Why western companies fail in China

Why do western companies fail in China?

Why do western companies fail in China?

Many western companies try to expand their business to China’s nearly 700 million internet users.

Some companies succeed and get tremendously rewarded, but many more fail.

I previously wrote an article about what, as I see it, Chinese startups should change to perform better in Western markets.

In this article, I will show the other side of that trade-off.

Some Chinese founders and specialists generously agreed to share their opinions on the question “Why do you think some Western tech companies fail to do good business in China? What are they doing wrong?”

Yi Shi

CEO & Founder at Avazu Holding

  • The Chinese working attitude, especially for online companies, is tremendous. We are seeing a lot of hard working employees, especially in big companies like Tencent, Huawei and tons more here in China, working 6 days a week, 12+ hours a day. At Huawei, there’s even something called the sleeping bag culture, which means if their engineers work too late, they can sleep in their sleeping bag directly under their work desks.
  • The traditional multinational company hierarchy often does not fully support “100% localisation”, and for a large market like China, you will need “100% localisation” to compete with the local players. Issues often arise due to long decision-making processes involving HQ, non-localised senior management teams, one platform for all strategies, etc.
  • ESOP is also a point that corresponds with the feeling of ownership among senior employees. We don’t see many multinational companies in China having ESOP programs, while almost every Chinese startup is doing it. (Author’s Note: ESOP – Employee stock ownership plan).

Arthur Lee

Head of Global Promotion & Traffic Biz at Alibaba Group, UCweb inc.

  • Chinese people share different social status. Chinese people were raised to receive information rather than to discover it like Westerners do. Also, Chinese people like to follow. We like things that are ‘efficient’, not ‘special’. In short, people here are more passive and less individual. However, things are changing.
  • Different internet behaviour. Chinese people believe the internet is a separate industry, like games or online ads. It’s not part of “culture” or “advertisement”. The Internet is the Internet. Western companies try to solve the legacy problem, while it’s a brand new thing to the Chinese. Young people grew up with the Internet, while our fathers are peasants, with no cars, no commercials, and not even much of entertainment. China grew too fast, so there is a very big gap. (Author’s Note: The adaption rate of Chinese people is fantastic. In China, I often see old ladies in their mid 60-s and even 70-s in the park making photos with their smartphones and sharing it through WeChat)
  • Chinese like multi-functional things. We prefer to think that one thing can solve everything. One rule can suit all. So, all big IT companies in China integrate almost every function, while Westerners focus on solving one problem at a time so the product is easy and user-friendly. Compare with WeChat and WhatsApp, QQ and Skype, Weibo and Twitter. There’s no Instagram and SnapChat here. The reason, I think, is connected with No.2.
  • Government censorship. No Google, Facebook, Youtube, Twitter. There’s only BAT. You can imagine! (Author’s Note: BAT means Baidu, Alibaba, and Tencent).

Chance Jiang

Co-founder at Fongwell.com

I think the root cause of this phenomenon is in the founding partner and share-holding structure. Western companies do not have enough incentives to win the Chinese market together with non-Chinese founders/share-holders in the long term. Yahoo’s early share-holding of Alibaba is a good example.

However, this does not mean that non-Chinese partners can solely and directly operate the business and be successful in China. A good partnership means non-Chinese partners depend on Chinese ones (local knowledge) to succeed. (Author’s Note: Yahoo owns 25% of Alibaba Group, but it does not interfere with how Alibaba does business.)

