Why Successful US Brands Fail in China Pt2

Why Successful US Brands Fail in China Pt 2

Why Successful US Brands Fail in China Pt2

How did some of the world’s most beloved brands like Groupon, Uber, and Google fail in China? Although blame can’t be attributed to any single factor, one of the biggest mistakes US companies make in China is operating with a belief that success can be achieved single-handedly, without the expertise and counsel of local partners. Without a clear understanding of how to do business in China, Foreign companies tend fall into the trap of naïve assuming that with a few adjustments the same market entry methods used to launch in other can also be applied to China. What most fail to grasp is the nature of the Chinese market is fundamentally different in comparison to other countries, especially the United States. Attempting to set up shop without the counsel of a local partner is often a costly lesson that can jeopardize a brand’s entire existence.

As the second part of our two-part blog series on branding in China, here are some of the biggest ways US companies have flopped in the middle kingdom because they either did not partner effectively with a local agent or worse yet, didn’t seek any help at all.

1. No management localization strategy

An unknowingly fatal mistake made by foreign company executives is ignoring the strategic business recommendations and overall market insights of China country heads. Sometimes the slip even comes from foreign executives hiring the wrong country heads in the first place. In a nation with fundamentally different market drivers, Chinese managers are far more attuned to local conditions and their advice should be taken seriously. For example, when eBay entered China a US senior leader naively ignored the advice of local employees to run servers out of China and then switched hosting to America. The result was as soon as the company switched to US servers, traffic dropped 50% due to slow access speeds and the company never recovered.

2. Inability to navigate and manage distribution networks in China

American firms are largely unfamiliar with the nuances of distribution in China. Missteps are commonplace and can cause additional costs or time delays for that don’t effectively partner with local experts. In general, Chinese distribution companies lack the capabilities of world-class logistics and supply chain companies in the United States. Their weakest points appear in the areas inventory management, lead-time planning, distribution network optimization, and demand forecasting.

A common mistake US companies make is assuming that Chinese distribution partners have advanced knowledge of downstream supply chain management, including the ability to forecast accurately. This means foreign companies that sell in China must invest a substantial amount of capital and time to transfer knowledge of product movement requirements and performance strategy expectations to achieve KPI goals.

China has a fractured and inefficient distribution system filled with redundancies. It’s possible for as many as five tiers to exist at a given level of distribution within a single distribution network. As one can imagine, this results in lower profit margins at every level throughout the supply chain – from the manufacturer to the retailer. According to the China Business Review, “Chinese suppliers hold a large amount of inventory and restock only about three times a year on average, compared with suppliers in Europe, Japan, South Korea, and the United States, who tend to restock about 10 times a year.” The result means significantly longer lead times in China compared to countries, with advanced distribution network systems.

3. Products not reaching customers fast enough

Few US businesses seeking market presence in China grasp the depth and vastness of the China’s economic landscape. Most US companies launch in the proven metropolises – Beijing, Shanghai, and Guangzhou. In reality, these major cities represent only a small portion of the entire Chinese population. Opportunities to capture potential customers in rising cities, such as provincial capitals, are not being realized by US businesses. While domestic companies are swiftly advancing towards these key areas of economic development, US businesses are failing to reach the customers of smaller cities fast enough.

Building business alliances through local partnerships in China is the most advantageous way to not only gain an insider’s perspective of China’s business environment, but to also ease navigation through Chinese language, bureaucracy, and sophisticated social structure. Unlike the west, where business partnerships tend to be contractual in nature, In China, all business transactions are based on relationships and trust. Local partners are an indispensable asset and critical component to every foreign business’ success story.

<< Read “Why Successful US Brands Fail in China Pt 1”

Why Successful US Brands Fail in China Pt 1

Why-Successful-US-Brands-Fail-in-China-Pt-1

In today’s globalized world, no country represents a bigger opportunity than China. It’s the world’s most populous nation with a middle class roughly the size of the entire US population fueled by a consumption driven society undergoing rapid modernization. According to Fung Business Intelligence, China is set to become the world’s largest retail market by 2018. With so much opportunity, it’s no surprise that US businesses have been eager to reel in profits by diving into the China pond.

However, like a story on repeat, most US brands enter China with optimistic enthusiasm only to fail within a few years from unsustainable profit losses. It often comes as a shocker to most Americans that many of our most beloved brands at home, just can’t seem to succeed in the Middle Kingdom. In recent years domestic giants such as Home Depot, Mattel, and Facebook have all joined the ranks of US brands that have flopped in China. The reason why US companies so often stumble in China can be attributed to a variety of factors including a steep cultural learning curve that most are unprepared and ill-equipped to handle.

