Why Global Brands Fail in China

photo: venturevalkyrie.com

(CNBC) By Shaun Rein - While China’s growing market has become a major profit center for brands like Intel and Nike, an unusually high number of global brands have failed to live up to expectations in the world’s second largest economy.

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.

Why? I interviewed dozens of former and current executives in these companies, competitors, suppliers, vendors, and clients over the past year to find out what went wrong. What resulted from the interviews might surprise some. The commonly repeated problems of government protectionism, corruption, or price sensitive clients did not emerge as the major reasons for failure.

Three common themes emerged in my interviews that show hubristic mistakes made by the brands themselves rather than due to market conditions. Their mistakes provide a blue print for what not to do in China.

The first theme that emerged is that these companies did not localize business strategies and models enough to account for local conditions. They too often tried to transplant what worked in America to China with little effort at localization.

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