Why International Companies Fail in Emerging Economies such as China - Assignment Example

? An analysis of why international companies fail in emerging economies (China) and Facebook’s strategies for entering in Chinese emerging markets (Name) (Institution) (Course) (Tutor) (Date) What are Multinational corporations? Multinational companies are also variously referred to as multinational corporations (MNCs) or transnational corporations. Multinational companies are basically corporations that have various operations based in countries other than their original home country. These companies are characterized y having factories and offices in different countries that are all managed form a centralized office that coordinates the corporation’s global management. These multinational corporations not only produce but also sell a variety of services and goods in various countries around the world (Fatemi, Saint-Phalle and Williams, 1975). The Failure of International Companies in China According to Bjorksten and Haglund (2010), most multinational companies fail to perform well in China not because of the Chinese government policies but mainly because of their own incompetence. This is chiefly credited to the fact that the management teams of most companies fail to try and understand the Chinese market, drastically underestimates the challenges involved in doing business in China or even simply just choose the wrong business partners (Bjo?rkste?n and Ha?gglund, 2010). This view is supported by Joerg Wuttke who is the Chief Representative of the German chemical giant BASF. Wuttke has had a long experience with working in China but points out that more often than not, every body is always rushing to blame China but when an indepth analysis of an organization’s failures is conducted, it is usually fond that the mistakes were mainly of the organization’s making. Wuttke disputes the common myth that condemns the China market as being rather difficult. He points out that this view is mostly influenced by books and various media reports that claim that most multinational corporations are loosing money in the Chinese market. Wuttke points out that most multinational companies actually do make money in the Chinese market and have been greatly bolstered by the country’s 10% market growth (Bjorksten and Haglund, 2010). Case: Factors that lead to Google’s and eBay’s failure in China China first allowed its first internet 16 years ago and the various companies and western governments quickly hailed the move as being a major move away from the country’s traditional authoritarian control and censorship. Most of the foreign companies immediately laid down various policies and plans that were aimed at enabling them to take advantage of China’s massive consumer base that was perceived by many to be relatively untouched (Daltorio 2010). Google planned on taking over China in the same manner and fashion that it was taking over the United States market. In attempting to take over the Chinese market in the same way it took over the United States market, Google foolishly and blatantly ignored what is considered by many to essentially be one of the most vital rules necessary for conducting any business: Know your market. In essence, by attempting to impose its western vision of the internet on the Asian nation, Google ended up creating a huge mess for itself and inadvertently made easy profits for its local competition. China has about 384 million internet users that account for an average of one-fifth of the over 1.73 billion global internet users. It is especially in light of these statistics that Google adopted a trend that was keenly focused on global domination. Google is commonly faulted for the fact that it initially took many years for it to research and find out some of the basic facts as pertaining to some of its local Chinese competitors such as Baidu and Tencent Holdings. Google also happened to largely ignore the free music downloads market segment an element that was greatly capitalized by Baidu and helped to make Baidu extremely popular in the Chinese market (Daltorio 2010). Google’s attitude in entering the Chinese market was that of ignoring to adapt or change any of its policies and strategies so as to make the company better suited to effectively compete in the Chinese market. Google was seen to expect the Chinese market to adapt so as to suit it as opposed to the company changing so as to adapt to China. This aspect is clearly demonstrated by Google’s China web page having an almost identical search engine box to the one found on the Google United States page. The adoption of this search engine box into the company’s China webpage is seen to pose a rather large problem considering the fact that the search engine box happens to not adequately fit Chinese characters. It is assumed that Google arrogantly assumed that the Chinese internet users would not search the internet using their own language (Daltorio 2010). Another crucial mistake that Google happened to make is that Google did not bother trying to learn that as opposed to their American and European counterparts who spend most of their online time on work-related purposes, Chinese users portrayed a tendency of spending most of their online time on entertainment. Research conducted by the China Internet Network Information Center showed that about 61.5% of the internet users in China were aged about 28 years old or younger, 42.5% of the Chinese internet users have an average monthly income of $146 or less and only 12.1% of them happened to have university degrees (Daltorio 2010). The research also showed that most Chinese internet users tend to dislike a lot of typing mainly because the Mandarin language has thousands of different characters. As a result of this, the Chinese internet users showed a preference for navigating using the