Leon Du

Co-founder at beansmile.com

  • Cultural differences – This might be subtle, but very critical for doing business in China. A good example would be eBay China, because when they started in China, they invested in a company called Eachnet. At the same time, Alibaba started their business with Taobao. This is an English domain name versus a Pinyin-based domain name. From what I can tell, Eachnet is a terrible name, because few people in China can remember it, making it difficult for them to spread it. (Author’s Note: Taobao is currently the most successful e-commerce sites in China.)
  • Authorisation – Some foreign companies give little authorisation / decision-making capabilities to their local team in China, so leaders in China cannot hire people according to their needs, or make campaigns without the headquarter’s authorisation. As you know, the market changes rapidly, and not having any authorisation always leads to slow reaction. The result is failure in the market.
  • Above are the main reasons I can think of, but of course there are more, like local businesses being more sensitive to trends. Many of them are already doing business on WeChat, while many giant foreign companies don’t even know what WeChat is…

Winder Chen

Founder & CEO at Kuaizi Technology

The need for a “proxy”

In the technology and internet industry and partnering with local ventures do not solve the puzzle of successfully landing the business in the local market, because majority of the internet business require actual technical connections with the local ecosystem. This requires local servers, compatibility and operations to build the connections (which may be very complicated given the scale and complexity of the market), and data exchange.

Majority of the local internet companies, especially in the media space, will not directly connect to a new comer from a foreign market, with hurdles and concerns on the communication side as well as the political side. I used to run a digital media project landing a foreign tech solution to serve local markets for a global FMCG giant. Having a local partner to handle the local connections was one of the key things we solved to ensure a smooth plug into the media ecosystem. Having the right “proxy” itself was a very tricky thing, with the level of trust required, the way to split the business and so on. Groupon came in China with Tencent with a 50/50 split and turned out to be a disaster.

Fear of copycats

This seems obvious, but foreign technology companies need to get over this fear to be able to play in the market. Lots of companies hold this concern and discuss this too much before they come in the market .The truth is: if copycats want to copy, they copy you wherever you are. At the local market, as a founder of a tech company, getting my technology protected is really not my priority (though I would occasionally think about it).

The priority is getting it out there with the most market penetration. I talked to a patent lawyer about 9 months ago and we were discussing about patents. He said that in China, it takes at least two years to be granted a patent. In the tech industry, it is already 1-2 generations of technology, so the patent is already obsolete after 2 years. What you lose when you want to hold on to protect your IP is the opportunity to get the market share. It’s again a very tricky balance: How do you come in with a tech advantage (assuming most of the foreign tech companies do have more established development in a certain area) and how to win the market at speed?

Adapt and customise

There’s one more very important factor. Most global/Western tech companies build their technology platforms or products with a global scale mindset, and want to standardise across the board. There’s nothing wrong about that. However, in China, the ability to adapt and to customise according to the market’s needs is really important because the market needs are evolving very quickly, and the way to operate your product based on individual clients would be very different too.

This then requires a strong local operation team to own the decision-making power regarding the customisation of the technology. These 2 things, however, don’t happen at the same time. In almost all the cases, none of the Western tech companies seem to have a strong operation team (not willing to invest) and/or no local operation team has the say in how the product can adapt to local needs.

Daniel Yang

President-蓝科科技 / COO – REDApp

In my opinion, it’s because Western companies try to copy the business model from Western countries, not realizing the difference in behaviour of Chinese consumers.

Chinese customers, more than any others, like free service.(Author’s Note: Chinese people rarely pay for apps, but gladly make in-app purchases)

Rodney Cao

Founder at BrandVista.com

I think the reason is that they cannot find accurate local insights of customer need in the Chinese market.This is a rapid growing market in which every body is trying to solve functionality rather than quality issues. Technical needs in the Chinese market is fundamental and down-to-earth practical, while international companies have their global strategy and principle which lacks customer resonance and flexibility.

Then the second reason is marketing and communication. This is the most complicated and fiercely competitive marketing place in the world. The marketing and communication of international companies are somewhat mild and not really getting to customers.

I want to say thank you to all the great people who were kind enough to share their opinions about this important issue. They are helping to build a bridge of understanding between entrepreneurs inside and outside of China.

For markets as big as China – to learn how to coexist is not a choice, but a condition.

Contributed by “Sky in Company” – English/Chinese and Italian/Chinese translation service

Source: Tech in Asia – Why Western companies fail in China


Categories: Trade & Investment

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1 reply

  1. Reblogged this on By the Mighty Mumford and commented:


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