Multinational mistakes a lesson for China, too
By Shaun Rein
Updated: 2007-02-07 06:51

Many of China's most successful companies have begun expanding abroad.

Some, like home appliance-maker Haier, have already built manufacturing plants in the United States and have successfully staked out dominant market positions.

Other Chinese companies like Lenovo have met with limited success when going abroad. Ironically, these companies have fallen into many of the traps that multinational companies succumbed to when they first arrived in China such as bringing in products that were successful at home without adapting them to local tastes, depending on general managers without an understanding of the local market, or even entering the market in the first place without sound financial feasibility plans.

Just a few years ago, 70 percent of multinationals lost money in China. In 2007, more than 50 percent will make money here, having learned from their initial mistakes.

As more and more Chinese companies nurture global ambitions it will be interesting to see if they are successful like Haier or learn the hard way as many foreign companies did when entering China.

Baidu is the latest high-flying Chinese company to announce that it wants to push out internationally.

"We believe that our proven strength in non-English language search, the high Internet penetration in Japan, as well as similarities between the Chinese and Japanese languages make this market an ideal next step for Baidu," Robin Li, CEO of Baidu, said last December.

Baidu should heed the words many critics have lobbed towards multinationals when they entered China.

Different markets

Many brands that are No 1 in their home countries like Google have stalled in China in part because they were so successful in their home markets. They tried to implement in China what worked in the United States, without listening to the wants of local Chinese consumers.

Baidu should not think that just because there are character-based similarities between the Japanese and Chinese languages that their search methodologies will be better than those already developed by Yahoo and Google. There are questions over whether Baidu's search results are actually superior to those of Google China.

Another potential concern is that while the Japanese have aggressively incorporated technology coming from Europe and North America, they may be less likely to readily adopt technology coming out of China. However, Baidu does understand nationalism, as they have run their own advertising campaigns portraying outsiders as not understanding Chinese culture. It would be ironic if they become the foreigners not understanding the Japanese market.

To find success in Japan, Baidu will have to remember that Japan and China are different markets. Consumers have different needs so approaches that work in China will not necessarily transfer to Japan. The search engine business in Japan is not just about search and advertising. Much of the success that the Yahoo and Softbank achieved in Japan stems from their offering of other services including online shopping and auctions.

Finding the right talent

Baidu needs to make sure to avoid "lazy localization" in Japan. A lot of multinationals coming to China sent over managers from headquarters with little to no hands-on experience in the country. After years of failure, many of these companies realized that savvy local managers or foreigners who had made a career of working in China were better suited to the task because they knew how to navigate local market conditions.

Baidu needs to make sure that they hire the best management team with Japanese experience. This means lining up a team that the management in China can trust to make decisions, even if those decisions do not align perfectly with Baidu China's concept of how their efforts in Japan should unfold.

One wonders if Baidu actually has the in-house talent with experience in both countries. They have stated that they will find local talent to manage their Japan operations, but it is unclear who they will trust to bring in and run the show.

Pressure to expand

Baidu is currently ranked as the No 4 most-visited site globally by Alexa, sitting behind Yahoo, MSN, and Google. Investors seeking increased returns from a good thing may be putting pressure on Baidu to expand its operations beyond its home market.

Over the last 52 weeks, Baidu's stock price has gone from $44.44 to $123.40 on January 29. November and December showed a strong run-up amidst rumors of Baidu's planned expansion into Japan.

Company growth is good but any company that expands into new markets needs to consider its long-term objectives.

It should also make sure that it does not lose its edge in its home market, much as Lenovo lost market share in China after its senior executives got spread thin integrating IBM's Thinkpad line.

The author is the managing director of the market intelligence firm China Market Research Group.

(China Daily 02/07/2007 page15)