Header graphic for print
China Law Blog China Law for Business

Top Ten Reasons For China Business Failure — List After List

Posted in China Business

ThinkChina Blog did a very interesting two part series recently detailing why US internet companies are having problems in China. The first post, entitled, “US Internet Companies’ Top 10 Mistakes,” sets out the ten mistakes US internet companies are making in China, according to , a website, which translates English blog posts into Chinese and Chinese blog posts into English.

Their top ten list is as follows:

  1. US companies focus on elite white-collar workers and ignore Internet cafe users and users in smaller cities.
  2. US sites work too hard at avoiding negative press, unlike their Chinese counterparts who welcome the publicity that comes with it. Managers of US sites are paid ten times that of local sites, making them risk adverse.
  3. US sites use long term strategies, rather than “guerilla war tactics.” They spend too much time and money on “perfect” planning and they are not able to adapt quickly.
  4. US sites focus too much on “process and protocols” rather than on the end result. They are not willing to “sacrifice professionalism or moral/ethical standards to achieve results.”
  5. US companies tell users what they want instead of listening to users.
  6. US companies focus too much on building a quality product instead of “purely on traffic.”
  7. US companies focus too much on “building beautiful ads” instead of on ads that drive traffic.
  8. US companies rely too much on email instead of on phone calls and face to face meetings, which the Chinese prefer.
  9. US companies use “simple and elegant designs” which are favored by the elites, not “vibrant crowded” sites favored by the masses.
  10. US companies usually hire MBAs and Chinese who are returning from the United States.

In “My Top 8 List,” ThinkChina sets out its own list:

  1. Use success in the US as proof-of-concept. This leads to over-confidence. The fact that Google/eBay dominates in the US means little to Chinese consumers.
  2. Failing to adapt website to local users. Partly a legacy problem, and partly the inability/reluctance to adapt to needs of users.
  3. Heightened competition. When a large US player enters, it attracts attention. Everyone knows what you’re going to do given your existing business – competition is tougher than for a player laying low.
  4. Corporate governance/control. Being public companies, there are rules to abide by which cost both time and money (Sarbanes, for one). A US company has more to lose in regards to negative press or any form of litigation.
  5. Nature of a startup. Entering a new country is similar to starting up from scratch, in the consumer Internet space. There’s really little to leverage other than technology (which gets cheaper every day). Reality is that most startups fail.
  6. Retention/Hiring issues. For emerging market like China, talents are hard to come by. Entrepreneurs prefer to work at pure startups where their upside is much larger.
  7. Difference in business culture. Leads to misunderstanding and frustrations from both sides. Also, leads to distrust and miscommunications.
  8. Taking things for granted. This applies to a lot of things, including the rule of law. Lack of “survival instinct”.

What I find so interesting about these two lists is how many of the “mistakes” can be said about US companies outside the internet arena and how many of these “mistakes” I do not consider mistakes at all, but smart, long term planning.

For example, I do not think it a mistake for US companies to target China’s elites, at least initially. I also do not think it a mistake for US companies to seek the high road both in terms of their image and in terms of the way they conduct business. If US companies cannot make it in China taking the high road, I have serious doubts they can make it by taking the low road. US companies need to use their strengths in China and I do not see catering to the Chinese masses or engaging in immoral conduct as a strength for the typical US company.

I actually think that Yeeyan’s ten mistakes list, slightly modified, would make a good list of why Chinese companies are having so much difficulty making it in the United States. Here’s that list:

  1. Chinese companies focus on a Chinese consumer, not an American one.
  2. Chinese companies fail to realize that one reputation damaging mistake in the United States could doom them forever here.
  3. Chinese companies fail to realize it will take time for them to make an impact in the United States and they are unwilling to spend the time and money necessary to do so.
  4. Chinese companies focus too much on the end result (making money), and by doing so, they sacrifice the professionalism that would allow them to achieve long term success.
  5. Chinese companies tell users what they want instead of listening to users.
  6. Chinese companies focus too much making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.
  7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.
  8. Chinese companies rely too much on phone calls and face to face meetings instead of email.
  9. Chinese companies fail to use “simple and elegant designs.”
  10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.

