SERIES: Connecting Australia and China
Entering a new market is always a challenge and China is no exception. One of the largest economies in the world with a population of over 1.3 billion, it’s no surprise businesses big and small are trying to make their mark there.
Unfortunately, these efforts have not always panned out. In fact, some of the world’s biggest companies have tried and failed to seize the Chinese market. In today’s post, part of our Connecting China and Australia series, we look at how three wildly successful companies went horribly wrong when expanding to China.
This tech giant was supremely confident when they started making moves to enter the Chinese market. They hired the CEO of Google China for his network, connections and reputation, and spared no expense setting up their offices in Beijing. But that’s as far as they got before things started to fall apart.
Popular services like Gmail were not available.
Google China was unable to offer all the services that made Google so popular in other parts of the world. Gmail, Blogger, Picasa and even YouTube were unavailable to their Chinese audience, making them a less attractive choice compared to their local competitor Baidu. The reason for this was the company’s reluctance to collect personal information from their Chinese customers - they were wary of having to provide said information to the American government should they request it, a concern that proved much too real given Apple’s recent troubles with the FBI.
A double-standard was set for Chinese employees.
Google employees all over the world are encouraged to spend 20% of their time on their own pursuits to make the company better. They are encouraged to innovate and think outside the box without reporting to their supervisors and managers, but this was confusing for their Chinese employees who were not used to the practice. On top of that, all employees are usually given full access to Google’s production code for this purpose, but this access was restricted in China, making the Chinese team feel like second-class citizens.
The company had strained relations with the Chinese government.
Although the company had a specific person dedicated to managing relations with the government, Google’s strict company policies impaired its ability to establish a good rapport. Their first Head of Government Relations was critical of the company’s approach, claiming that it was nowhere near flexible enough to succeed in China.
Uber has dominated most markets they’ve entered into, so it stood to good reason that they expected to easily conquer China as well. Armed with a good understanding of the market, Uber’s China strategy was to set up a completely separate entity, Uber China, and invite local investors. This was novel and well received, with the CEO of Didi, Uber’s leading competitor in China who later acquired the company, saying “They are not like a usual foreign company in China, but more like a startup, full of passion, feeling like they are fighting for themselves.”
Uber liked to test their limits.
Uber has made it standard practice to test the boundaries of local transport regulations, landing them in hot water in the US, UK and France. China was no exception. Unfortunately, their trademark policy of selling rides below cost to dominate the competition did not serve them well, as competitors and the media twisted the strategy to mean that Uber was a lower quality, less reliable alternative.
Their competition with Didi was fierce and constant.
When Uber first entered China they had to contend with Didi, the existing dominant player in the market who had only recently merged with its nearest competitor, Alibaba-backed Kuaidi. The merger meant Didi had the backing of Tencent and Alibaba, two of China’s biggest companies, making it a force to be reckoned with. Didi went so far as to invest in Uber’s competitor in the US, Lyft, so as to undermine their business in China.
The two companies battled it out for three years, before finally calling a truce. Uber approached Didi and the resulting buyout left Uber with an 18% ownership stake in Didi as well as $1 billion equity investment for their business.
Walmart was one of the first companies to realise what a huge opportunity the Chinese market presented, entering the country in 1996. Unfortunately, they were unable to capitalise on it: despite 18 years and over 400 stores in the country, Walmart’s revenue from its Chinese business is only about 2% of the company’s overall revenue.
Local competition with a better understanding of the China market.
Like Google and Uber, they too faced competition from a well-established local company called ‘Sun-Art’. Sun-Art had a more localised approach that resonated well with their customers, whereas Walmart’s ‘everyday-low-price’ strategy was not well received. Chinese customers felt that the company's pricing strategy indicated that its products were cheap and unsafe.
Needs of Chinese customers vary depending on the region.
Walmart traditionally sells the same products in all of its stores, with just a hint of variation to account for local preferences. Consistency is the name of the game. Unfortunately they severely underestimated just how different customer buying habits were across China, greatly hindering their business.
Learning from its mistakes, the company’s strategy has recently changed from opening as many stores as possible to improving what stores they already have. It’ll be another few years before we find out whether their efforts have panned out but it seems to be a step in the right direction.
Next week we’ll do a deep dive into the mistakes businesses make when they expand into China and how to avoid them. In the meantime though we’d love to hear your thoughts on the matter!
Did you see last week’s ‘Connecting Australia and China’ series’ post on the legal knowledge importers and exporters need when doing business in China? Check it out: https://blog.airwallex.com/australia-china-legal-know-how/