Common Mistakes by Chinese Companies Going Global
Jack Ma once likened his company Alibabato “a crocodile in the Yangtze”: strong in China, but once outside familiar waters, not in a position to take on the “shark in the ocean,” eBay. China’s huge domestic market has meant that previously, enormous business successes could be found without taking the risks of venturing abroad.
Now, Chinese companies are looking to expand abroad more than ever before. CSOFT’s Shenzhen 100 project is analyzing China’s globalizing businesses, zooming in on China’s modern hub of high tech, globalizing industry: Shenzhen. Our analysis puts Shenzhen companies into two general groups: “mature transformers” and “fast rising companies.”
Whether the company going abroad is a college-grad startup or a large domestically successful corporation, it will face challenges, and will need to adapt. Based on the initial findings of our Shenzhen 100 research, this article will examine some of the most prominent challenges that Chinese companies have encountered in their move abroad.
1: Global Language and Cultural Differences
One thing that we at CSOFT constantly stress to our clients is that communication to overseas customers is more than just translation. Entering a new market requires an understanding of the local culture and buying patterns; after these principles are understood, the company can present itself in a way that fits with local sensibilities.
Coca Cola Corporationis a primary example of how presentation from a foreign Brand is done well in China. Its Chinese brand name, “Ke Kou Ke Le”, sounds recognizably like the American name, and also has a rough literal translation of “tasty happiness,” phrased in a way that rolls off a Chinese speaker’s tongue with ease.
Language and cultural differences are important in not just branding, but also the presentation of products, instruction manuals, staff management, customer service, and so on. Making some sort of literal translation or clumsily direct conversion from the original culture and language to a new environment can damage chances of success.
2: Consumer Bias against Chinese Brands
China’s development in the years following the 1979 economic reforms was largely facilitated by low-end manufacturing. Exporting cheap manufactured goods may have suited China in the past, but now there are many Chinese companies capable of doing more. However – to put it bluntly – the phrase “Made in China” still makes many consumers assume the product is cheap and inferior. Whether it is fair or not, the onus is often on the Chinese company to establish a brand and demonstrate that their product is more than simply another “Made in China” piece of merchandise.
Research from Millward & Brown shows that although Chinese firms’ revenue from overseas has increased, awareness of Chinese brands – as revealed by surveys – remains very low; Milward & Brown showed that only 23% of Western consumers could name a Chinese brand, and that only 32% said that they had faith in products that were made in China.
Chinese companies have made some progress, particularly in developing countries. Overall, however, the data indicates a need for Chinese companies to more effectively invest in brand recognition in foreign countries.
3: Lack of Foreign Market Understanding
Broadly speaking, a company entering a foreign market must overcome two main categories of uncertainty: the differing legal/regulatory/governmental environment and the differing patterns of consumer preferences.
Understanding consumer patterns of a new country can involve both “soft” knowledge of the general culture and “hard” data in the form of sales figures, survey data, demographic statistics, etc. Anecdotal evidence has shown that many Chinese companies have neglected to do (or outsource) adequate market research before entering a foreign market, and suffered both tangible and intangible losses as a result.
4: Global HR and Decision Making Processes
Decision making in large Chinese firms is typically characterized as being heavily centralized, with the upper management dominating all or most strategic decisions. If a company’s senior management – based somewhere in China – continue this heavy handed approach as their company globalizes, then two main issues can arise.
Firstly, if permission from company headquarters is required for even the smallest of decisions, then this can chronically slow down the responsiveness and versatility of a business operation: consider the pace of the modern business environment, and the prominent time difference between China and the US or Europe.
Secondly, removing any autonomy from local managers prevents them from contributing their expertise and knowledge of the local market to the company’s decision making process. Obviously this is potentially lethal when combined with problem #3.
Globalization • Shenzhen 100
These four basic problems are likely to sink a Chinese overseas venture if they are not recognized and dealt with. Chinese companies that have an active localization strategy will be better able to position themselves for overseas expansion.