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Why Big Companies failed in China?

Apple and Samsung in one store Shenzhen

In last decade, we have seen many overseas companies are coming into China with high hopes to develop a market but they failed to live up to their expectations.

They came to China armed with cash, intellectual property and the ability to manage complex networks and introverted workers, however, no one has dominated its field there, not even close to be the leader.

Even Google, which by some measures is the world’s largest Internet market could not avoid the fate. Many experts thought Google would be the first to break the myth. While each failure has been different, most blamed on the government blocking and censorship.

 

 The truth is, the ignorance of the market differences in China leads to the failures of them.

Ignorance of Market Differences in China

Respecting local laws & regulations is the milestone to operate in a new market. Many international brands underestimate this and do not care too much about this, the result is obvious, the internet block leaves no hope for internet companies at tall.

Local companies, on the other hand, often maintain close ties with regulators, which helps them anticipate new policies.  The small internet companies still struggle with local company setup, and the web license. Surely big global companies don’t need to worry these things.

however, mandatory ICP license and many other additional business licenses are very high barriers for foreign investers. a typical example is the map license issue with Google.

Short-Term Plan in China Market

Unlike other new markets in the world, China is a very huge market requiring much patience. Many global companies often prioritize global representation on profitability, or cut-back across all regions during economic downturns. These unwise moves will not provdide any confidence for the Chinese team especially in the very beginning when stable organization and necessary resources shall be invested in the early stage to gain the market share.

Poor Protection for Innovation and Intellectual Property

The legal system in China is not so mature, notably in the Intellectual property filed. You would easily find that it’s almost impossible to protect your business models and user interfaces especially for online businesses.

Cloning examples can be really successful in China by local entrepreneurs just because they have done a good job of building a web sites that are tailored to the Chinese market. So-called ‘copy-to-China’ is still the main business model of the China Internet market. We can see many identical business models running in China

Soif your business model is easy to be copied, it would be very difficult for you to beat your local counterparts here.

 Fragile Local Partnership

In most cases, when a foreign company approaches a local company to set up a joint-venture, the two sides are not seeking for the same thing. The partnership is fragile and easy to break. The foreign companies are trying to learn how to run the business in China and get a license through the joint venture, while the local partners want to obtain the transferable skills and learn the technology from their foreign partner.

 Lack a Team of Chinese Talents

The valuable experience in the global market together with local understanding of the market are essential to start the journey. The right thing to do to is to form a trully localized team with talents to start the journey. The team should be have the real power in strategic planning so the HQ will not be ignored.

Many global companies has just hired some senior managers who follow orders and treat these companies as the relex place insted of hard work, while the capable and talented are left away fromt he managment.

Poor Localized Operation

China is a huge market but very tough to acquire, and you will face a lot of strong competitors. The new entry in the China market is like an adventure. The sucess in the States, Europe or other countries does not guarantee your success in China. Lack of understanding in the Chinese market will always leads to a slow process of decision making, which will lose the good timing for the market. Failure of Global Companies in China was a result of Ignorance of the Chinese business culture

The wrong choice of local senior management will make the things worse. Global companies prefer to hire an overseas MBAs or PhDs who speaks perfect American English, However these people might not be the best  choice in the real battle field in China while the market is developing so fast and they might miss a lot when they are abroad.

 

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