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why foreign companies fail in China - ZeYuan Consulting

Why Foreign Companies Fail in China

Businesspeople and companies understand the huge business potential China has to offer almost for any product; after all, this is the 2nd largest country regarding GDP, and in certain areas, China is #1 – internet penetration, mobile usage, cashless economy, online shopping, and many more. Still, there are many cases of foreign companies in China that are not successful as much they are in other countries.

Why?

I count 5 main reasons, not in order of importance, why foreign companies in China fail to succeed.

Reason #1 - Looking for 'Shortcuts'

When companies are entering China, they usually do what they are used to do in other countries and what made them successful. However, China is different almost in every aspect and even an experienced and successful company should not skip the fundamentals when entering a new market.

So, first, you need to study the market, gather information, learn about your competition and create a specific strategy and a business model. Trying just to duplicate the business model from other countries is usually doomed to failure.   

Never skip a step and don’t try to find shortcuts; it is better to spend time and money before you do any action in China, including understanding the local regulations and how to protect your IP and copyrights.

Doing the above in the right way will save you a lot of time, money, and frustration in the future.

Reason #2 - Not Enough Budget

China has a huge business and commercial potential that looks good on any business plan. What companies fail to do is allocate enough funds and resources to achieve the promising numbers in the business plan.

Because of the different style of conducting business, complicated local regulations at times, and culture gaps, the regular processes take longer in China and require a local professional team that cost money and training. Companies work under the assumption that success is just around the corner and targets can be achieved within few months.

Highly experienced companies in China are planning their activities for years to come and allocating resources accordingly. 

Reason #3 - Choosing the Wrong Local Partner

Choosing your partner, or partners, in China is a crucial factor for success and one of the main reasons why companies fail in China when they choose badly.

The right partner will ‘show you the ropes’, make sure you avoid all the pitfalls along the way and protect your interests. You need to choose the right partner as part of your study of the market, get references about the candidates, and always prepare alternatives.

When selecting the companies to work with you have to rely on a local team that represents you and is fully committed to you and your targets. This local team, or company, is your foot-on-the-ground and works on your behalf for every task. They are taking responsibility and choose together with you the local partner(s), create contingency plans, and minimize risks.

Foreign Companies in China - food tech news in Asia
China is open to foreign companies introducing new products and technologies to the country. Foreign companies need to be aware of all the unique aspects of this huge market and create and allocate special resources to ensure success.

Reason #4 - Not Understanding the Local Business Culture

I am kind of repeating some of the previous points, but I cannot stress enough how much the business culture and environment in China are totally different from other countries. 

You need to be open and learn on a daily basis, be patient and give respect to whoever you meet in China, building the relationship step-by-step. Give your hosts in China the feeling that you are here to stay, you are not in a hurry, and you genuinely interested in the local lifestyle, food, language, culture, and even your hosts’ personal lives.

This process takes time and also here there are no shortcuts – long meetings, social dinners, endless discussions over drinks, and communicating like the local Chinese do (WeChat, no emails), which will eventually create the right circles of local friends and colleagues that support your business momentum.

Companies fail in China because they lack the patience to adjust to the local business culture, or, even worse, trying to force their own business culture.

Reason #5 - No Relationship with the Local Authorities

As opposed to some other countries, the authorities in China can be your best ally. In general, the Chinese government is encouraging foreign companies to bring their products and technology to China and this intention is backed up with programs, benefits, and the way local authorities are conducting business with foreigners.

Companies fail to study the local government programs, and the long-term strategy the Chinese government has regarding certain segments and infrastructure. Even big, successful companies failed in China because they did not play the ‘game’ (i.e. Google), and missed a huge opportunity.

Choosing the right partner (reason #3) will also help you when walking the regulations’ maze and build a fruitful business relationship with the local authorities.

Udi Baran - zeyuan consulting in china

Udi Baran

General Manager Zeyuan consulting

The author is working and living in Asia-Pacific for the last 24 years and has extensive experience in leading manufacturing facilities and business operations in China for Fortune 500 companies in the electronics and food ingredients segments. Currently, the author lives in Shenzhen, China.

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