As part one of a two-part blog series, here are some of the top reasons why US brands fail in China to serve as a learning guide for small and medium size businesses who aspire to achieve success in expanding their global footprint into the China market. 

1. Advertising doesn’t resonate with a Chinese audience

With a fundamentally different set of values, aspirations, and societal influences the Chinese way of advertising is inherently different in comparison to the western nations. In China advertising should be filled messages that share Confucian ideals, aspiring internationalism, and humble ambition. Although some US companies have found success, a common pitfall in Chinese advertising strategy is deploying ads that linguistically make sense, but fail to culturally translate with a Chinese context. A best practice of Chinese market advertising is to have ads reviewed by Chinese locals or a national living stateside that can effectively translate the meaning or emotion behind the words while giving alert to cultural errors. 

The diamond company, De Beers is a great example of where strong, emotion-based messaging that had achieved success in the US failed to resonate with Chinese consumers.  The slogan, “A diamond is a symbol of commitment,” meant nothing in China where engagement and wedding rings are not the cultural norm. More than half of the diamonds sold in Shanghai are purchased by women buying for themselves and are considered a status symbol, not a message of love and devotion.

2. Government and regulatory hurdles

Unbeknownst to beginners, China is one of the most challenging global markets to operate in and has remained a code yet to be cracked by many. Although the country’s open-door economic policy presents a tremendous amount of opportunity, the Chinese government’s communist undertones remain stronger than ever, billowed with layers of bureaucracy, ambiguous legislative guidelines, and a nationalist propensity to favor domestic brands. Even the most competent and proven of foreign companies become perplexed by the lack of concrete rules in regulatory procedures varying from business registration to dispute resolution.  All these factors pose a set of unique challenges for US firms that requires localized intelligence the partnership of an experienced agent.

The issue of intellectual property rights (IPR) protection is the single biggest government related hurdle companies face as they enter the Chinese market. As the number of books published on this topic indicates, IP protection in China is a major headache for global businesses. The good news is that China is evolving in technology and innovation, creating a greater demand for IP protection. A Thomson Reuters research report stated the country’s goal is to transform itself from “made in China’ to “designed in China” and showed that China became the world’s top filer of patents in 2011. As more Chinese firms become patent holders, they too, will have a vested interest in protecting their technology just like their US counterparts. Although this trend will drive the future of IP rights in China, until it becomes more commonplace, US businesses will need to keep a close eye on competitor activity.

It’s a tough learning curve, but global companies that want to thrive in China must learn the nuances of Beijing’s loosely defined laws and autocratic government style while abiding by the rules. Ultimately, this gives companies two options: learn, adapt, and compromise or leave the market. 

3. Product localization strategy either not implemented or has failed miserably due to lack of research and cultural understanding

A common thread in the pattern of China market failures is brands not adapting business and product development strategies to fit local market conditions. A typical mistake would be transferring methodologies that have worked in America to China with little effort to localize product offerings. On the other hand, forward-thinking companies that do attempt to localize product offerings, often struggle with cultural and linguistic barriers.

For example, Mattel entered China with the introduction of Barbie. Although the doll itself was somewhat well received, the brand was not. In 2009 Mattel opened the world’s largest “House of Barbie” in Shanghai. The company spent millions of dollars making a six-story paradise to introduce and sell the ‘Barbie Lifestyle’. The store included a hair and nail salon, cocktail bar, spa, and restaurant. Where did Mattel go wrong? They failed to understand the market and what makes Chinese tick. For a brand that was making its’s first introduction into China the shop was over the top and confusing between the mix of Children’s toys and adult pleasures (fancy martinis, bust-enhancement treatments etc.)

4. Underestimation of domestic competition

A common pitfall of many US companies is a tendency to underestimate the domestic competition in China, with a misguided belief that Chinese firms lack strategic ability in organizational management, sales, and marketing. When western companies began leaving a footprint in China almost 30 years ago, this was undoubtedly the case. Time has told another story as Chinese brands have gradually evolved and have built stronger sales and marketing competencies. As China transforms from a manufacturing to services based economy, Chinese businesses are also becoming more competitive on product quality, innovation and branding. 

5. Unfamiliarity with China’s E-commerce landscape and how to digitally connect with online shoppers

The growth of China’s e-commerce landscape is breathtaking, growing exponentially year after year. In China, online shopping is more than a trend; it’s a cultural phenomenon. Domestic players such as Alibaba’s Taobao and JD dominate the e-commerce landscape through scale and low-price points. One Chinese Tech Giant in particular, Tencent has found wild success through the fusion of e-commerce, social media, and advanced online payment systems that can manage every facet of one’s financial life within a single platform known as We Chat. Consequently, US companies such as Amazon and eBay lack the diverse functionality of Chinese online platforms and simply don’t measure up for an audience whose daily lives are already tightly interwoven within China’s digital ecosystem. This means US brands must invest the time to gain the competencies required to launch an online presence that’s in sync with the online habits and norms in China.

