Can Western businesses conquer China?

Collaborations are beginning to emerge between Western and Chinese companies, but barriers to the East remain

The trade history between the East and West has been marked by fluctuating periods of collaboration and isolation over thousands of years. Today, there is an undeniable political and economic divide between the Western superpowers of Europe and the United States, and China.

With the East-West divide marked by wildly contrasting political climates, cultural differences, and consumer habits, Chinese and Western businesses have tended to confine operations to their respective territories. Yet the Chinese market holds lucrative potential for Western businesses, and vice versa. With Western companies now entering into collaboration with some of China’s big tech businesses, the question remains: can Western businesses conquer China?

A taste of the East

Jon Buss, Managing Director for the UK & Northern Europe at Yext – a brand management company – identifies key differences between the business landscapes of the West and China.

“They’re underpinned by a number of fundamental differences,” he says. “The Chinese business landscape is marked by short term considerations, while in the West it is shaped around long term goals. This means that the business lifecycle is much shorter and moves at a much faster pace in China. Rather than focusing on managing clear and stable processes, the Chinese business mantra revolves around innovation, efficiency and speed of growth.”

The rapid growth pursued by Chinese companies is embodied by the likes of brands such as Luckin Coffee – which opened over 2,000 outlets across the country in less than two years – and Pinduoduo – an ecommerce platform which racked up more than 200 million users after only three years in operation.

The phenomenal expansion achieved by these two brands is supported by another feature of the Chinese business landscape – the dominant tech giants of Alibaba, Tencent and Baidu. These companies invest heavily in small startups, absorbing them into their own ecosystems. Tencent, for example, contributed to the $110bn Pinduoduo raised in its B funding round, and also signed a strategic cooperation agreement with Luckin Coffee.

“Contrastingly,” Buss notes, “the West invests in expanding large scale organisations like Google, Amazon and Facebook.”

Culture clash

According to Buss, the driving factor behind these different characteristics is largely embedded in the contrasting cultures of the two regions.

“Western businesses typically prefer to do business professionally, interacting either through face to face meetings or via email, or at the very least by talking over the phone,” he says. “However, there are blurred lines between the personal and the professional in China: business people tend to use direct WeChat messages for work communication.”

“While this professionalism enables Western businesses to manage and plan effectively,” he adds, “the ease of communication allows for the speed of development that exists in the Chinese business landscape.”

As with all forays into foreign territory, it is essential for Western companies to understand the Chinese market – and the country’s cultural differences – before attempting to do business there. One of the most obvious pitfalls would be to create an ad campaign via Google, for example, which while heavily relied upon in the West, is blocked in China. Chinese-specific strategies are a business necessity, but scoping out their full ramifications is easier said than done.

Barriers to entry

Another crucial factor for Western businesses to consider is an understanding of the Chinese consumer. According to Chinese government statistics from 2018, 788 million people access the internet through their mobiles – that’s 98 per cent of the country’s total internet user base. This makes mobile a more important focus for business in China than anywhere else in the world.

“Business leaders need to work harder to create strong partnerships with platforms such as Baidu, Alibaba and Tencent to engage in the conversation in China,” says Buss. “Mobile is a key business opportunity for brands on a global scale, so it’s vital for strategies to be put in place to reach this growing consumer base.”

Importantly, the way that people use the internet in China is vastly different to in the West. The Great Firewall blocks any content or service provider deemed unsuitable by the authorities, with Chinese consumers relying on the likes of homegrown Dianping and Baidu for their search needs.

As Buss notes, any foreign company trying to break into the Chinese market needs to take these factors into consideration.

“Brand reputations are at stake with what consumers find online, and reputation means revenue,” he says. “Many businesses aren’t structuring their information correctly to make it available on digital services used in China, which ultimately means it isn’t available to them. Western brands must ensure they are able to meet Chinese searchers at the moment of intent; otherwise they are invisible to this critical customer base.”

From East to West

So far we have considered the impact of Western businesses attempting to enter Chinese markets. But what about the other way around? In 2013, China’s President Xi Xinping announced a new ‘Belt and Road Initiative’ – a worldwide development and investment strategy, which has already seen the development of a rail freight network between China and Western Europe, amongst many others.

This initiative is seen as part of China’s push for influence on a global scale – a strategy that will no doubt soon transfer to private enterprise. This being said, attempts by Chinese businesses to enter the West have been troubled – a fact that most recently has been exemplified by Huawei.

“There are very few Chinese consumer brands that have household names in the West, as they have historically struggled to connect with Western consumers,” says Buss. “However, more tech and business models are beginning to be exported successfully out of China, as can be seen in parallels between WeChat, Alipay and Taobao with Facebook, Apple Pay and Amazon. China has also pioneered the ‘Super App’: a single source providing a number of services that has since been mirrored in Western business models.”

As Buss notes, one Chinese business that is beginning to break into the West is TikTok, which is the poster child for a successful Chinese company starting to boom in Western markets.

“TikTok reached the number one ranking on Google Play in the United States, and a number three ranking worldwide,” he says. “Although it is difficult for Chinese companies to have success in the West, this shows that it can be done.”