results his company announced in early May.

Defying a bearish macro outlook both in China and the US, the Nasdaq-listed counter saw its stock price jump by 35% in the wake of the announcement. Like all recent China IPO's it had been trading below issue price and the sudden jolt pushed Yang and his company to the forefront of the news.

Indeed, one Shanghai finance specialist describes him as the 'hottest entrepreneur in Shanghai right now.'

Despite his new-found fame and decades of work in New York and San Francisco, Yang comes across as pragmatic and down to earth. You might think he misses the bright lights of the world's richest economy, but on the contrary, Yang says he's only too happy to work on the Mainland.

Indeed, with his hair cropped in the trademark flat-top of many Beijing males, he blends in well with other hard-charging local tech entrepreneurs. Not for him the Western fashion habits that many Chinese professionals find hard to shake when they come home.

"There are certain things I prefer about working here. In New York, for example, staff are very professional, but the atmosphere is fairly cold and formal. Here in China, there is more warmth - more of a family feeling to a company," he explains.

That almost paternal role sometimes means having to listen to the problems of even the most junior secretary, but Yang says he enjoys the opportunity to interact with his staff.

The differences go further than just the office, but Yang says he's not worried by the different operating style in China, even in the legal area.

"Thanks to the somewhat lagging growth of the legal structure compared to economic growth, there are many grey areas in China when you do business. Some businessmen, especially the first generation in China during the 1980s - the so called 'convict generation' because so many of them were fresh out of jail - pushed too far," he says.

Yang's policy is to take advantage of the grey areas, while being extremely careful and rational about which lines not to cross.

And that is where a Mainlander operating in the Mainland pays off. Through his high level contacts Yang can learn in advance when one of the central government's periodic crackdowns occurs and can take the appropriate steps.

In his smart striped shirt and chinos Yang looks fit and rested, but he says it was a different matter in the run-up to the company's IPO. That involved getting up at 6am for ten meetings a day in three different continents for several weeks.

"It was an incredibly intense experience, but worth it," he says with a grin. Indeed, the company managed to beat close rival Tom Online to the market and raise $86 million. That was partly by dint of an unusually rapid restructuring process by the standards of Mainland companies being readied for an overseas listing, less than six months.

Some observers have looked doubtfully at Linktone's business model. That model involves cooperating with China's mobile phone companies to bill mobile phone users when they download games and gimmicks from the Internet: ring tones, screensavers and online games.

One frequent concern was that the mobile phone carriers could increase the 15% cut they take per transaction, but Yang says those concerns are exaggerated.

"There are more and more carriers to work with. If China Mobile gets greedy we can always switch to Rail Com or Netcom," he points out.

He adds that such criticism also does not take into account that the carriers benefit from the increased length of time value-added voices services tempt subscribers to stay on-air, thereby also boosting their revenues.

"Our relationship to the carriers is thus symbiotic. They need us to be strong, to be making money, so that we can in turn boost our offering and encourage the subscribers to spend more time on air, by playing games, for example, which boosts their own bottom line," he points out.

Rivals in the tech space, such as the schoolteacher turned entrepreneur Jack Ma, CEO of China's dominant e-commerce firm Alibaba.com have proclaimed the future of China's tech companies lies with online business transactions such as auctions, but Yang isn't worried.

"What's the one thing you are never more than one meter away from? The mobile phone is as indispensable as your wallet. We're observing a crucial change, namely that as people get more mobile, spend more time commuting and traveling, the entertainment function of the phone is becoming as important as the communication function," he points out.

His comments make especially good sense in Beijing, a city whose vast distances and shoddily-built modern cityscape make long commutes especially onerous.

In any case, Yang believes simple numbers are on his side: Out of China's population of 1.3 billion, some 270 million people are already subscribers, the biggest mobile phone market in the world, and estimated to top 400 million by next year. Part of Linktone's task is simple: to grow on the back of those huge numbers.

That Linktone seems to have succeeded in that is shown by the numbers. In the first quarter, the number of subscribers shot up from 4.5 million to 6 million year-on-year. Total sales reached $9.4 million, up 41% from the last quarter of 2003, while net profits were $2.8 million, up 74% on the last quarter of 2003.

In retrospect, the intense spotlight which the US market has since turned on the company vindicates the decision to list on Nasdaq, instead of the Hong Kong.

Yang doesn't believe Hong Kong necessarily has a better understanding of the company and its sector.

"US investors are very savvy, and IPO-ing in the US also means that you are not so exposed to selling to retail investors," he says, referring to the Hong Kong stock exchange rule whereby if an IPO is oversubscribed by more than a certain amount, the retail allotment goes as high as 50%. That is to the detriment of the institutional investor portion, and can mean fewer long-term institutional investors on-board.

In addition, he points out, given the troubled corporate government background of many Mainland companies which list abroad, the stringent listing requirements of the Nasdaq are more likely to reassure investors.

The company's performance vindicates the choice of Yang as the man to bring the company public.

He was chosen when Linktone was carved out of the original company, Intrinsic. The original company was founded by three Chinese and two British founders, but later on it was decided to bring outside investors on board.

But Intrinsic was more of a telecoms infrastructure middle-ware company rather than a value-added voice services company and the presence of Linktone didn't make sense to the outside investors, so it was carved out and put under another CEO.

When things didn't work out under the original CEO's leadership, the company took Yang onboard just 13 months ago as a turnaround specialist. Yang seemed an obvious candidate since he has worked in telecoms and voice-related technology both to an advanced level in the US and back on the Mainland when the market was just starting out.

The entrepreneurial bug had bitten Yang early. A graduate of Tsinghua in Beijing, he set up his own small-scale computer software and integration company on graduation. That turned out to be very successful, but he had set his sights on higher things, and to achieve that he deemed a visit to the US essential.

Back in US several years later, the wheel has turned full circle. However, given Yang's restlessness and tendency to seek out difficult challenges, it would be no surprise if he ends up doing something even more challenging in the years to come.