Articles from Cass Knowledge

Why Western Internet Firms have all failed in China

When they seem to conquer markets around the world with ease, why do firms such as Google and Amazon struggle to make any great impact in China? A new research paper from Cass Business School discusses the complex reasons for their failure.

Despite conquering markets across the globe, practically all Western Internet Firms (WIFs) have found the Chinese market a place their ambitions falter. Google, eBay, Amazon, Yahoo….all have failed operationally in China.

A widely held supposition is that cultural differences and a climate of censorship have hampered WIFs success in China. Yet many WIFs operate very successfully in countries that are considered at least as culturally idiosyncratic or politically different. It is also worth noting that many western companies operating in other sectors (such as car manufacturing, fast food, alcoholic beverages) have developed businesses that dominate in China. There are other reasons for the relative failure of WIFs. For this paper, phenomenon based research was employed to ascertain what those reasons are.

The researchers collected empirical data via two rounds of elite interviewing, supplemented by data from published news, reports, and commentaries. Interviews were conducted with two different groups of elites over two phases, to compare the inside view and outside view of the phenomenon. The inside view was sought from 40 current and former senior executives from six WIFs in China and six of their Chinese competitors. The outside view was garnered from informal interviews with 185 business, government and professional elites with extensive knowledge of China.

The research found that the reasons cited for the failure of WIFs in China were varied and complex.  The inside view identified seven key themes at the heart of WIFs’ woes. These were:

  • Poor understanding of the Chinese market;
  • Poor management of relationship with regulators and government;
  • Ill-fated attempts to impose global business models unsuited to China;
  • Failure to cope with fierce competition;
  • Problems with business partners;
  • Attempts to impose unsuitable global technological platforms;
  • Centralised organisation and slow decision making.

The outside view identified six themes:

  • The large number of local competitors;
  • The aggression and determination of these local competitors;
  • Fundamental differences between internet services and other industries;
  • The failure of WIFs to develop and communicate their strategies;
  • Ineffective innovation strategy;
  • Failure to be embedded in China.

Both inside and outside views converged on the key factors of: (1) poor understanding of the business environment (2) ineffective strategy, and (3) underperforming local competitors in operation and execution.

So we see that with these myriad reasons considered collectively responsible for the failure of WIFs in China, two prevailing narratives emerge:

Lack of Strategic Determination and Patience

When WIFs entered China, most of them have already achieved dominance in home and many other international markets. Expecting similar success in China, they are unprepared for the greater challenges they face there and consequently are found lacking in the determination and patience required to meet them. Where local competitors have just the Chinese market to focus on they fight tooth and nail for their business. It’s not only the ferocity of the competition that WIFs seem unprepared to counter but the sheer number of competitors too. With China forming just one of many global markets for WIFs, they often decide the best option is to not to persevere when the cost of fighting for market share there outweighs any future returns. Retreat becomes the natural next step.

Failure to acclimatise to China’s Business Environment

The other prevailing narrative is that WIFs failed to embed themselves in the Chinese business environment. The complexities and vagaries of policy, regulation, and censorship in China require profound expertise and extensive connections to successfully navigate them. WIFs were found to lack the flexibility and nous of their Chinese competitors when it came to dealing with government and responding to changes in regulation or policy. They fail to appreciate the Chinese consumer’s tolerance for rapidly developing product development, something local competition is accustomed to responding to. They also lacked any real understanding of Chinese history and culture. This not only meant they failed to connect with users and customers but also with their own staff too.


WIFs failed in China because they did not understand or manage the complex business environment, adapt their strategies and business models for the Chinese market, or develop new technologies and services to cater specifically for Chinese users. They underestimated Chinese competitors and the challenge of dominating the largest internet market by user numbers. Where Western firms in other sectors have the advantage of established product lines and technologies that take Chinese firms years of investment to match, WIFs operate in a sector where barriers to entry are relatively low. The competition overwhelmed them.

So, are Western Internet Firms forever doomed to fail in the Chinese market? The researchers believe the problems they encounter are not insurmountable. To succeed in China, WIFs need to exploit the genuine technological advantages they do have. Chinese companies have generally been seen as rapid adopters of innovation rather than ground-breaking inventors themselves. That is an area where Western firms may still have an edge, for the moment. Yet Chinese firms are growing more confident and with success at home they are able to fund expansion into other markets. WIFs may find themselves reliving battles in their established markets with rivals they thought they had left behind in China.

The research paper Why have all Western Internet Firms (WIFS) failed in China? A phenomenon-based research can be requested from City Research Online. It has been published in Academy of Management Discoveries.