Tuesday, January 17, 2012

Why global brands fail in China - Shaun Rein

Shaun Rein
While some brands like Nike and Intel make neat profits in China, the country has become a corporate graveyard for many other global brands. Why do global brands fail in China, wonders business analyst Shaun Rein in CNBC. They should focus on China.

Shaun Rein
Best Buy  and Home Depot shut their stores in 2011. GoogleeBay and Amazon have been trounced by local competition. Walmart  faces dwindling market share. These great firms, which dominate their home markets and are widely successful internationally failed to grab profits in China... 
In China, revenue and profit per square feet of retail space is too low to justify giant stores selling low margin products. Brands need to think whether their traditional business models fit China and, if not, either skip entering the market or adjust accordingly. 
The second theme that emerged was that senior executives sitting in foreign headquarters often ignore what local country heads, who are more attuned to local conditions, have to say. Or they hire the wrong country heads in the first place. One eBay executive, for example, told me that his seniors ignored the advice of local employees to run servers out of China and switched hosting to America. 
“The day they switched to the US servers despite our protests, traffic dropped 50 percent because access speeds were too slow. We never recovered. It is a myth that local auction site Taobao won because they don’t charge fees. We lost because headquarters tried to implement what worked in the US, from interface design to customer service help," the executive said. 
Businesses need to hire senior executives who understand how to operate under local market conditions and delegate decision-making authority to them... 
China has become the must win market, so billions of dollars a year are being invested in the country. The reality is that many companies will end up failing there, or missing expectations, because they don’t localize their business models and management teams enough to compete with fast emerging domestic players.
More in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch, or fill in our speakers' request form.

Shaun Rein is the author of the upcoming book The End of Cheap China: Economic and Cultural Trends that will Disrupt the World. Read more about Shaun Rein and his book at Storify.
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