Eight Reasons Why Foreign Companies Fail in China
With the largest population in the world and booming spending power, it’s clear why China is a tempting market for any company. China’s middle class expanded from 3.1% of the population in 2000 to 50.8% in 2018, a total of at least 700 million people! This huge middle class can afford to spend big on consumer goods and entertainment. Breaking into this market, however, comes with challenges that even the largest brands struggle to overcome.
eBay and Google attempted to get a foothold in China, surviving for four years before admitting defeat, while Uber retreated to after just two years. But why is it so difficult to break into the Chinese market? Chinese culture and language are unique, bureaucracy is complex, and the government’s grip on every aspect of life and business is tenacious. These factors create a market environment that’s totally unlike other global economies. It is possible, however, to succeed in China – and the key is localization. With the right localization services, you’ll be able to avoid the eight main mistakes that cause other companies to fail.
1. Not adapting to Chinese culture
An understanding of local culture is always key to market success, but many companies fail to understand just how unique China’s culture is — including some of the biggest names in American retail. It’s important to note that as a foreign company entering China, your goal should not be to teach Chinese consumers about Western practices and show them what they should like or purchase. Rather, your goal should be to understand their culture and habits deeply so your brand can adapt to their preferences.
For example, Best Buy replicated its flagship store model in China without considering that traffic congestion and neighborhood loyalty gave locals a preference for smaller shops near their homes. Home Depot assumed that Chinese homeowners would be as keen on DIY as their American counterparts. In reality, the Chinese middle class prefers to hire someone else to do repairs and renovations. Home Depot also failed to localize its products for the Chinese market, leaving them unchanged from what worked successfully in the States.
In contrast, IKEA successfully localized to China and is still opening stores there to this day. To achieve this, IKEA adapted its model to local tastes while showcasing visual examples of how “Scandi” style can work for the Chinese home.
2. Poor language and design localization
Language is vital for successful localization, but a word-for-word translation of your content rarely works. Direct translations don’t consider nuances, cultural differences, and China’s wide range of regional dialects. Working with experienced, professional, and native Chinese translators will help ensure that your content will connect to Chinese consumers genuinely.
Developing products that feature Chinese culture by design can be very lucrative, but brands should proceed with caution. Make sure you work with experts that understand China’s language and culture. Nike, for example, developed a range of sneakers for the Year of the Monkey. Nike included a Chinese character for “wealth” on one shoe and a character for “good fortune” on the other. What Nike failed to note is that when put together, the characters mean “becoming fat”! A lack of understanding for the Chinese language and culture resulted in a poor design choice that would not sell in the Chinese market.
3. Chinese data control regulations
China has some of the toughest data laws in the world with the government using data as a tool for political power and surveillance. This tight control impedes the free flow of data across borders and makes it difficult to market digital products and internet-enabled services, such as ride-hailing apps. Uber failed in China because it had to rely on local servers, while new regulations meant it would have needed both provincial and national approval for its activities. Uber found this loss of control over its data unworkable. If you want to succeed in the Chinese market, you must accept that China does not have free and open internet and prepare for a certain loss of control over your company’s website and data.
4. The Chinese shopping culture
In the past, Chinese consumers were known to prefer nationally produced products over imports, but today there is a growing desire for niche brands and specialty items that stand out from the crowd. Chinese consumers enjoy products that offer a blend of both Eastern and Western influences.
It’s important to note that Chinese are avid fans of online shopping and social media reviewing, so strong digital campaigns should be a part of your localization strategy. Chinese consumers also prefer to shop via their smartphones rather than on computers, a fact Taobao has used to build its success. This online shopping platform is the eighth most visited website in the world and is designed to be mobile responsive. Its navigation and CTA buttons are large enough to see without zooming in, while instant messaging gives buyers the chance to communicate directly with sellers. This creates “swift guanxi” or the close shopping relationship the Chinese love. Relationship building, trust, and the ability to haggle are vital components in China’s buying and selling process. Incorporating this relationship-building into your localization process will increase your chance of success.
5. Failing to invest in local partnerships
Finding a Chinese partner makes entering this tricky market easier. Sometimes, it’s impossible without one. Use the knowledge and experience of your localization team to find a partner that works with you rather than focusing on their own competing services. Then, once you’ve found a supportive local partner, use its resources to your fullest advantage.
Groupon chose to partner with Tencent in China, making a big mistake on two fronts. Tencent already owned sites comparable to Groupon, so they didn’t have a big stake in Groupon’s success. At the same time, Groupon didn’t take full advantage of Tencent’s local knowledge, staff, and user base. It insisted on working, unsuccessfully, with its American model.
6. Not working with the government
Westerners often find it hard to understand just how pervasive the Chinese government is. Strict adherence to law and policy is essential. Directly challenging the government or bending the rules can result in your company and products being banned in China. Although the story is lengthy and complicated, Google is a prime example of this. It was unable to get along with the Chinese government and now its services are blocked or rendered near-useless in mainland China.
7. Underestimating Chinese bureaucracy
Many companies cite bureaucracy as one of the major issues when expanding into China. Obtaining necessary licenses and permits can be time-consuming and laborious. Day-to-day administration, product approvals, and labor laws may leave managers with piles of paperwork (often actual paperwork rather than digital paperwork!). Using a localization service that understands Chinese bureaucracy can alleviate stress from the process and ensure a smooth transition.
8. Failure to tackle compliance
Part of the bureaucratic burden of trading in China is compliance. Strict rules govern how products are designed, manufactured, sold, used, and even disposed of. When localizing your marketing campaign, make sure you’re fully up to speed with advertising laws that came into effect in 2015. Health foods cannot claim medical benefits, children under 10 are not allowed to endorse products, and alcohol cannot be drunk in an advert. Superlative words such as “best,” “world-class,” and “most” have also been banned. Compliance in gaming can extend to ratings, dialogue, and images.
If you’re determined to succeed in China, we can help with our deep understanding of China’s culture and language, and how the marketplace works. Contact BLEND now to start working with our native Chinese translators, voice actors, and localizers. With support from our Shanghai office, we guarantee the highest-quality localization.