Wednesday, May 16, 2012

How Multi-national Internet Giants can succeed in China – Learnings from Groupon’s failure

Rumors are circulating on China’s Internet that Groupon China is going to be acquired by, a native Chinese daily-deal website. After entering the China market last year, Groupon has not been able to put itself on the top10 list in this industry in China. The profit deficit was 46 million dollars in 2011. For many internet experts, it’s only a matter of time before Groupon China went out of business. It’s not the first time a multi-national Internet company suffered a waterloo failure. No foreign internet or e-commerce company has ever succeeded in China including Ebay, Yahoo and Amazon. As China has become the fastest growing and the most important marketplace in the world, these Internet giants can’t afford to pass up the opportunity and screw up in China. But how can they succeed?

Let’s take a closer look at Groupon China. The daily deal business in China is fiercely competitive. Over 5000 daily-deal websites have emerged since March 2010. However the brutal competition should not be an excuse for Groupon’s failure. There are many reasons why it’s not going to succeed in China. First and foremost, Groupon failed to fit the Chinese culture and develop the right consumer insight. China is a country that distinctly different from any country in the world. Any foreign company which simply copies the foreign model in China will fail hard. For example, the direct marketing model, which is very efficient and effective in America market, hardly gets any material result in the China market.Chinese customers are not very loyal to any brand. All the customers care about is the price of products. Even though Groupon poured tons of money to market its brand, customers don’t necessarily believe its brand is better. They didn’t know the customers and the culture at all before they moved their business to China. The management team is another big failure. Almost all the senior level executives are foreigners or American-born Chinese. They have great work experience and knowledge. However, they don’t understand the China market. What’s more, they can’t even communicate very well with their staff because of the language barrier. So the localization strategy is not there at all. How can you be successful in another country if you don’t do business the local way?

Here are a few takeaways that Multi-national Internet giants can learn from Groupon whether they are expanding business in China or planning to enter the China market.
1.      Do your homework before you knock the door
The Internet Giants need to do the research and understand what works and what doesn’t in China. Don’t simply copy your so-called successful model to China and hope it will work automatically.
2.      Know your customers
The Internet industry is quite different from the traditional industry. All internet companies need to tap into consumers’ mind deeper. You’ve got to understand their behavior and preference.
3.      Make your positioning clear
If you come to China now, chances are that there are already a number of companies who are doing the same thing as you do there. So figure out a way to make yourself stand out. The Chinese consumers no longer buy it just because your company is from United States or elsewhere. It's very difficult for you to compete with hundreds and thousands local Chinese companies if you don't have a clear positioning. 
4.      Doing business the local way
For these internet companies, doing business the local way is extremely important. A localized management team is a great advantage in almost every aspect. China’s higher education is producing more and more qualified candidates who can also speak fluent English. You've got to hire the right people. You've got to have a local team knowing how to do business the local way. 

Yuhui Zhang is a graduate student in the Northwestern Medill IMC marketing program and is specializing in digital marketing and marketing analyticas. Yuhui will be graduating in December 2012. He can be reached on twitter using the handle @Yuhui_Zhang. 

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