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. Google, eBay 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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Why Wal-Mart loses in China - Shaun Rein

Big store in China are not cheap via Wikipedia

Top management of Wal-Mart in China is leaving 'for personal reasons', signalling all is not well at the major retailer. Shaun Rein explains in CNBC why the US firm loses market share in China and how it can rethink its strategy.

Wal-Mart has lost market share from 8 to 5.5 percent, according to Shaun Rein's China Market Research Group:

Wal-Mart made the mistake of leaning too heavily on the big box retailer format like in the U.S., rather than smaller, conveniently located retail outlets. Expecting China to develop the same way towards big box retailing, as America did, is the same mistake Home Depot [HD  34.77   0.24  (+0.7%)   ] and Best Buy [BBY  31.54   0.53  (+1.71%)   ] made. Both of those retailers ultimately retreated from the market. China may have high compound annual revenue growth rates, but traffic and the lack of free parking means consumers often prefer to shop in neighborhood stores. A government ban on free plastic shopping bags has also resulted in consumers shopping more often, and buying less each time, further fueling the popularity of stores closer to home...

Wal-Mart surprisingly has struggled with consumer perception and their branding. They espouse the 'everyday low price' concept, yet are positioned relatively high in the market when compared to street vendors that are truly low price. Our research suggests that the consumers who spend the most at Wal-Mart and account for most of their revenue tend to be upwardly mobile, middle class, or wealthy. They are not looking at Wal-Mart as a low price destination but rather as a location where they can buy safe, high-quality products...

Rising costs and more demanding consumers are changing the retail landscape in China. Wal-Mart needs to adjust its strategy by shrinking the size and locations of its stores, going upscale in product selection and ambiance, and by differentiating its product lines. Unless it does that, Wal-Mart might end up another casualty of the fast growth but hard to win Chinese retail market.

Shaun Rein

More arguments 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.

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Why China does not need Home Depot - Paul French

Image via Wikipedia

What foreign companies, trying to tap into the China market, regularly forget is that there is no need for their services, tells retail analyst Paul French at Marketplace Public Radio. Home Depot is an example.
Paul French responds to Raymond Chou, president of Home Depot China:

CHOU: The Home Depot is the world's largest home improvement specialty retailer in the world by far, and we plan to be number one in China, too. Therefore, really the task at hand is to try to figure out how do we become the largest home improvement retailer in China, whether or not we're going to be here or not.

Paul French by Fantake via Flickr

PAUL FRENCH: I don't know if Home Depot needs to be here. I don't know if this is the right place for Home Depot... You can go around the ring roads of Beijing or you can go around the expressways of Shanghai and you see these giant warehouse places, where manufacturers just set up inside and you go in there and there's 50 makes of toilet, 50 makes of power shower, and 50 makes of bathroom tile. Everything's up for negotiation, you can sort everything out, it'll all get delivered. You don't need Home Depot.

More at Marketplace.

Paul French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Getting your brand right in China is tough - Tom Doctoroff

Tom Doctoroff by Fantake via Flickr

Foreign brands in China have seen huge successes and massive failures. Tom Doctoroff gives in Gulf News his take on the difficulties of building a brand in this booming economy. Gulf News:

After setbacks for brands such as Home Depot, Best Buy and Barbie, which have closed stores or withdrawn after failing to win over Chinese consumers, the lessons of Huai Hai Road are germane.
"Anybody who comes into this market and thinks they can just plant their brand and let it grow will be sadly mistaken," Tom Doctoroff, north Asia chief executive of JWT, the advertising agency, said.
"Any [foreign] business model needs to be brought into alignment with Chinese cultural and consumer imperatives."
He points to Pizza Hut, Starbucks and Haagen-Dazs as the gold standard for foreign brand success in China. They took products alien to Chinese tastes and made them popular.
Pizza Hut and KFC, both owned by Yum Brands, localised their menu.
But adjusting to local tastes is not just about food, Doctoroff says. Pizza Hut, Starbucks and Haagen-Dazs all focused on eat-in, rather than carry-out, in China. "Barbie just got plonked down in China."
Even luxury goods companies have had to adapt their model, he says. The Chinese market for luxury goods is "broad and shallow".

