One of the most common questions we get is “Why do so many awesome foreign brand fail in China?” Forever 21 has shut down its operation in China and even Amazon founded by the world’s richest men has admitted defeat with its marketplace operations in China. And that’s just in the last few months… not including a company like Uber, Best Buy, on and on… In fact, this was a question that I’ve been asking my self and thought about it deeply. Is it be
One of the most common questions we get is “Why do so many awesome foreign brand fail in China?”
Forever 21 has shut down its operation in China and even Amazon founded by the world’s richest men has admitted defeat with its marketplace operations in China. And that’s just in the last few months… not including a company like Uber, Best Buy, on and on…
In fact, this was a question that I’ve been asking my self and thought about it deeply.
Is it because they don’t localize their product or service for China? (Not really, most recognize and do localize)
Is it because they don’t hire the right talents in China? (Not really, most of them understand do hire the right talent)
Is it because they’re not as innovative and as creative of Chinese local competitors (in certain cases maybe but for most cases not really).
While there isn’t one reason why foreign brands fail in China, I’ve come up with a list of 12 reasons why I believe most foreign brands fail in China.
cause they don’t localize their product or service for China? (Not really, most recognize and do localize) Is it because they don’t hire the right talents in China? (Not really, most of them understand do hire the right talent) Is it because they’re not as innovative and as creative of Chinese local competitors (in certain cases maybe but for most cases not really). While there isn’t one reason why foreign brands fail in China, I’ve come up with a list of 12 reasons why I believe most foreign brands fail in China.
1 No Real Demand for Your Products
I know, this may sound like a “mr.obevious” kind of reason but there are countless of the foreign brand who enter the Chinese market not know whether there is any real demand for their product. Whether the Chinese consumer actually likes their products.
Many foreign brands get an initial influx of demand for their product from a group of Chinese consumer most likely oversea Chinese consumer and they think that they have real demand in China.
Sometimes this is true often it’s not, which leads me to the second mistake.
2 Thinking China is One Market
In a way, many so call China Marketing “Expert” which include me sort of contribute to this miss understanding. Foreign brands often refer to China as a market, which is ridiculous because that’s like saying the USA is a market and everyone in the US are the same with the same goals, desires, and needs.
Like every international market beyond your immediate comfortable nation, there are many markets with sub-market and sub-sub markets. China has 1.3 billion people and growing and that’s what makes it so attractive especially with a growing GDP and the rise of the middle-income families.
But, most of the 1.3 billion people will not be interested in buying your product or service or even be able to afford to buy your product or service.
China is a very interesting market with wealth ranging from the very poor all the way to the super rich and with everything in between. It is also in a way very fragmented by various of a different culture. What most people refer to as the Chinese culture is really the “Han” culture, but places like Tibet and Xinjiang and Northern Part of China will share very different culture than that of the southeast.
3 Thinking That People Will Just Buy Your Products Because It’s a Foreign Brand
This may actually be true 10, 15 and 20 years ago. There was a time where Chinese consumer would blindly purchase anything that’s foreign as long as it’s not “Made in China”. This has led to many foreign brands believing that just by having a foreign brand is enough to get Chinese consumer to pay a premium for their products without ever really understand why in the first-place Chinese consumer likes to buy the foreign brand.
Most Chinese consumer likes a foreign brand, is very different than that of the west. In the west good brand represents certain values, for example, Nike means empower athletes and Apple means innovation and quality design.
But Chinese consumer doesn’t buy foreign brands because of these values and the probably don’t even know what your brand values are in China. They buy it because of “Quality”, “Safety”, “Status”, and “Peace of Mind”.
Due to the cultural value of “getting rich quick”, a lot of Chinese businesses and brand will take shortcuts and put the life of Chinese consumer at harm and over time the perception of buying local Chinese brands means, low quality, cheap, and probably a scam.
Today, however, this is no longer the case and it isn’t because national Chinese products and brands are getting better but rather there is just an influx of garbage foreign brands entering China because they want to look to grab a share of the Chinese consumer’s wallet.
4 Short Term Minded Want to Get Rich Quick in China
China is a very noisy market and a hyper-competitive market and most foreign brands just want to ROI right away. This may be possible if you’re only looking to sell cross-border using-commerce as your vehicle but this is limited or your product is in hot in China right now but what’s hot this year may not be hot forever.
In my opinion, any foreign brand who is only interested in selling cross-border is not really taking China seriously. But for brands who are looking to seriously enter China and want to establish their brand presence then you have got to think long term and be ready to invest for the long term as well.
5 Underestimating the Role of the State in China
My friend Jeffrey Towson put it really well with his 1-Hour Chinese Consumer book, many western companies completely underestimate the role of the Chinese government and the state when doing business in China.
This is intuitive to pretty much all Chinese people living in mainland China whether they’re doing business or not. The Chinese state is often invested or involved in business across many sectors and for many businesses having state participation can wildly change how successful your business and brand will be in China.
