How to enter China and win: lessons from failure

Is there anything that stands out as particularly important for companies considering China as a destination to get right?  

The Chinese market has some characteristics that make it different from anywhere else. It operates at a far higher speed than more mature markets. With this pace, new competitors can emerge and become major threats in a short period, new consumption habits can form suddenly – such as the rise of livestreaming shopping which happened almost overnight – and policies can also change quickly. All of this requires faster decision-making to respond to rapidly evolving opportunities and threats, which in turn requires granting substantial autonomy to companies’ China units. Many firms are unwilling to relinquish this kind of control and thus remain in the way of their China units’ ability to operate efficiently.

Of course, sometimes too much autonomy can also lead to inconsistencies, duplicated work, and other challenges, so it’s important to strike a balance. For instance, Sequoia Capital, the venture firm featured in our book, adopts a decentralized and centralized governance structure: investment decisions are made locally with little interference from the headquarters, but shared values, culture, and financial interests keep its China unit on track and unite the whole organization.

What about the biggest failings? Did your analysis reveal any evidence of companies making the same mistakes repeatedly?  

We conducted more than 100 in-depth interviews with executives at multinational corporations based all around the world and found that, when it comes to China, companies tend to make the same mistakes again and again. For instance, some assumed the competitive advantages that had made them successful in their home countries would seamlessly transfer into new global markets. Such was the case with Amazon (a company we studied in depth here). Others overestimated the demand for their offerings. Although China is a huge market, some products just don’t fit well there, such as LinkedIn, as the demand for online professional networking is not yet evident. Others lacked sufficient commitment to the Chinese market and failed to surmount setbacks, such as Norwegian Cruise Line, whose cruise ship built specially for the country only operated for 19 months before being transferred to another location.