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BacK to Back Debate Why Market Fail October 14, 2008

Posted by frewon9 in Fail stuff.
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This Article is base on two article competing on a explanation why it fail, market back to back


http://www.chinavortex.com
August 17, 2007

http://www.plasticsnews.com Nina Ying Sun on February 19, 2008

you decide in other words its all fail anyway

china vortex Why Most US Market Entries Fail in China

The consulting industry in China is flourishing. After all, it is the largest potential single market in the world, and everyone is flocking to it. New companies need information and advice about how to tackle the unique challenges of this market. For any MBA who is fluent in Chinese, or who has grown up in China, and is familiar with the tools of the trade, such as financial modeling, business negotiations and company valuations, China represents an “iron rice bowl” which will make their careers for years to come.

plastics news Why Chinese companies fail the U.S. market

Plastics News‘ good friend Dan Harris came up with a list of why Chinese companies are having a hard time penetrating the U.S. market in a recent post on his China Law Blog.

china vortex Why Most US Market Entries Fail in China

Or is it? My experience is that there are errors which are repeated over and over again. It gets like being condemned to watch a single Broadway show, over and over again, where the only things which change are the sets and the actors; the lines are the same.

plastics news Why Chinese companies fail the U.S. market

My eyes lit up when I saw the list. That’s exactly what our readers in China want to know, I told myself. I am seeing more and more Chinese companies at international trade shows and conferences. Demonstrating typical Chinese low prices, they crave a piece of the U.S. market, which in their minds is associated with hassle-free transaction, stable supply relations and sizable margins.

Many of the points are sharp and insightful, but in order to shed some light on the deep causes of these market-entry blunders, I’m adding comments under each point. There are also things that I have a different opinion on, and I’ll tell you why.

china vortex Why Most US Market Entries Fail in China

I have covered one of the major fallacies in a previous posting, Getting Past the China Market Hype, which covered their initial reasons for entering China. This posting will cover some of the reasons for failing post-entry.

plastics news Why Chinese companies fail the U.S. market

1. Chinese companies focus on a Chinese consumer, not an American one.

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.

china vortex Why Most US Market Entries Fail in China

Since most of my experience has been with technology/media/startups from the US, I am naturally biased towards those companies in my evaluation. There have been many success stories from the financial sectors, engineering and consumer goods. These areas, unlike hi-tech, have had decades, and in some cases even more than a century of experience, building their China presence, and understanding the challenges involved. They have the money, and have built up a knowledge base of experience which they can draw from, and because of the large scale of their businesses, even if they cannot draw from in-house experience, they know how and where to get it when needed.

plastics news Why Chinese companies fail the U.S. market

2. Chinese companies fail to realize that one reputation -damaging mistake in the United States could doom them forever here.

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. See my recent post A monumental blacklist for more.

china vortex Why Most US Market Entries Fail in China

Some of the US technology companies which have come to China and have failed to succeed in the Chinese market are eBay, which basically had to hand over its operations in China after running into the strong local player, Taobao.com, in the auction field. Yahoo! had to basically pay a China partner, Alibaba.com, US1B to take over its China operations. More recently, Google, the US search advertising firm, has had to fight an uphill battle against the largest Chinese search firm, Baidu.com. Online gaming is a new area which does not exist in nearly as large a form as the US, with Shanda being the granddaddy in China, while newer players such as Perfect World (PWRD) have sprung up with new and different business models, and successfully going public on the Nasdaq. In instant messaging, Tencent’s QQ has been able to rack up 600M registered users, and unlike any US IM clients, become profitable.

plastics news Why Chinese companies fail the U.S. market

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.

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.

china vortex Why Most US Market Entries Fail in China

Because most US startups come from technology backgrounds, they tend to believe that their business is scalable. The word “scalability” is in itself, an engineering term, which means that an architecture can go from 1 user to one billion (or infinite) users, or across national borders and into different languages and markets, without any major architectural hiccups. For this reason, they tend to play down distribution and cultural differences in their most initial stages. Most of the time, they have people on staff or in management who know something about the local market; more often than not, they are not in senior decision-making roles.

plastics news Why Chinese companies fail the U.S. market

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.

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.

china vortex Why Most US Market Entries Fail in China

Then, when they get to China, they try to do what they did in the US, and quickly discover that the rules in China are very different. Whereas labor is very expensive in the US, with each hire drawing the attention of different company committees, in China it is one of the single cheapest expenses. (Except for senior and executive management, where highly qualified individuals cost just as much, if not more, than in the US.)

plastics news Why Chinese companies fail the U.S. market

5. Chinese companies tell users what they want instead of listening to users.

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.

china vortex Why Most US Market Entries Fail in China

The most common failing comes in the area of product management, when the US insists on controlling the product development and launch schedule, with local product launches coming only after the US is ready. In smaller markets, that’s fine, but in fast-moving large markets, especially one as large as China’s, it’s a killer. (Even in fast-moving small markets it’s a dubious strategy; in South Korea, Google has been consistently beaten by Naver, a highly successful Korean company.)

plastics news Why Chinese companies fail the U.S. market

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.

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.

china vortex Why Most US Market Entries Fail in China

This puts the China office in a continuous battle with the US headquarters for resources; the Chinese local competitor has no such restrictions on what it can do, and the Chinese company surges ahead in capturing market share, and eventually, revenue. The American company then organizes what can best be called a “strategic withdrawal”, as did eBay.

plastics news Why Chinese companies fail the U.S. market

7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.

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.

china vortex Why Most US Market Entries Fail in China

In more mature industries where there is some kind of brand equity, product lines are already fairly mature, and headquarters makes resources available to country managers as needed. Because of the fast-changing nature and relative immaturity of hi-tech, this has not yet happened.

plastics news Why Chinese companies fail the U.S. market

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

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.

china vortex Why Most US Market Entries Fail in China

When the American companies fail, the blame is usually assigned to some form of Chinese government protectionism, and favoritism to the local companies. Of course, this explanation is more palatable to Congress members seeking re-election and US TV talk-show hosts, but more often than not, it is a vast over-simplification of a complicated issue.

plastics news Why Chinese companies fail the U.S. market

9. Chinese companies fail to use “simple and elegant designs.”

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.

10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.

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.

These are just my opinion. I welcome yours.

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Comments»

1. Allen Taylor - October 14, 2008

Nice writing. You are on my RSS reader now so I can read more from you down the road.

Allen Taylor

2. Parker Bridge Property - October 15, 2008

Thank you


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