Groupon learned the hard way: better to enter the Chinese market on tiptoes rather than screaming.
Innovation in China means adaptation, compared to Silicon Valley where entrepreneurs are driven to create unique products and business models.
Marco Gervasi, author of East Commerce and China veteran, elaborates on the lessons learned by one of the fastest-growing internet companies at the time.
Silicon Valley Mentality: Challenge The Status Quo
''When you enter China and accept that you have to play by Chinese rules, you have more chances than when you enter China thinking that your strategy is a strategy that you can adapt very easily to other countries,'' says Marco.
Let’s take the example of Groupon. When Groupon entered the Chinese market it represented the typical mentality in Silicon Valley where you need to try to build a product that can really differentiate from all the different products. Once you create something that is very unique then that is your advantage over all the other businesses. In Silicon Valley there’s no philosophy about copying as a business model. Everybody wants to challenge the status quo. The successful businesses are the ones that challenge the status quo.
Chinese Mentality: Adaptation & Speed
In China it is very different. "Innovation in China means adaptation," according to Marco.
"What happens is that in China you bring something that already exists out there and you adapt it to Chinese standards. When you find something that is successful out there, then you start finding a lot of copycats that come out overnight and they know that since the model worked overseas, if it is twisted enough in China it can also work in China because the model is already working."
When Groupon came to China, they were the typical Western innovative company bringing to China something that was not here yet. They moved here using the Western standards, though, and did not move fast enough. In just a few months they were copied by over one hundred sites that were doing exactly what Groupon was doing.
"Groupon’s cost structure in China was the same cost structure that they had overseas. But Chinese copycat businesses had a Chinese cost structure, meaning their staff were less expensive, no fancy offices, and things were done in a much leaner and cost-effective way. They worked on the margins."
"This was the biggest obstacle for Groupon to explode in China."