6 Not Spending Time to Understand the Chinese Culture & History
China is one of the oldest civilizations with culture and history dating back more than 5,000 years. As with expanding into any country that has a different culture than yours, it pays to spend some time to learn about the local culture and history.
Most brands actually do understand and recognize the value of understanding the culture of Chinese consumers but very few brands spend the time to educate their executive on the Chinese culture and history so he can better relate, manage and work with the local Chinese team.
Howard Schultz put it beautifully when he said one of the turning points for Starbucks was when Jack Ma enlighten him on how important Chinese culture plays a role in Alibaba. And as soon as he returned to the USA he implemented family day because he realizes the tremendous importance family to Chinese employees.
7 Thinking That China is Cheaper or Easier
Again, this may be the case a few years back, but it certainly is not true anymore. In fact, in some ways doing business in China can be a lot more expensive. For example, advertising in China, many foreign brands think that advertising in China is cheaper but the reality is advertising in China is quite expensive or on par with the USA. The thing is while CPM (cost per impression) may be cheaper because the population in China is just so huge but the overall cost per results whatever results may mean to you will be more expensive.
This is because most foreign brand when entering China believes that there is a total of 1.3 billion people that they can sell to. The reality, of course, is most of the 1.3 billion Chinese consumers will never buy your product, and there is probably only a small percentage of people who will actually buy your product and finding them is like looking for a needle in a very large haystack.
This is the same mistake that most brands make when it comes to “KOL Marketing” or influencer marketing. A KOL in China with millions of random followers with no particular common interest can generate a lot of buzzes but no real results since most of the follower are not particularly interested in your product. While working with a KOL with maybe only 10,000 focused and concentrated followers on a particular interest or category will yield much better results.
This is exactly why advertising in China is more expensive because you’ll be wasting a lot more ad dollar just to be able to show your ad to the right person and at the right time.
8 Not Having a Sustainable Competitive Advantage
Personally, I think this is one of the biggest mistakes that most foreign brand makes in China. They come into a market where they have virtually no sustainable competitive advantage. Many foreign brands rely on brand equity and the fact that they have a lot of money.
This won’t work in China, if you don’t have a unique competitive advantage that local national competitors cannot copy, you’ll have a very difficult time competing. Unlike many other countries, most of the products in the world are manufacturer in China, so it is very easy for a Chinese local competitor to copy and sell a similar product for much cheaper in China and they probably don’t have the type of overhead you may have.
9 Underestimating Local Competition
Most foreign business completely underestimates the local Chinese competition, Best Buy, Uber, and many other fortunes 500 brands have learned this the hard way. Local Chinese competitors can be fierce, ruthless, and will not hesitate to copy and undercut your pricing.
This is also why it is vitally important for your brand to have a sustainable competitive advantage that local competitors cannot copy. For example, Chinese consumer genuinely loves the taste of Coca-cola so despite the countless local soda brand that has come into the market after Coca-Cola has entered China late in the 70s, yet Coca-cola still remains to be the top soda brand in China purely because local Chinese competitors cannot copy the taste.
10 Not Having Enough Budget
If you want to succeed in China be prepare for the long run, many foreign brands that fail in China simply because they ran out of budget before they can succeed. Often, I advise a foreign brand who want to enter China to think of itself as a startup. It’s going to take some time to get to product-market fit (in most cases), it’s going to take some time to build up your brand presence in China, it’s going to take some time to learn where and how your brand will fit into the China market.
11 Poor Communication with their China Team
I believe this is one of the biggest challenges for the foreign brand with establishing culture and infrastructure when entering a unique market like China. In many ways, the Chinese consumer has been largely disconnected from the rest of the way due to the great firewall of China.
It wasn’t until very recently that China has opened up to the rest of the world. This is why the travel and tutiorism industry is booming in China. So most Chinese people living in the mainland have probably never been exposed to much of the western culture.
On top of that, China has a completely different digital landscape and political system that most western companies and the executive are not familiar with. All of this makes China rather unique compared to most countries.
Many of the foreign brands we work with that are entering or already in China struggle because the executive setting at corporate does not really understand China, the Chinese consumer, the Chinese culture, the political system, and the digital ecosystem. This makes it very difficult for the executive to not only communicate but to be able to align strategies with their China team.
Worse, is often we find that most corporate executives really don’t trust their team in China that much which is completely understandable. In China we have a say “天高皇帝远” which is a Chinese idiom “the sky is high and the king is far”. What it means is that since the king is really far it is hard for the kind to see a clear picture and have full trust in their team.
12 Not Getting to Product Market Fit
Honestly, many foreign brands are stubborn, but a lot of time the products that worked outside of China that got them successful may not work in China simply because the market doesn’t want their product. Of course, this will vary depending on the industry and your products as some products are more universal than others.
But as a general rule of thumb, when entering China as a foreign brand adopt a startup mindset and just assume that you do not yet have product-market fit and you’ll need to work on it to get to product-market fit first before you can scale and dominate.