#105 Barbie, eBay, Google
I recently came across this older post that discusses why American companies fail in China. The author of the post singles out Mattel, eBay, Google, and Home Depot and also offer his opinion on the reasons for their failure: a lack of flexibility, the failure to localize, or the existence of a strong competitor. In summary, so the author, it boils down to the fact that American companies have an inability to grasp how different the Chinese market is. I say, tell me something that is new! It’s not a secret that China is a difficult and different market; and it is also not big news that American companies often fail when entering foreign markets (e.g. WalMart in Germany, The Gap in Germany and Korea, Pizza Hut in Austria, eBay in Japan). The analysis therefore has to go a little deeper. It is not uncommon for large multinational corporations to side with standardization in case of doubt. Adaptation to foreign markets can be feasible and affordable if a company is only dealing with one, two, maybe even ten foreign markets. Beyond a certain number of markets served, however, adaptation becomes very costly and very complex. If preserving a business model (marketing approach, processes, etc.) is important to a company, then the question should not be HOW do we enter a market such as China, but SHOULD we enter a market such as China? If standardization is so important to sustaining competitive advantage of a company, then it should probably not sacrifice it on the altar of a very different market, but select foreign target markets very carefully. Sometimes this may mean to say no to markets even as large and juicy as China.
November 17, 2014 @ 9:10 pm
As said in the post, it is quite costly and complex for a company to deal with more than 10 foreign markets. In my opinion, companies should think about adaptation whenever they go for markets in relatively different cultures. It is very imprudent from e.g. an American company to try to enter Chinese markets without adapting their product range or marketing at all.
For example The Home Depot failed in China because they didn’t think about the fact that China is a country where do-it-yourself products are not very popular due to cheap labor. Therefore The Home Depot maybe should have created already “finished” products for Chinese instead if DIY products, or, like IKEA did, provide showrooms and guidance of how to create a western style into your apartment with the company products. China is relatively low in uncertainty avoidance, so they need guidance and experiences from others before they start buying anything.
In terms of standardization (which seems to be characteristic for The Home Depot), I think some companies really should focus only on domestic markets and not try to conquer markets on which they know basically nothing about. Especially if they aren’t even eager to find out the cultural differences or differences in consuming habits of the target country. Companies can suffer big losses because of these things. One example of this was Wal-Mart’s attempt to expand into Germany. The business idea just cannot work in Germany such as it does in America. The Germans don’t want their groceries to be packed by somebody else. In addition to this, German managers weren’t very enthusiastic to start their day with a morning exercise at their working place etc. It needs to be considered that individualism in Germany is slightly lower than in America and on the other hand uncertainty avoidance is higher.
In these kinds of situations I would strongly recommend companies to just focus on their core competence and in things they are good at. Sometimes this means that companies cannot let their greediness win and only think about the money. Or at least they should think about the money they most likely may lose. And if a company decides to expand abroad to fairly different cultures, at least they should really make an effort on familiarizing themselves with the target country’s culture and habits.
November 18, 2014 @ 10:38 am
First of all, I totally agree with the author’s opinion that it is not always the ignorance of a country which provides failures. Although China is a big and interesting country with a lot of influence but not every company can or should enter this market. Asian cultures are very different to European or US-American cultures. I think it is essential that adaptation is only used when it is really necessary. Another chance is to make a mixture of standardisation and adaptation. As an example when using the same product but making a different promotion campaign. But a lot of products need to get adapted because other cultures have different symbols or need other sizes, etc. Furthermore, the value of individualism from Hofstede in China is very low (20), so the people act in groups and the employee commitment to the organisation is very low. Comparatively, the United States have a value of individualism from 91, so they are totally different to China. The new employees have other characteristics than the own employees which is often not observed when entering a new market that. Additionally, when entering the Chinese market it is an advantage to have a new idea or offer special products because China is overcrowded with products.
