Local culture, market rules and customers’ double-sided personalities mean breaking through the Chinese wall is easier said than done.
Making it in the Chinese e-commerce market as a foreign business is not an easy task.
Some of the biggest companies in the world have attempted, and failed in advancing their market share in the country. Earlier this year, the Chinese branch of US-based online retailer Amazon, opened up a new online shop operating on the tmall.com platform, a
Chinese language website for B2C online retail.
Tmall.com, which hosts almost half of all Chinese B2C transactions, is owned by Alibaba, Amazon’s biggest rival in the country. Amazon has sold to the Chinese market since 2004 and opened up a Kindle shop last year, but has failed to gain traction in the country’s e-commerce market, holding only a 1.4 percent market share.
Alibaba, a company founded by Chinese business goliath Jack Ma in 1999, makes a larger profit in China on its 11th November shopping festival, a one day shopping event, than Amazon does in 12 months.
If a giant like Amazon struggles to gain foothold in the Chinese market, what chance do startups have?
Rujie Yin is a South Korean serial entrepreneur focusing on the online shopping comparison market. He launched four companies in three different countries: Japan, South Korea and the US, before attempting to crack the Chinese market.
With plenty of experience under his belt, Yin was confident his launch in China would be a success, but launching a startup in the country was more difficult than he first expected.
“My first try in China was offering the service of search engine technique to Chinese enterprises, he says.
“I spent three years to try to localise the technique I brought from the US, Korea and Japan. And I failed.”
The reason, he explains, was that he did not understand what his Chinese clients were thinking, or what they needed.
“Based on the lower human resource cost and the traditional thinking, they would rather use their own team to build search engine for their websites than paying several hundred thousand Yuan for our service,” he says.
Yin is not alone in trying to expand to China and you can see why entrepreneurs are keen to get into the region.
According to a report from Iresearch, the Chinese internet business is the biggest market in the world, worth more than ¥870 billion (£90 billion) in 2014.
But in China, local knowledge is crucial when it comes to setting up a business or expanding to the region.
He Huang, a Chinese entrepreneur who has cofounded and launched three successful startups in China, including Toutiao.com, a personalised news app, says a lack of cultural and legal understanding as the main reason why foreign companies fail.
“I think the core reason of the failure of these foreign companies is their mechanism,” he says.
“Most of them follow the protocols from their headquarters who do not understand the Chinese market well. It is easy to make wrong decision by this mechanism. Compared with them, our local startups know the market and this is our biggest advantage.”
Yin says the important thing to understand is the double sided personality of Chinese customers. On one hand, they are realistic: a high quality to price ratio can be accepted very easily. On the other hand, they often find it easier to follow products from big companies and can often be suspicious of buying form smaller companies, he says.
“It is all about finding the balance between spending a lot on building your brand awareness and lowering your costs to satisfy the Chinese customers’ realism.”
Uber on the up
One foreign company that has cracked the code in China is Uber. Huang attributes the company’s success to its local team which is operating independently of its US headquarters.