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3 major reasons foreign companies fail in China

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In this age of internet globalization we have seen many successful foreign companies enter China with their heads held high only to later slink away in defeat. The Chinese market is big, but it is not easy. If you want your foreign startup to make it in China, here are three massive mistakes to avoid.


1. Not understanding the market and the culture


Not understanding the market is a big no-no in any country, but when foreign companies enter China it seems to happen a lot. Perhaps that’s because China’s culture – especially its internet culture – is quite different from the culture that has developed in the West. Chinese consumers have different needs and desires when it comes to online services, and companies that ignore that are usually doomed to failure.


The classic example of this is eBay, the successful American C2C ecommerce giant that copied its American model to China and got completely destroyed by local competitor Taobao. Why did Taobao win? Because Taobao understood that in China, shopping was a social and personal experience. People were used to talking and even haggling with the people they bought things from, and building relationships with them. Ebay had user reviews, but it lacked the personal connection that Chinese shoppers were used to, so it failed.


2. Picking the wrong local partner, or ignoring the right local partner


Entering China on your own can be very difficult, and in some sectors, it’s completely impossible. But choosing a local company to partner with brings its own share of problems, and companies that choose poorly often end up in trouble. One of the most common issues with local partner companies is that they operate their own services, causing a conflict of interest when it comes to operating and promoting their foreign partner’s China operations. 


Groupon China was a great example of both of those problems. Tencent was a questionable pick to begin with because the company already owned and operated several Groupon-style sites. Partnering with Tencent should have offered some big advantages like local knowledge, local staff. Groupon failed to take advantage of any of these, hiring Western managers to run its China operations and continuing to do things the American way in a market where that just wasn’t going to work. 


3. Not playing nice with the government


Especially when it comes to the internet, China has one rule that towers above all others. Both foreign and Chinese companies can and do push the envelope from time to time, but any direct challenge to the government, or refusal to abide by its directives, is going to lead to a one-way ticket home.


Google is a classic example of this. Although the company had other problems in China, too, what ultimately proved its undoing was its failure to get along with the Chinese government. The backstory here is complicated, but the endgame came when Google decided to stop censoring search results in China, which meant shutting down its mainland China search engine entirely. When a foreign company takes on the Chinese government, there can only be one winner, and it won’t be the foreign company.



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