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Why Chinese Companies Fail In The US, Part II.

Posted in China Business

A couple weeks ago, I did a post setting out lists as to why Western companies fail in China and my own list of why Chinese companies fail in the United States. Nina Ying Sun over at the Plastics News Blog (I know it sounds boring, but it most emphatically is not) has made some excellent comments on my explanations for Chinese company failures in the United States in a post entitled, “Why Chinese Companies Fail the US Market.” The Plastics News blog is published in both English and Chinese and Ms. Sun sees that list “as exactly what our readers in China want to know.”
Here’s my list (again), with Ms. Sun’s comments on my list and then, my comments on her comments:
1. Chinese companies focus on a Chinese consumer, not an American one.
Ms. Sun’s comment: “Chinese companies would like to find out more about their target American consumers, but they mostly rely on personal-level approaches to collect business information, lacking a systematic and scientific market investigation conducted by professional Westerners that understand the market.”
My comment: Very interesting and, I think, accurate observation. Chinese clients have driven me nuts by asking my views on things that I know nothing about, and then completely ignoring my advice when I try to hook them up with real experts. Typical conversations:
Chinese client: How much should we pay for that US trademark?
Me: I have absolutely no idea. I just do not know the such and such business well enough to be able to help you at all on this. But, we have worked with a company that does nothing but value IP and I would be happy to give you their name.
Chinese client: But what is your best estimate?
Chinese client: Should we start out selling our product just on the West Coast or should we start out nationally?
Me: Good question. Difficult question. It seems to me the answer to this will hinge greatly on the costs involved and on your ability to set up distribution networks. My firm does not handle questions like this, but I would be happy to refer you to top notch business consultants who do.
Chinese client: Should we start out in Los Angeles, Chicago, or New York?
2. Chinese companies fail to realize that one reputation-damaging mistake in the United States could doom them forever here.
Ms. Sun’s comment: This one is dead-on. And how come they don’t realize this common sense? Because they get by in China and assume it’s the same in the States.
My comment. Exactly.
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.
Ms. Sun’s comment: Chinese people take such pride of the fact that industrialization, urbanization and modernization have happened in China in a much shorter period time than in the West that they believe, if you try hard enough, everything can be done fast and well. Why don’t they invest enough money to lay the ground work for the new market? Well, they look at the exchange rate. The same exchange rate that makes the Chinese production cost in yuan seem so low magnifies the marketing cost in dollars in the States.
My comment: Okay. But see number two above. Haste oftentimes makes waste.
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.
Ms. Sun’s comment: The Chinese would ideally like long -term success. But the drastic social, economic and political upheavals and changes in the past century have paralyzed Chinese people’s long-term thinking. Fill the pocket as full as possible before the next change hits, be it credit policy, industry standards or consumer interest.
My comment: Absolutely true. Why think long term if there may be no long term. This explains the reason for the problem, but it still needs to be resolved.
5. Chinese companies tell users what they want instead of listening to users.
Ms. Sun’s comment: This obnoxious mentality is a hangover of the old Soviet-Union-style “planned economy” (1949-1978). That period of time featured insufficient supply of necessities and one-sided propaganda. Although it’s hard to question about China running a market, capitalistic economy today, the country skipped some vital steps in the development of the Western countries.
My comment: Same as for number four above.
6. Chinese companies focus too much on making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.
Ms. Sun’s comment: What pops up in my mind includes: vicious and endless price wars, a business environment that has deprived consumers their say, and lack of technology and craftsmanship.
My comment. I agree, but what pops into my mind is that companies must be broad minded enough to recognize that what makes sense in one country may not make sense in another. Indeed, one might even say this of China’s regions and there are certainly plenty of Chinese companies that have managed to succeed in China as a whole by localizing their product or their marketing by region.
7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.
Ms. Sun’s comment: Traditionally, domestic consumers simply can’t afford beauty and design. Price is the only distinguishing point. Plus, the companies don’t want to invest much on design, because it’s bound to be copied by competitors right away, thanks to the absence of intellectual property protection in China.
My comment: All true, but see my answers to Number four and number seven above.

8. Chinese companies rely too much on phone calls and face-to-face meetings instead of e-mail.

Ms. Sun’s Comment: This is probably part of the Asian culture, underscoring personal communication instead of machine-generated and less interactive e-mail. I don’t think it’s necessarily a disadvantage though. Japanese companies have done well in the U.S. market, despite their preference for in-person meetings and phone calls rather than e-mail.
My comment. When in Rome….. But, I agree this may not be a disadvantage, so long as the Chinese company has the time and the people for it.
9. Chinese companies fail to use “simple and elegant designs.”
Ms. Sun’s comment: Unfortunately, they are trapped in between complicated traditional styles and a blank page of modern Chinese inspiration. Again, they can’t justify investment on design, because it will be copied by competitors overnight.
My comment: See my comment to number seven above.
10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.
Ms. Sun’s Comment: Call them cheap or arrogant. They don’t trust MBAs or Western veterans unless foreseeable return is guaranteed. They also want everything under their control, not threats and risk brought by language barrier and different business values.
My comment: I don’t know what to call this but I know it is not wise.