mouse and it is for this reason that most Chinese internet portals have been shown to mainly consist of hundreds of different colorful links competing for the user’s attention (Daltorio 2010). The use of many colorful links might tend to appear as being vastly disorderly to an American internet user, but to a Chinese user, this is seen to greatly make it easier for them to use and navigate the internet. In contrast to Google’s search box, Baidu, it’s Chinese rival offers a search engine that has been specially formatted in such a manner that it is more suited for entering Chinese characters as compared to Google’s search box (Daltorio 2010). In China, there is the tendency by most consumers to show a heavy reliance on user generated consumer reporting via avenues such as blogs because most Chinese people tend to trust the word of mouth more than they trust blatant advertising campaigns. Hence, it is for this reason that the Chinese have been shown to be very active online participants and tend to leave more comments on various blog posts as compared to their peers. Foreign multinational companies should be wares that most Chinese have been raised on a diet of various propaganda and it is for this reason that the Chinese tend to prefer genuine, user-generated content on the internet blogs as the internet is actually viewed as being one of the “freest spaces” in the country. The internet tends to also have greater importance in China where it is considered to be a crucial source of information, this is as compared to other countries where is commonly perceived as just being another form of communication. Multinational companies that aim to try and effectively compete in the Chinese market are advised to focus their marketing efforts on inviting various key Chinese bloggers to test their various wares and then blog about these products. Adoption of such a strategy is considered to be a more effective strategy as compared to conducting expensive, slick advertising campaigns in the country (Daltorio 2010). Factors that lead to eBay’s Failure in China EBay was first founded in 1995 as an online auction site by Pierre Omidyar in San Francisco, California. As of 2007, China was considered to be the world’s the second largest internet market in the World after the United States. Statistics provided by the China Internet Information Center (CNNIC), showed that the total number of internet users in China had managed to reach about 162million users by the end of July 2007. Of this number, approximately 122 million internet users surfed the internet using a broadband connection. Chinese internet users were also showed to spend an average of about 17.9 hours each week as compares to their United States counterparts who spent about 11.4 hours per week (Wang 2010). The failure of eBay in the Chinese market can be mainly attributed to its failure to adequately recognize that the Chinese business environment and market are vastly different form the western counterparts. eBay’s biggest mistake is considered to be the fact that its chief technology officer was brought in from the United States while its China operation was lead by a German national. These two key officers did not adequately understand the local market or speak Chinese. As a result of inadequately understanding the Chinese market, these two executives made some major mistakes such as focusing their advertising campaign on internet avenues in a country where most of the small business enterprises rarely used the internet. EBay failed to adopt its services and product offering to the Chinese market and opted to stick to its “global platform”. The company’s global platform was seen to fail to fit the local Chinese customers’ varied preferences and tastes. EBay was also seen to make the wrong assumption that it would have a strong brand in China by the mere virtue that it had a strong brand in the United States (Wang 2010). Strategies employed in The Successful Entry of McDonald’s into China Leadership: One of McDonald’s core values has always been centered around its employee development strategy. The McDonald System is designed to ensure that various selected employees are carefully molded so as to ensure their long-term growth. With McDonald’s expansion into China, more emphasis was placed on the growth of homegrown talent. In employing this strategy, McDonald’s was seen to recognize the need that its workers should be able to understand and know the local environment (Chu 2009). Eye on Cost: In conducting its various operations in China, McDonald’s recognized that the margins were often low and it had to try and rely more on sheer volumes so as to able to meet its profitability. This was achieved via the use of various methods such as the employment of an effective growth strategy that helped the company setting up several different stores consecutively so as to be able to offer consecutive training to the various employees and use one truck to distribute products between several different stores. Taking the Available Opportunity: McDonald’s was also seen to introduce the drive-through concept into its China market at a time when most of the country was heavily reliant on the use of bikes. This move proved to be in favor of the company as with the recent economic growth in the country, the use of bikes evolved into the use of motorcycles which has recently evolved into the use of cars. Its strategy of partnering with the Chinese state oil company Sinopec has allowed the company to set up equipped drive through stores in all of Sinopec’s 30,000 stores across China (Chu 2009). Online Presence: McDonald’s has recently gone digital with its launch of an online shop on Alibaba’s Taobao on February 2009. Taobao is China’s top online auction site and is quite similar to eBay. McDonald’s has been seen to effectively use the online shop