China’s vibrant economy is attracting a lot of attention in the West and many big and small companies are beginning to enter the local market place. However for every high profile success story there are many abject failures, big names such as Barbie and Best Buy have come, seen and failed to conquer. So what’s at the heart of these failures? Here are five simple recipes for disaster.
Over Reliance on Branding
Barbie is the world’s biggest doll name; little girls in the West have loved her for generations, so how could China fail to resist her charms? Mattel forgot that Chinese consumers have no idea who Barbie is and thus there was no aspirational cachet associated with the product. A gigantic store in Shanghai built over 6 levels including a staircase full of dolls couldn’t persuade consumers with low levels of disposable income to fork out large sums for a doll that in local eyes was no different from a much cheaper supermarket bought toy.
Pursuing Service Driven Strategies
Best Buy fell into this particular trap. Chinese consumers on average have far less disposable income than their Western counterparts and are much, much less likely to pay a premium for a “one stop shop” approach. Price is all in the world of retail in the middle kingdom and the “value add” approach is guaranteed to put you out of business.
There’s always a local mom and pop store who can supply a fix at a lower cost than a big name brand can, and cash conscious shoppers are well aware of that fact.
This works both ways and costs Chinese companies a lot in Western markets, as well as vice-versa. Chinese consumers don’t like simple, clean websites – all the big name Chinese websites are a mish-mash of heavy content delivery. Google suffered a long hard and eventually pointless battle trying to establish itself as the king of Chinese search based on the simplicity ethos; it doesn’t work in the mid-market in China. Yes the elite white collar workforce like the Western approach but no-one else does – and in the long run its mass market appeal that drives online success.
Rushing to Get the Deal Done
China’s business world runs on relationships, and these take a long time to establish. Rushing into a deal desperately trying to make money is a sure recipe for disaster, in Tim Clissold’s classic work; “Mr. China” he shows a senior investment banker running into a deal to create an import business and an automotive repair center. 6 months later the repair center was dead, it was based on the 5th floor of a building with limited access (the cars were being scratched to pieces on their way to the repair center) and miles away from any real customers. The import business couldn’t get a license and the local partner wanted to divert the funds into establishing a smuggling “company” instead.
Opportunities are only opportunities if you can benefit from them; otherwise they are a rip off. If you can strike a deal in two days in China, chances are you’re going to be sorry later.
Failure to Adapt to Local Conditions
All of the reasons above can be summarized under this heading, China is not the West. Chinese consumers do not have the same motivations or needs as Westerners. One of the big successes in China is from Walmart who had a tough learning experience in the Japanese market (where the brand still struggles after a disastrous entry).
The company’s stores have been built with the Chinese consumer in mind, and bear little resemblance to American ones. The stack it high, sell it cheap philosophy is far less evident and there’s an emphasis on choice and convenience instead with smaller more accessible locations a priority. It’s these touches that have resonated well with local shoppers and brought success to the company.
It’s not impossible for foreign companies to make a success of things in China, but it requires real research and dedication and a commitment to change to get there. Investors cannot assume that because their approach works at home, it will work here.
Very good insights about doing (or failing) business in China: brand power applies only to a few top notch ones like Apple and Samsung, not to a majority of others. It is also important for the brands to have a fashion component to stir a new trend, like Apple does. Fast successes are still possible, however, if you touch on the right spots at the right time and place.