What do you think?

UPDATE: The Off The Record Blog did a mighty fine post on this, entitled, “High Road to China: Low Road to the West,” [site no longer exists] saying that taking the high road in both China and the United States is the best way to success.

  • http://badbadchina.blogspot.com nanheyangrouchuan

    Would these lists and #5 in particular (1st and 3rd lists) exist because companies get stuck relying on professional middle managers instead visionaries at the lower levels or risk takers in upper managment? I really hate the word “professional”, that word used to refer to someone who was an expert in their field, now it refers to an “image”. Whenever someone tells me that they are a professional these days, I just infer that they know how to protect their turf and use jingo.

  • http://www.foarp.blogspot.com FOARP

    Agreed. As for the reasons why US websites fail in China, it’s strange to think that similar strategies (focusing on the elite, slowly building up an image etc.) has worked very well for companies like Pizza Hut in China.

  • J B

    Good point on Pizza Hut by FOARP. I’d say, though, that perhaps Chinese consumers view internet services differently from the way they view tangible, established brands from the West that they view as exotic and representative of the West’s wealthier lifestyle which they wish to emulate. Chinese consumers expect fast food to not be to their tastes (even if it’s actually altered so it’s easier for them to accept). However, they’ll take the search engine or networking site that’s better suited to their particular tastes and needs in a flash, even if they only think it’s better adapted because of advertising.

  • http://www.bizcult.com/content/ Matt Young

    Dan, you don’t think it’s a mistake for American companies to seek the high road in terms of the way they conduct business. But what is the high road in China, especially for SMEs? Does it include shelling out for the most expensive office setup possible, even when a much less expensive legally grey arrangement works? Does it include avoiding legally questionable but proven workarounds? You’ve congratulated Jeremy Goldkorn, founder of Danwei.org, on occasion, but he’s got plenty of workarounds. Pardon the diatribe, but please define “high road” in China.

  • http://chinaoutsourcing.blogsome.com/ deans

    Hi Dan-
    I agree 100% with your 10 points. The issues you highlight are absolutely the largest challenges that I encounter in helping Chinese software outsourcing companies present themselves to western markets.
    As always, Great Job!
    deans

  • http://www.chinalawblog.com China Law Blog

    nh,
    Okay. I agree that the word professional is becoming devoid of meaning, at least outside the context of sports.

  • http://www.chinalawblog.com China Law Blog

    FOARP,
    I think most Western companies doing business in China must focus on the elites so I do not necessarily agree it is a mistake.

  • http://www.chinalawblog.com China Law Blog

    JB,
    Good point. I do not know China’s internet business well enough to agree or disagree.

  • http://www.chinalawblog.com China Law Blog

    Matt Young,
    I cannot define “high road” once and for all, but suffice it to say that it does not need to include high end office space, but it does need to include those things that will enable it to continue in business with a good reputation. This means doing things legally and I will say that my sense is that Danwei strives to stay within the law.

  • http://www.chinalawblog.com China Law Blog

    deans,
    Thanks for the kudos. Much appreciated.

  • http://thinkchina.wordpress.com AF

    Dan, very interesting discussions here. I do agree with you that western companies focusing on elites is good strategy rather than a mistake. On Pizza Hut vs. the Internet – To add to FOARP, perhaps the playing field is much more level for the Internet. Or, perhaps even more advantageous for “newcomers”… Technology is changing so fast it might be disadvantageous for incumbents?

  • http://www.cdrum.com Chris D

    Wouldn’t this apply to pretty much any foreign company going to China and visa versa?

  • David Scott Lewis

    Opposing views — and they’re all correct!!
    Bottom line: Those of us expats living here in China have to admit that this isn’t a different country, it’s a different planet …

  • Rachael

    I am doing some research of my own and am extremely interested in what companies (both successes and failures) you analyzed to create the above lists. Do you have that information or can you point me in a direction to find it? Or does anyone else here know where I can obtain a comprehensive list of medium sized foreign companies either operating in China or who attempted to expand to China and failed?
    Thank you