China’s emerging economy has big markets, and the developed world has big companies. A match made in heaven, but not in China.
Like all nations, China is looking to develop its economy, not your bottom line. The companies that run into China often end up crawling out. A more considered approach is to crawl in, learn to walk and then start running.
Learning the ropes in China is not one lesson. It is a series. You have to bring value and wisdom to be successful in China, and wisdom most often comes from experience.
The string of setbacks suffered by large multinational companies starting in 2006 has amplified the expat, pundit and “Old China Hand” chatter about the difficulty of doing business in China.
- In 2006, eBay exited the China market.
- In 2009, Coca-Cola’s attempt to acquire Huiyuan Juice failed; Danone exited the Chinese drinks market in a bitter dispute with its joint venture partner; Rio Tinto executives were implicated in a price fixing scheme; and Mattel set up a $30 million “House of Barbie” in Shanghai.
- In 2010, Google left China after a falling out with the Chinese government.
- In 2011, Wal-Mart was involved in a meat mislabeling scandal.
- In 2013, KFC is caught selling substandard chicken products; Caterpillar Inc. writes down over a half a billion dollars on a mismanaged acquisition; GSK is implicated in a “pay to sell” drugs scheme; Sanofi, Eli Lilly & Co and Bayer AG and Novartis come under investigation for similar practices; Home Depot closes its China operations; Danone and other providers of infant baby formula are caught in a price-fixing scheme.
The current expat “fashion think” is to blame the Chinese government for not providing “a level playing field,” which translates to they should play by rules I am used to. The mythical “level playing field” is always a wonderful concept, but as yet, it does not exist.
If you look closely you will see that in each case, these companies shot themselves in the foot and then somehow declared it was the market’s (China’s) fault.
Chinese government officials are well aware that a premium branded T-shirt made in China for $1 will be sold for $100 at retail. The government admires this value added sleight of hand and wants its domestic companies to learn how to build their own brands.
Long term though, they have no intention of allowing foreign brands to monopolize China and use it as a money tree. Everywhere you go in China today, local governments are trying to explain and encourage local Chinese companies to develop brands as a key to their future profitability. This is how China is pursuing its economic dream and it takes plays out of the same book we used.
This will be the first in a series of posts which talk in detail about flawed conceptions and plans involving large players whose Chinese dreams evaporated in a hail of red ink.
Take eBay, the company failed to grasp the fundamentals of the Chinese market.
eBay was the dominant world player in the online consumer-to-consumer sales market, but by the time eBay came to China in 2004, it was less about innovation and more about domination. The strategic plan was to acquire a small local player and then scale it up into an eBay China empire.
The problem was eBay failed to understand that the Chinese government, the internet gate keeper, was not interested in providing a spring board to a foreign company looking to dominate its market. Instead of creating a high-level dialogue with the ministries and ministers in power, eBay chose to stick to its knitting, only to be outflanked by Chinese start-up Alibaba. Alibaba also brought with it an understanding of their Chinese customers, who wanted the ability to chat with sellers, where as eBay wanted to keep to its “tried and true” formula which had worked so well in its other markets.
EBay failed to grasp that by the time they got to China their trade platform was a commodity, not an innovation. They failed to take notice of the difference in the regulatory environment and lastly they lacked the flexibility to adjust to the market. If they had been less ambitious at the start they could have learned these lessons and then applied them
In my next post, I’ll tackle Coca-Cola and the myth of guanxi.
Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.