More in Gulf News.

Tom Doctoroff is a speaker at the China Speakers Bureau. When  you need him at your meeting or conference, do get in touch.

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Trade under threat of Fukushima fallout - Shaun Rein

Toyota SUV in trouble via Wikipedia

The effects on trade between Japan and China cause by the Fukushima nuclear disaster is bigger than expected, warns Shaun Rein at CNBC, as Chinese consumers not only stop buying Japanese food, but Japanese products like Toyota's SUV cannot reach the Chinese market.
Rein is bullish on the home decoration market, where he expects this year a growth of 15 percent, as Chinese home owners turn to renovation as the sales of residential real estate slows down. Unfortunately, the foreign retailers like B&Q, Home Depot, but surprisingly also IKEA fail to capture that momentum.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Why foreign DIY stores fail in China - Shaun Rein

Not popular in China via Wikipedia

Foreign DIY-stores like B&Q, Home Depot and Saint-Gobain are retreating from China despite the booming economy, and nobody should be surprised, tells Shaun Rein in The Age. DIY does not fit the image people want to have.
The Age:

"Do-it-yourself is not popular in China," Shaun Rein, managing director of China Market Research Group...
"The feeling in China is that if you do it yourself that means you are a peasant -- not the sturdy, manly image DIY chains have crafted in the US."...Rein said that on some of the few DIY items that do sell in China, both B&Q and Home Depot priced themselves out of the local market by charging much more than Chinese competitors.

Shaun Rein is a speaker at the China Speakers Bureau. Do you want to learn more on how foreign businesses fail in China - or can win - do ask him for your meeting or conference, and give us a call.

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Failing in a booming consumer market - Shaun Rein

Shaun Rein by Fantake via Flickr

Home Depot and BestBuy were just two of the foreign companies in China that failed, while the consumer market is reaching record heights. Shaun Rein explains what they were missing in CNBC.
First, they get China's middle class wrong:

For one, Western brands need to understand there is no Chinese middle class in the American context. In the United States, the middle class tends to be a fairly static socio-economic group. People are born into it and their children and grandchildren tend to retain similar middle class habits like shopping atMacy's, driving Ford cars and visiting the Disney theme parks during vacations.
In China, however, the habits of the middle class are often described as anything but static. With many rags-to-riches stories doing their rounds across the mainland, many believe they, or their offspring, can also be wealthy. This optimism mirrors the conditions American Baby Boomers grew up in during the post World-War II era.

Even more complicated: Chinese want to be wealthy rather than middle class, avoiding typical middle class brands.
In CNBC Shaun Rein adds two more pitfalls.

Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

Home Depot loses, IKEA wins; why? - Helen Wang

Image by Getty Images via @daylife

Home Depot announced the closure of outlets, a stiff reminder that life can be tough, even in a fast growing Chinese market. But what is IKEA doing better, wonders Helen Wang in Forbes, as they are opening more outlets. What lessons can be learned?

In the last fifteen years, home ownership has gone from practically zero to about 70 percent. However, many people have little sense of how to furnish or decorate a home. They are very eager to learn from the West. This is one of the reasons that IKEA is very popular in China. Their Western-style showrooms provide model bedrooms, dining rooms, and family rooms showing how to furnish them. Their stylish and functional modern furniture is particularly appealing to young couples...

Three lessons Helen Wang has:

Helen Wang via Flickr
• Chinese consumers need to be educated as they have no role models. They are eager to learn but they need guidance. Companies that invest in educating the market can expect to reap handsome rewards.
• Pay attention to local customers’ preferences. For example, the kitchen is usually small and considered secondary in a Chinese home. Chinese cooking usually blackens the kitchen with soot and grease and is the domain of an ayi, or household helper, who cooks for the family.
• Most Chinese homeowners live in condominiums rather single family homes. They do not have a garage that can store tools and ladders. A more appealing package would be pre-designed interiors with installation included.

More in Forbes.

Helen Wang is a speaker at the China Speakers Bureau. When you need her at your meeting or conference, do get in touch.

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