Once an online marketplace presence is established, culturally adept US companies will take pro-active measures to enhance their pre-sales support channels. Because China is a nation with a rampant supply of counterfeit goods and tainted consumables, a low-trust society has emerged where shoppers seek an additional level of product support. An excellent way to establish the trust of Chinese consumers is to utilize resources such as online chatbots where buyers can build confidence by asking questions before making a purchase. 

Countless American brands have ambitiously entered China only to emerge a few years later perplexed, battered, and defeated. Their brimming confidence from previous global successes tends to quickly evaporates in a market where they’re often ill-equipped to enter. To achieve success in China, US firms will need to consciously make an effort to learn from the mistakes of companies who’ve failed in the past while paying attention to the underlying success factors of bands that have prevailed in perhaps the world’s most misunderstood marketplace.

We know China’s learning curve is steep and for that reason have created a second blog to expand on this topic further. In the next blog of this two-part series, we’ll dive into one of the single biggest contributing factors of why US brands struggle in China with insights to propel your China market strategy in the right direction. 

Read “Why Successful US Brands Fail in China Pt 2” >>

11 Most Interesting Gadgets from Inpex 2017

This year, I had the pleasure of judging Invent Help’s Inpex 2017 Conference, full of up and coming inventors, innovators and entrepreneurs. It was a packed few days with lots of exciting insight into new trends in various consumer, retail and business markets. Below are some highlights of the unbelievable number of new products presented at the show.

Sakury

Sakury

Sakury works on the theory that the loss of silica, a key mineral that binds water in your skin, can be added back into your skin, reversing any present signs of aging, and preventing further damage. Once a week, after washing your face and while your skin is still moist, simply rub the pad in circular motions all over your face and neck for 60 seconds. Perfect for any skin type or condition and naturally anti-bacterial, this could be the end of creams, mists, peels and acids meant to reverse the signs of dry skin and aging.

Leverpresso

Leverpresso

This mini lever espresso maker is perfect for your gourmet on the go caffeine needs. Leverpresso offers function and stylish form to the travel espresso maker market with a range of retro colors. If you can’t look good while sipping your espresso, what’s the point?

Sandits

sandits

According to the company’s website, Sandits are the “newest, easiest and most convenient way to sand, polish, smooth and remove rust, paint, tarnish or corrosion”. These tiny but mighty little tools resemble a cotton swab so that they can reach small and difficult spaces with their marine-grade epoxy secured grits. Great for wet or dry applications and can be used on a variety of materials including wood, metal or plastic. They can even be used for manicure maintenance in a pinch!

Kenda

An ingenious innovation from an international exhibitor for the common bicycle tire that distributes weight without using spokes and is more shock absorbent. Think of the time you could shave off your weekly rides with these!

Hyndsight

Invented by a collegiate crew (rowing) athlete to provide forward looking video while riding backward through a combination of camera and connected monitor. HyndSight is now being used for waterskiing and even for equestrians to monitor their horses during transport and has the potential for application in many outdoor sports.

SunBlok

The SunBlock is a new twist on sun block application with a handle that allows you to reach those hard to get areas. Perfect for solo days in the sun.

GCSports

This is the perfect stadium chair that allows fans to store their personal items off the ground while providing comfort during any sporting event. The storage bag is connected to the bottom of the seat and hangs behind the users legs for easy, yet out of the way access to personal items.

The Delivery Safe

This lockable device protects valuable items shipped to homes or businesses that may be temporarily unattended. Especially good during the holidays when theft is at its height, the mail carrier simply places items in the bag and closes the lock. Run errands, sleep in and never worry about theft from your doorstep again.

A Better Button

This button is more than an extender, it provides a way to fasten pants for people with arthritis. The front holds the appearance of a button, but on the back, it is a simple key slide fastener.

PanWaffle

No more deciding between our two favorite breakfast cakes, the Panwaffle is an all-in-one item that gives you the best of both worlds in no time flat! 

The SUB

The Sound Utility Block promises to “make your kitchen hip again” by combining the likes of a knife block, speaker and iPad holster into your daily cooking routine. Use one device to play music, stream TV and movies or listen to music while you chop, sauté and pan fry away.

Let us know your favorite inventions you saw at Inpex 2017 in the comment section below!