The Challenges Of Groupon Company In The Chinese Market

When Groupon entered the Chinese market in 2011, analysts thought that they had a very good chance for success. It also seemed to be a natural fit since group purchasing behaviour was deeply entrenched in the hard-bargaining Chinese people. They were always on the lookout for a good deal and China’s collective culture promoted group purchasing.

The internet population in China was fast approaching a billion with thousands of consumers entering the market every day. This was a great opportunity for Groupon to capitalise on although the Chinese market had very low barriers to entry and several product imitations. However, Groupon is currently plagued with a host of problems. An unsustainable spend on marketing, growing liabilities, a fifty-percent decrease in valuation and a failed joint-venture in partnership with China’s internet giant, Tencent, Groupon seems to have taken the same route to exit such as Google and eBay. Groupon is a classic example of yet another Western company with dreams of rooting themselves in the burgeoning China market but of having made the same fatal mistake as so many others before them. A management team comprised of mostly foreigners with no experience of doing business in China, insensitive marketing campaigns, internal conflicts with investors and partners, and tough competition from other local group-buying ventures, Groupon proved that it is not ready to do business in China.

However, the Chinese market is too valuable to give up with almost a billion internet users and a consumer market of trillions of dollars. The e-commerce industry is growing at an alarming rate every year and retail market places mushrooming across urban areas amidst an expanding middle class who have resulted in a consumption boom. We need to be clear of one aspect, China does not eliminate western or foreign companies, rather these companies commit suicide in China. Although the failure of western technological giants such as eBay, Facebook, Google, PayPal and Yahoo are often cited, the success of companies such as Apple, KFC, Nike, Starbuck and Walmart, is often ignored. Companies with social behaviour and cultural preferences as the sole growth drivers have been found to struggle in local international markets, although it is a highly debatable topic. Facebook and Twitter were both blocked because of the Chinese government’s policies on data regulation.

In fact, even home-grown company Tencent is facing difficulty in the social networking space targeting high-end users. Traditional businesses have notable fared better in the Chinese market. IT could be argued that it’s because they rely seldom on social behaviour compared to internet companies. KFC and Starbucks sported predominantly their US menus with little change. They relied heavily on their brand equity. Similarly, Apple did not have to change the design of its i-phone to suit Chinese users. Same was the case with Nike as well whereas Walmart’s value proposition was low prices, a large selection of items and customer experience like a Chinese supermarket. Although one might still argue that it’s a faceoff between core tech companies and traditional retailers, Groupon was different. At its core, it was more of a retailer than a technology company. The underlying design of Groupon’s local competitors is the same as that of Groupon.

In fact, the most dominant players in the group-purchasing domain have a product design and user experience exactly like Groupon’s. Group buying was never an alien concept in China whereas social networking was. It is important to understand that a customer browsing through the web pages of Groupon and its replica is going to end up purchasing the more attractive deal irrespective of the site. Thus, the fundamental underlying reason for Groupon’s failure can be attributed to a non-adherence to acceptable social behaviour and cultural preferences. In other words, cultural understanding determines the success or failure of businesses in a foreign environment.

For example, while eBay assumed that consumers in China would have the same behavioural patterns as in the US, local auction site TaoBao took over the market by discounting listing fees, connecting buyers and sellers through a chat service and providing a cash-on-delivery payment option unlike eBay which only had a credit card payment option. To succeed in the unforgiving Chinese market, western companies need to firstly carefully observe and understand Chinese culture. In an alternate universe, the following factors could have led to Groupon’s success in the Chinese market.