To sum up, of course China could be a very profitable market but only if a company do the right business. To survive on this market it is not sufficient to read a few papers of how doing business in China. The research must go in the detail and a native to translate or to explain the Chinese culture would be very helpful. The entering should be very well thought-out.
December 3, 2014 @ 12:05 pm
Compared to Hofstedes dimesions, it is obvious that there are high differences between China and the USA. At first, there is the difference in Individualism. As already mentioned, it can be very hard for a individualistic country like the USA to enter a market, where the groupthink is dominant and the people buy only products accepted by the group. With reference to the by the author mentioned standardization topic, it definetly IS necessary to adapt not the product but the advertisement. If you standardise your advertisement here, you will never win customers. In a market like China, it is better to win the opinion leaders for your product. If they like your product, it will only be a matter of time until everyone likes the product.
Secondly, there is the huge difference in Pragmatism (China: 87, US: 26). Chinese people adapt traditions easily to a changing environment. Americans do not. They stick on their traditions and like things how they have always been. That also might be a problem when entering a market like China.
As mentioned before, many american companies failed while trying to enter China because of their unwillingness to adapt their product or their advertisement. If they keep on trying to enter markets without any researches just because the market is attractive, this will go on. But as Costco shows in the following post by the author, some companies are indeed able to adapt their strategy.
To sum up, in my opinion every american company is able to enter the chinese market if they follow easy rules.
December 4, 2014 @ 9:59 pm
First of all, I would like to say that I totally agree on the point that some companies should focus on just a few markets in order to avoid problems due to big cultural differences. It also might be true that product adaptation is very expensive and companies have to face great challenges in order to operate in countries as China successfully. However from my point of view many companies should not avoid such big and increasing markets as China because of those mentioned reasons.
As Lisa already said a lot of different cultural aspects have to be considered when doing business in such markets. Due to such high differences of the Chinese market in comparison to e.g. the American market it is absolute essential to hire at least local experts / agencies etc that support companies in their market entry – and further business processes and giving them insides in this market. At this stage cooperations with local companies through Joint ventures should be taken into account. Through Joint ventures cultural differences can be overcome and in turn risk and costs can be reduced.
In order to reduce risks it would be recommendable not to launch the whole product range at once in the new target market. The company CostCo followed this mentioned strategy and was very successful in entering the Chinese market. Although it is a very time consuming way however the company can gain experience and feedback on their product and consumers can get familiar with new brands and products.
To sum up, it can be said that entering markets with high cultural differences compared to previous markets can be a time consuming and challenging way. Although companies have to face great difficulties there are possibilities in order to operate in such market successfully as the example of CostCo points out. Due to this reasons such increasing and high potential markets as China should not be avoided without leaving no stone unturned.
December 14, 2014 @ 7:37 pm
It sounds comprehensible to me that different environments lead to different worldviews and philosophies of individuals and it is probably needless to say that there are some fundamental environmental and cultural differences between the United States of America and China. Besides, it is worth to mention that although globalization seems to increasingly create one borderless global economic landscape, other fields such as policy-making sill remain (more or less) on a local level. Furthermore, huge communication barriers (such as different languages) still exist, as well as large geographical distances.
Although it is important to take the fundamental cultural differences between the countries into account, I also believe that there are more crucial aspects to consider, such as the political stability, the long-term and short-term desires, needs and values of the populations, etc. I consequently do not believe that it is sufficient to follow some easy rules to enter the Chinese market successfully, otherwise there would not be such a high failure rate including professional companies such as Mattel, eBay, Google, and Home Depot.
March 20, 2015 @ 6:38 am
I totally agree with the authors opinion on the need of in-depth analysis before entering a new market. The old saying “Know your customer” can easily be transcribed into “Know your market”.
I recently had the ability to talk to a manager, whose company was planning to enter a market in the Middle East. The company representatives were aware of the fact that they did not really know the market, so they decided to send two employees into the target country for about one year, just to live there and get to know the market by heart.
