Why do Western Brands Fail in China?

By Pippa Horn

As Western retailers continue to look toward new opportunities in China, the concept of adaptation has never been more relevant. It’s a familiar adage that businesses must adapt to local market conditions, but it seems that for every company that succeeds, there’s a new theory on the secret to success. And conversely, for every business that fails, there’s a different explanation as to why.

China is not Australia, and nor is it America, Britain, Europe, or even Hong Kong. This is a key point on why many international brands do not make the grade in China – they fail to recognize that they are dealing with a very different market and need to localize accordingly. What remains is a dark cloud amongst China, and a reluctance among smaller retailers to enter China as they watch on in despair as hugely successful Western brands such as Amazon, Google and Uber slink away in defeat when it comes to conquering the East.

China is a not one homogenous market but a diverse one. The country has an enormous culture behind it with 14 major cities, 23 provinces, 56 ethnic groups and 7 major dialects. Western brands often fail to alter their strategies, adapt to the unique culture and
appropriately target the technology savvy consumers, leading companies to withdraw from China.

But don’t let it intimidate you! There are countless Western brands, including KFC that are among the numerous success stories of Western companies in China. KFC has become one of the biggest players in the Chinese restaurant industry, with 11.6% market share and over 4000 restaurants in more than 850 cities. Just like all other brands, KFC learnt through trial and error. When they first opened their doors in 1987, they incorrectly translated their slogan ‘finger licking good’ to ‘eat your fingers off’ in Chinese, which, to put it lightly, shows that they didn’t sufficiently invest in their China research strategy! However, they quickly overcame these challenges with the support of local experts and went on to become a success story by offering local cuisines such as congee, egg tarts and fried dough sticks to name a few.

There is simply no culture like the Chinese and when it comes to cracking their market, one size definitely does not fit all. It is crucial for Western brands to do their research and avoid the ‘copy and paste’ approach when it comes to thinking about their China strategy. With the correct strategy executed, China is an almost unlimited opportunity for Western brands to get on the map.

The government will go to extreme measures to maintain the reputation of the country and support local businesses in upholding their market share amongst a sea of Western brands. This has led to extreme censorship in China with Google, Facebook and WhatsApp being blocked due to China’s lack of control of these Western platforms. This had led to the rise of China’s super-app – WeChat, which combines all of the most pertinent Western apps such as Facebook, WhatsApp, Uber and Tinder and many more.

Censorship is no joke in China! The government has full control over what is on the internet and which platforms are used. Google entered China in 2006 and abruptly pulled out in 2010 due to disagreements with the government regarding censorship across their search
engine. Users started noticing that censored content had been removed from google.cn, which was the first major acknowledgement of China’s internet censorship. In order to avoid censorship issues in China, it is important for brands to do their research and adjust their strategies accordingly. Aware of the commercial opportunity, Google are now giving China a second chance. Except this time, they’re intending to do so with the help of retail heavyweights JD.com and Tencent.

When it comes to the Chinese consumer, they have unique shopping habits, notoriously low levels of brand loyalty and often, they refuse to pay with anything other than WeChat Pay or Alipay. For Western brands who seem to map these traits to an alien consumer, it can be
difficult to compete with local Chinese brands who inherently understand consumer traits such as the above.

The classic example being Ebay, the successful American C2C commerce giant that replicated its American model in China and got destroyed by local competitor Taobao. The company’s founder Jack Ma had a superior understanding of the Chinese consumer, which he employed into the Taobao ecosystem by taking a technology-savvy approach. As Taobao rose to prominence, Ma said, “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.” Taobao’s market share overtook eBay and led to eBay repositioning themselves to target smaller businesses in China.

Are Western brands doomed to fail in China? Absolutely not. But Western brands need to play to consumer preferences and do their research before attempting to tap into China’s digital generation.

Are you thinking about tapping into China's digital generation?

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