Business failures in China; an inability to connect at a cultural level

 

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By Grant Hall.  Founder of League Cultural Diplomacy

If you do an internet search on “companies that failed in China” what you will get is a long list of Western companies with a range of opinions as to the reasons behind their respective failures.

Sooner or later, many articles contain one of the following sentences:

“…failed to understand the local culture”

or

“…failed to understand the cultural differences”

In his Global Post article Why big American businesses fail in China Benjamin Carlson provides an account of Home Depot’s apparently doomed foray into China.  The article commences with some background:

America’s suburbs are full of tinkerers and home-improvement hobbyists, and Home Depot exists to serve them. With aisles upon aisles of power tools, building materials, and hardware supplies, its big-box stores are a testimony to US homeowners’ do-it-yourself ethic… On the surface, it seems like things might be similar in China. The country has a growing middle class, millions of new homeowners, and a culture of everyday ingenuity and thrift.

 Wouldn’t Home Depot do perfectly there?  That’s what the company thought when it bought into China in 2006. The Atlanta-based firm acquired a local firm, stocked its 12 stores with tools and materials, and waited for the money to roll in.  It never did.

 After six years of struggle, Home Depot shut its seven remaining stores and fired 850 workers in China[1].

The article then suggests how Home Depot’s misunderstandings of local culture was a major factor contributing to their venture’s demise, and provides examples that include;

Misunderstanding ‘the nature of China’s housing market. Many people buy homes for investment and speculation, not to improve.’

Misunderstanding how, ‘Chinese consumers don’t like big, boxy warehouses far away from a city center’.

Misunderstanding that ‘American notions of DIY’ are incompatible with ‘a market where labor was so cheap that most people simply hired a handyman’[2]

Carlson’s analysis of Home Depot’s venture concludes with the following observations by Shawn Mahoney, Managing Director of the EP China Consulting Group:

Home Depot, Barbie, Best Buy — they came and tried to sell the American vision, thinking people wanted to buy that…  That’s not what Chinese want to buy[3]

The article then continues, analysing in much the same way, the similar poor results that Google, Mattel and eBay obtained from their forays into China.

For various reasons, it could be said that the would-be-customers of these companies just didn’t seem that into these brands or what they had to offer.

But the reasons why many companies fail in foreign markets runs deeper than a failure to understand the culture or cultural differences – the problem is often a failure to connect at any cultural level at all with the intended market.

The concept of culture that I prefer to use is quite broad;

 culture is what people do every day.

The ability to connect with what Americans do every day has been key to the success of Home Depot, Google, Mattel and eBay in the U.S.  But conversely, their inability to connect with what Chinese people do every day appears to be the main reason for their respective failures in China.

It’s also important for businesses seeking to do business in China to know that it is a large country with many regional differences.  As a senior executive recently remarked to me, it is a “mistake” to view “China as a single , homogeneous market”.

If you want success in a foreign market, anywhere, you need to connect with people on a cultural level, in a manner that fits with their everyday lives.  My business, League Cultural Diplomacy, can help you achieve this through corporate cultural diplomacy.

So how about you?  Have you been involved in a project that either succeeded in connecting at a cultural level or failed dismally?  I’d love to hear about it and exchange experiences!

And how exactly does a business know if it’s not connecting at a cultural level and how does it connect to its target market through culture?  That’s what where words fail is all about – so stay tuned for more.

Coming up soon

Cultural immersion trumps theoretical knowledge

The value proposition of corporate cultural diplomacy

Endnotes and sources are listed on the next page.

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3 Comments Add yours

  1. Bill Reed says:

    Another great post, Grant. One question: you’re right, of course, to assert that China is too big to be satisfactorily generalised about. But where do you stop with this fragmentation? How small a part of China is it reasonable to generalise about? The coastal areas? The Northern wheat-growing regions? Hong Kong? The island? Stanley? Stanley market? I recently heard a fellow North Londoner explain to a Continental European that “You shouldn’t compare us with those people who come from South of the river. They’re completely different!” Where do you stop? How to segment?

    Like

  2. Grant Hall says:

    Hi Bill,

    Where do you stop segmenting? That’s a good question.

    The following was suggested, by a person with decades of experience working in Asia, in a LinkedIn exchange in the Asialink group whilst discussing one of my previous posts:

    “In assessing the importance of culture we also need to be a little careful where the proponents are running businesses providing cultural awareness or training. So yes, an understanding of the local cultures is important, but let’s not over emphasise it and make it seem a complex art. Treating one’s potential business partners with respect and being prepared to listen carefully to understand what they want, are for me the most important universal elements of a successful business relationship.”

    Now I’m not in the business of cultural competence training, but I agree wholeheartedly with the above statement, to which I responded:

    “My personal experience is that if you have strong relationships with the people you are working or negotiating with cultural faux-pas will be politely ignored. Offence is less likely to be taken if there is mutual respect between parties and good intentions are understood. You are never going to get 100% of the cultural aspects of communication right 100% of the time. That’s not to say cultural competency training isn’t valuable – but it’s far from being the only thing businesses need to consider when operating abroad.”

    My business, League Cultural Diplomacy, is all about using corporate cultural diplomacy to foster strong relationships where questions can be asked and where mutual respect over-rides any small cultural based misjudgments.

    Like

  3. Grant Hall says:

    You can also join the discussion on LinkedIn http://tinyurl.com/ntngjbt

    Like

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