  • Bill

    Sounds like the Chinese businessmen only know how to sell to a first time ignorant customers market and have no idea what saturated markets with knowledgeable and skeptical customers are like. They seems to be too comfortable making quick money but don’t know how to do it in the long run. Asking a lawyer where and how to sell stuff is like hitting a screw with a hammer.
    Japanese businessmen broke out into the world market with much, much better business skills. They actually taught the world how quality plays in the market, which Chinese have no intention to pay attention to.
    This is excellent information for their competitors. Now we know their weaknesses. And these weaknesses are not just important in markets outside of China, it will be important when the Chinese markets become saturated with knowledgeable customers too.

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

    RE 4 & 5:
    I’m always sceptical about people who blame cultural problems on the China’s Marxist period, by all accounts both these things were equally true before 1949.
    It should also be noted that conditions, customs and culture are different in Europe and Australia but Chinese companies have fallen flat in those places also. I would say that the central problem above all others is a simple unwillingness to adapt to local conditions and to use local expertise – especially in marketing.

  • Karl J. Weaver

    Hi Dan,
    I spent the first decade of my career in Asia helping Taiwanese technology companies penetrate, sell products to Europe and Asia, then, after returning to the USA in 1993, I spent the next 12 years of my career helping North American firms sell and market in Greater China, India and Asia. I see in many cases the East can be as misguided about business customs and norms in the West, however, in all fairness I’ve seen the same mentality from North Americans. Because China is probably the most ethnocentric country in the world, change occurs slowly (the older the culture) – but it does occur. I say China business people are becoming more aware of global marketing strategies because I’ve seen it in the cell phone industry. The Chinese are here from China in the millions learning English, American culture and they do like some of our way of life. What are Americans doing to learn about how business deals are done in China? For example, marketing to Northern China is different than to Southern China. It’s easy to criticise China; it’s not easy to look at how poorly we actually market to the Chinese. Again, I’ve seen it working on both sides of the Pacific Rim for both Chinese and Western firms.

  • http://blog.simplejustice.us SHG

    It ain’t just companies. Try defending Chinese nationals in criminal prosecutions. Same problems all around, and they only want to know, up front, how much to win. It’s worse than the Russians.

  • Law Office of Todd L. Platek

    Money spent can be viewed either as a cost or an investment. It’s all a matter of how you present the outlay to the spender. Some minds you can persuade, some you can change, others just see cash going out the door. Marketing, sales, persuasion, alteration of consciousness. It works, it’s just a matter of knowing how, and persistence at better knowing how. For everyone in the legal field who doesn’t want to represent Chinese companies, keep in mind how unattractive divorce, bankruptcy and immigration work was 50 years ago; now the white shoe firms build departments in those fields. Times change, don’t they?

  • http://www.chl-tx.com TX CHL Instructor

    Could it be that the Chinese are racist to the point of xenophobia? That has been my impression. I’m sure that there are exceptions (and some of my contacts in China have been pleasant enough), but I get the sense that my (small) business is handled with utter contempt.

  • http://blog.simplejustice.us/2008/02/26/the-great-divide--china-edition.aspx Simple Justice

    The Great Divide: China Edition

    Dan Harris at

  • TD

    15 years working for a large Chinese company and with Chinese suppliers. Trust, you have got to be kidding. Contracts are used to line their bird cages.
    Now, with the devaluation, material increase, Chinese companies are losing their shirts.
    Could not happen to a nicer bunch of crooks.
    Find a more reliable partner.

  • David Swift

    Chinese fail less then Americans.

  • Twofish

    There doesn’t seem to be much meat here. I don’t see any discussions of actual Chinese companies actually trying something in the United States and failing. The two big examples of Chinese companies in the US (Haier and Lenovo) are going reasonably well, and the SME deals that I’m aware of in the US usually involve the Chinese company providing capital and then leaving management to US partners.
    If you look at the original post, it’s a talk about the mindset of Chinese companies that are *thinking* about going into the US, not about those that have actually done so. Also, a lot of this discussion makes it seem like if a company just gets rid of some misconceptions they’ll do fine. In practice, what I’ve seen is that people in these companies know what their limitations are, it’s just that there are structural reasons why they are there. For example, you might *know* that you need more MBA’s and good designers, except that you find that there aren’t many people around, and those that exist are being snapped up.
    Also, what I have seen is that for the first efforts overseas, Chinese companies tend to avoid the United States. One common strategy (which Haier followed) is to start in Latin America or the Middle East, and once you’ve become established there, then go into US/Western Europe.

  • http://www.asiatoolsource.com Carlton

    It’s very difficult to generalize about people of any nation and culture. All one can really comment about is tendencies. There are always exceptions, lots of them. I am surprised by some of the comments, from people who claim experience with China and the Chinese, and should know better. I live in China, am married to a Chinese, and have done business only with Chinese and Americans (where I was born) for seven years. I have found, on average (of course, since we are only talking about tendencies here), that I understand my Chinese business contacts better than my American ones, and that my Chinese business contacts are more trustworthy than my American ones. Others have had different experiences, but that is mine.