The result was a nearly 100% complete market profile that enabled the managers to immediately talk with the right people, choose the right suppliers and venture with the right partners.
Even though this approach was quite costly, it saved the company from failing in a market, ruining its reputation and writing off the expenses already spent. The company up to now won some big tenders and considers the Middle Eeast as one of their most important growing markets, keeping in mind that the political climate of absolutely governed countries can change rapidly.
To sum up – for some markets you might need quite unusual approaches in order to gather informations. Nevertheless entering a market without the necessary market intelligence will – if it doesn’t lead to direct failure – weaken a company’s position on the target market.
March 20, 2015 @ 9:38 pm
The question to enter the Chinese market or not can only be answered by YES – this would be my first guess. It is a dynamic economy and therefore attracting big and small companies to enter the local market. However, also a lot of companies failed miserably in the past.
In 2008 I attended a summer school which took place in Shanghai & Beijing and I got little insights to a country and the Chinese culture. To my mind, the most important thing is to understand or even try to understand the Chinese consumer and culture. Huge cultural differences cannot be neglected at the expense of standardization which is in general necessary to allow competing on global market. But it is worth to adapt to Chinese peculiarities and preferences as enormous market potential.
Consequently typical entering strategies for foreign companies cannot succeed and need adaption. Hence, companies should hire and listen to local and foreign people having work experience in China. Careful strategic planning and legal consultation before venturing into the Chinese market are necessary. Market studies are of utmost importance not to end in a product-market mismatch. Not only the marketing but also the service or product offering to Chinese consumers has mostly be changed to be more accessible for these specific consumers. However, a generalization is not possible and also consumer behavior is changing. China cannot longer be considered as a cheap labor market referring to increasing wages in recent times.
But the question is to still to go to China or if it is already too late?
An interesting press release was recently informing about the US video service provider Netflix which is planning to enter the Chinese market without a local partner. Especially in the world’s biggest internet market and well known for censorship and strict regulation, this sounds quite risky. Without a partner it would be quite hard to obtain operating licenses and competition from local rivals can also be expected. Will be interesting how they decide.
Well, in order for companies to succeed in this market, it is significant to study the market and adapt to local conditions.
BR,
Christoph
[1] http://www.cnbc.com/id/102467511#
[2] http://www.forbes.com/sites/groupthink/2014/02/17/how-to-crack-the-chinese-market/
[3] http://www.forbes.com/sites/helenwang/2015/01/13/coming-asian-consumer-boom-three-trends-to-look-for/
[4] http://www.forbes.com/sites/bluecarreon/2012/05/17/on-entering-the-china-market-the-future-of-retail-and-the-growing-importance-of-bloggers/
[5] https://hbr.org/2010/04/the-globe-is-it-too-late-to-enter-china
March 26, 2015 @ 2:44 pm
Failures in foreign markets can leave companies with a bad taste in their mouth. When Home Depot closed its seven Chinese stores in 2012, it had to absorb a $160 million after tax charge. Why do American organizations that are highly successful in their home markets fail internationally? Peter Cohan, co-author of Export Now: Five keys to entering new markets, explains: “Companies can become complacent and arrogant and then make mistakes when they expand overseas.” Indeed US companies very often overlook that their business model needs to adapt and that a standardized approach is not always the key to success. Many times “global adventures” have failed especially in the Chinese market – US companies don’t try to understand the cultural and legal environment and don’t localize their efforts to adapt in a market that is fundamentally different. In 2011 Mattel was forced to close their 36,000 feet barbie store in Shanghai. The US giant oversaw the fact that Chinese parents emphasize more on education and toys are seen as an indulgence, especially when you have only one child. On the other hand, recognizing the importance of education has allowed Disney to be highly successful by partnering with English Learning Centers – “Professor Mickey Mouse” suited perfectly the Chinese culture.
