Ignoring the culture will lead to failure in China

Doing business in China is generally considered as challenging, especially for small business owners with limited budgets that requires making careful choices. Should they pay for a market entry study to determine their market? or for the translation of documents and a lawyer to pursue their IP rights? Or pay for someone who gives advice on what they can or cannot do during negotiations? Preventing failures in China easier for large multinational enterprises. 

However, a large budget does not necessarily mean success the Chinese market. Many global companies struggle with the demands of the Chinese market. The business cases below are from famous multinationals players,it is very interesting to learn from, especially for new SME starting their Chinese adventure. The following four famous failures in China all show that large budgets cannot always prevent an organization from making a mistake.

Nike

 Nike, one of the biggest sports brands in the world, has made a huge error that led to a vital failures in China. Nike has designed a pair of shoes. These white sneakers, created especially for the upcoming year of the Monkey, had special Chinese characters printed on both heels. The character on the left shoe, Fa (發), means good fortune. The character is associated with the traditional Spring Festival. The character on the right shoe, Fu (福), symbolized wealth.

One major challenge when using characters in the Chinese Language is that combining two words will give a third different meaning. When the heels are joined together, both characters combined signify a totally different meaning. Instead of wealth and good fortune it becomes ‘to become fat’. This message fueled hilarity within online Chinese communities talking about the hidden message of Nike, telling consumers to become fat.

Mercedes Benz

 The mistake of Nike pales if compared to the mistake of Mercedes Benz. Many big brands pick a name that phonetically sounds comparable to their western name. For example, Nike has been translated into Nai Ke (耐克). When combining both characters they signify ‘endure and conquer’, a name fitting to the branding of Nike.

Mercedes Benz originally went for the name Ben Si (奔死). Although it phonetically sounds a lot like Benz, but the meaning does not fit anywhere near the message they wanted to convey. Combining the words means ‘rushing to die’, which is a kind of unfortunate for a company building machines travelling at dangerous speeds. After finding out they rushed to change the name into Ben Chi (奔驰). Ben Chi means Dashing speed, which is a significantly more positive message to potential consumers.

Home Depot

 Home Depot is a huge American company focused on delivering supplies to DIY handyman. Back in 2006 Home Depot saw the potential of the enormous Chinese market. With over 1.3 billion potential consumers. The prospect seemed worthy for a large investment. They started by opening 12 stores across China.

If Home Depot would have conducted a market study, they would have discovered two very important factors besides cheap labor. Firstly, many people in the main cities of China live in apartment complexes and buildings which were recently constructed.  The need for DIY tinkering is less urgent in such apartment blocks. Secondly and more importantly; Chinese culture frowns upon doing such chores yourself. Like many other developing cultures, DIY is viewed as a sign of poverty.

In 2012 Home Depot closed its last 7 stores and got a 160 million dollar tax charge. The total amount of money lost must be staggering. Suddenly the price of a market entry study does not seem that expensive…

Groupon

Groupon, a famous e-commerce marketplace connecting local businesses with consumers through discounts. it entered the Chinese market in 2011. They brought hundreds of millions to the table in setting up a Joint Venture with Tencent, one of China’s largest internet companies.  Even before the Joint Venture was set up, problems started to erupt. The fact that the marketing director resigned, even before the JV was founded, gave hints of the first scandal. In an effort to be funny at the Super bowl, Groupon USA has made a commercial which included Tibet. In the commercial Groupon stated that the Tibetan culture was at risk to disappear, but at least Americans can still enjoy a discounted meal at local Tibetan restaurants through Groupon. Needless to say, due to the sensitivity of the topic Tibet in China, their partner Tencent was not amused. 

The next mistake of Groupon came from their strategy for the Chinese market. Groupon has announced that they will use an aggressive strategy, successful in all other countries, to find the best employees in the market. This included offering employees from competitor’s huge salaries to come and work at Groupon. Competitors in China unitedly fought back by stating officially that any employee leaving to work at Groupon, would never be allowed to work at any other firm within the alliance again. Besides these specific blunders, the problems of Groupon in China went much deeper. The many Western managers appointed in China where culturally insensitive which lead to even more problems between Tencent and Groupon. Out of the senior management team, merely one person was a mainland Chinese.

 Conclusion 

Obviously the failures of China Adventure of Nike, Mercedes Benz, Home Depot and Groupon speaks to mind due to the international fame of the firms. However it is easy to find the same stories about many less famous SME firms. Failure in China is right around the corner, boiling down to many of the same issues. There is not one simple path that leads to success, however localising a strategy throughout the China organisation to fit the Chinese market and all its needs will be of high influence on the outcomes.