to sell various consumer McDonald’s products such as mobile phones, MP3 players and gift certificates. This move has been seen to greatly help McDonald’s remain relevant as well as to be effectively targeting the youth group (Chu 2009). Possible Successful Chinese Market Entry Strategies that can be used by Facebook There are several key strategies that can possibly be employed by Facebook as part of its entry strategy into the Chinese market. These strategies will play a key role in ensuring that the company is able to successfully entire the Chinese market. Some of these strategies include: Purchasing Local companies: As part of its entry strategy into the Chinese market, Facebook should look into purchasing an already existing internet company in China as opposed to incorporating with local companies. Purchasing an already existing internet company will play a big role in helping Facebook acquire an already existing user base in addition to some other benefits such as some local engineering and sales forces. It will potentially cost Facebook much more less to purchase a company in the China as opposed to trying to grow the user base (Liu 2011). Censorship Strategy: Facebook’s most valuable asset is the people using the website and as such a specially developed Chinese version of the website should essentially not be isolated from the company’s main website. Chinese Facebook users should be allowed to make friend requests with users on the company’s main site and view all the pages on the main site in addition to being able to install various third party applications with the self-censorship system. The self-censorship system should be able to be effectively deployed from the China site without its compromising any of the main site’s functionalities. Adopting the self-censorship system will essentially help portray the company in good light with the Chinese Internet authorities that are noted for their dislike of large, user-generated content websites that are run by foreigners and not Chinese companies that have a self-censor policy in place (Amnesty International, 2006). Brand Registration: In light of the challenges that apple is currently facing as it attempts to try and register its iPad trademark brand in the Chinese market. Facebook should continue with its strategy of applying for various trademarks in China using both English and Chinese. As part of its strategy, Facebook is currently registering its trademark in several classes of good including such classes as stationery and clothing manufacture. This move is intended to shield the company from any infringement of its trademark (Lu 2012). Local Partnerships: Although it can potentially be detrimental for Facebook to attempt to partner with several local companies in a partnership, it should be noted that partnerships are not always too bad a good example being the formation of several successful partnership involving Google and several Chinese companies. These partnerships were proving to be quite beneficial to the company before they were disrupted by the Chinese government. The company should attempt to approach several Chinese websites and micro blogging services and offer the use of the Facebook Connect services (Liu 2011). Employing Local Talent: If possible, Facebook could look into employing local Chinese talent to be used in developing its Chinese website. The local talent would have a better understanding of the Chinese market’s various preferences and tastes, as compared to programmers hired from other countries (Strauss 2012). Surround and Conquer: In a recent interview, Zuckerberg who is Facebook’s CEO suggested that as part of its entry strategy into China, Facebook would incorporate a surround and conquer strategy. In line with this strategy, Facebook plans on first concentrating on spreading its presence in all the other global markets and then proceeding to worry about China much later. By concentrating on connecting people in the more easier to penetrate markets around the world, Facebook hopes to be able to effectively surround China with its huge influence as a social network and which will in turn help in pressurizing Beijing into allowing the company to operate within China (Kincaid, 2010). Bibliography Amnesty International. 2006. Undermining freedom of expression in China. The role of Yahoo!, Microsoft and Google.Amnesty International UK. Bjo?rkste?n J. and Ha?gglund A., 2010. How to manage a successful business in China. Singapopre : World Scientific. Chu G. 2009. Burgers to Fries: McDonald's Success in China. Retrieved on 9th March 2013, from:http://metandevelopmentgroup.com/burgers-to-fries-mcdonald%E2%80%99s -success-in-china/. Daltorio T., 2010. A Big Reason Why Google Failed In China. Accessed on 12th March 2013 from: http://www.istockanalyst.com/article/viewarticle/articleid/3817765. Fatemi N. S., Saint-Phalle T. and Williams G. W., 1975. Multinational Corporations. Associated University Press. Kincaid J. 2010. Mark Zuckerberg On Facebook's Strategy For China (And His Wardrobe). Retrieved on March 12, 2013, from: http://techcrunch.com/2010/10/16/mark-zuckerberg -on-facebooks-strategy-for-china-and-his-wardrobe/. Liu L. 2011. Facebook's China Strategy. Retrieved on March 10th 2013 from: http://liuliu.me/%E9%9A%8F%E6%84%9F/facebooks-china-strategy/. Lu G. 2012. Facebook's Trademark Strategy in China, Sounds Smarter Than Apple. Retrieved on March 12th 2013, from: http://technode.com/2012/02/26/facebooks-trademark-strategy -in-china-sounds-smarter-than-apple/. Strauss K., 2012. Facebook And The china Problem. Retrieved on March 11th, 2013 from: http://www.forbes.com/sites/karstenstrauss/2012/05/18/facebook-and-the-china -problem/. Wang H. H., 2010. How EBay Failed in China. Retrieved on March 10th 2013 from: http://www.forbes.com/sites/china/2010/09/12/how-ebay-failed-in-china/2/. Read More