However local approaches are clearly more expensive. Therefore companies should examine first the corporate readiness by looking into factors such as the reasons for entering that particular market and degree of motivation, the level of experience in the market that employees might have, the competitive advantages and the corporate resources available. The question that many companies forget to ask is: why do we want to expand into this market? Companies can be more successful in choosing markets that are very similar to their own rather than trying to select the most exotic places. Secondly, organizations need to study their product readiness and assess adaptation pressures: Do our products suit the local market requirements? If not, does the company have the necessary means to adapt the product, does the adaptation reduce the company’s performance or does it generate new benefits. These assessments should allow organizations to avoid potential pitfalls and increase their chances of entering a new market successfully.
Still today not all companies have learnt from the lessons of others: The most recent example of an US failure in China is Yahoo. The internet provider announced its retrieval from the Chinese market one week ago. US technology companies often underestimate Chinese competition. As Shaun Rein, managing director of consultancy China Market Research points out: “Unlike the rest of the world, they’re facing well-funded, aggressive home-grown players. In China you have really strong entrepreneurship in the online space and they’re able to react quicker to consumer trends.”
Market size and growth rates can still mesmerize many managers but they are no guarantee for success…
Sources:
http://venturevillage.eu/international-expansion-fail
bbc.com, 19th March 2015, Yahoo to shutter China office and cut “around 350” jobs, retrieved from http://www.bbc.com/news/business-31957704
April 12, 2015 @ 10:47 am
My answer:
I agree with author that company should do assessment before going international is it worth it. If company is so inflexible and have fully standardized process’s and business model which change will cost a mio than they should not try in China. So first step is corporate readiness and most company fail there, They are just thinking about money and market share and opportunities but not even doing evaluation of company’s readiness for foreign entry. Second important, also where companies fails is product readiness. Sometimes they need to customize product to satisfy some specifics for China and they need to take into consideration culture or religious differences. Third very important factor is how to correctly target market selection and entry mode (maybe though the network of business partners and not having even huge branch office then only few coordinators/sales managers) but when they came to this step first 2 has to already be confirmed with clear ROI and KPI’s.
November 29, 2015 @ 10:38 am
I totally agree with the author’s opinion that a foreign target market should be selected very carefully. China is a very big and complex country and in many aspects very different to Western countries, like the USA. Therefore, when entering an Asian market, many points need to be considered. According to Hofstede, China and USA highly differ in regard to individualism/collectivism. China is a country with very low individualism, which means that they favor being in groups and do not like to stand out. In contrast, US-Americans have a very high level of individualism and rather work and live on their own. Therefore, adaption of products and marketing strategies play an important role. In my opinion, the product itself does not always have to be adapted, but the marketing strategy needs to be oriented on the cultural behavior and standards of the new foreign market.
In regard to other dimensions of Hofstede, like masculinity and uncertainty avoidance, China and USA do not highly differentiate. Concerning masculinity and marketing, this could mean that same characteristics and features of products can be used. Relating to uncertainty avoidance, Chinese and US-Americans are not highly risk-taking and open-minded to innovations or changes.
In my opinion, Americans tend to only see their way of life and think that only their way is the right way. Therefore, they are mostly not able to adjust to other cultures. However, if they do careful research about foreign markets, like China, every American company could survive in a different culture.
November 30, 2015 @ 4:08 pm
Everybody knows that there are different cultures, attitudes, processes, power distances etc. in Asian countries. I cannot believe why international companies are not able to adapt their concepts to every country and ignore the differences. Possibly, standardisation is a sustaining competitive advantage but this does not count for every country/ culture. However, it is obvious that the companies should not change their basic concepts.
Relating to the two countries the prescribed leadership of America is completely different to China. China is a high power distance country and America is rather a low power distance country. The Americans are direct and want to come to an end very fast whereas the Chinese always discuss a lot and do not want to hurt anybody. In China they have strategies for long terms and in America they operate rather functional. I could list more differences but only these three ones show that there are huge cultural gaps. Due to this fact the companies it is affordable to adapt themselves in certain aspects.
In addition, you mentioned in your blog lots of American countries failed and this is not a secret. So why do companies ignore these facts?
Answering your question:
If the company is able to handle the competition and to adapt its concept, it should enter a new market. As I mentioned before, the adaption depends on the other country.
Kind regards
December 9, 2015 @ 7:10 pm
First of all, I would agree with the author that foreign target markets should be selected very carefully. For many companies it would be better if they concentrate their business at their core market. But if companies decide to expand to foreign markets they should analyze the target market before entering. From my point of view even when a company go into a new market it is more effective to make an adaptation on the product and the marketing activities. Adaptation to foreign markets would be more costly and complex than Standardization but if we think about Hofstede’s dimensions with an adaptation the company would achieve a higher success. For example in China the consumer habits are completely different as in US. For example in China the people are more collectivist, there is a high power distance and a long term orientation compared to the US where the people are more individualistic. Personally I think these facts are very important when companies plan their marketing activities in foreign countries. So in China the companies would focus more on collectivist values like the family. Therefore, it is not surprising that American companies failed in the Chinese market.
To sum it up, I would mention that for companies it is better to make Adaptation by entering a new market or they should choose a market which is similar to the domestic market where no adaptation is needed.
November 22, 2016 @ 8:12 pm
I totally agree with the author that China is a difficult and different market. Another American example of failure in the Chinese market is Uber Technologies Inc. In summer 2016 the company sold its China operations to their fierce rival Didi Chuxing. Uber Technologies Inc. lost 2 billion USD in the last two years in China.
As the author is saying, standardization is not working in China and when we look at the loss of two billion USD, companies should think twice about entering a market like China. Before even think of entering the market a company should do a wide market research about the country. The market research has to go into depth, this is not done by reading a few articles and looking on export figures and so on. It should also be kept in mind that there are cultural differences and that this differences are of great importance. Therefore the dimensions of Hofstede can be very helpful. When looking at them it clearly stands out that there are significant differences between the USA and China. What a company could do if they want to enter the market, is to adapt the marketing plan to China considering the cultural dimensions. Each of the 4 P´s has to be adjusted to the culture in China.
To summarize it – if you enter a new market you have to do a lot of research in advance, especially if you want to enter a market which is very different to your core market.
July 15, 2018 @ 7:51 pm
In my opinion, just because a foreign market seems juicy and profitable for the company, it could also have an effect on the company the other way around. As you can see at the cultural dimensions of Geert Hofstede, China and the U.S. have massive differences. It is logical that a market with a twice as high Power Distance Index than your local one (US: 40, China: 80) and a very low individualistic thinking (US: 91, China: 20) has other perceptions. Therefore it is necessary to rethink the craving of entering this big market and do a lot of researches before going into a market that maybe doesn’t fit your corporate image or that has no need for your product.
February 5, 2022 @ 8:50 am
In my opinion, I agree with the idea of the blog. The author offers his opinion on the reasons for the American brands’ failure: a lack of flexibility, the failure to localize, or the existence of a strong competitor. Google lost the Chinese market because of the government policy. But if Google has a little flexibility, it may negotiate with the Chinese government and not leave the Chinese market. BestBuy failed because it did not understand the Chinese customer psychology. It chose Jiangsu as the location to open stores, so the Chinese customers did not think that it is a good brand. eBay left the Chinese market because of the strong competitor, Alibaba. There are a lot of differences between the American and Chinese cultures, so when the American companies enter the Chinese market, they should spend a lot of time to understand the local culture and customers. For example, Costco is the greatly successful examples. Before Costco opened the physical store, it sold its product through Taobao which is the online platform. The online channel could use the less budget to sell its product and get the data of sales and the information of customers. Through several years’ communication with customers, Costco understands the Chinese customers’ habits and needs, so it is very successful for the first physical store in China.