How To Succeed In (Chinese) Business Without Really Trying

“When in Rome, do as the Romans do.” That ancient proverb holds true today, wherever one goes — especially if one is trying to take its business international.

PingPong chief business officer Ning Wang said the biggest mistake companies make when trying to launch in China is changing little about their product or business model other than the language. To succeed in China, one must do as the Chinese do, he said. The differences and challenges do not end at language and currency, but extend deep into the culture.

For proof, look no further than Facebook, Uber, eBay, Craigslist, Netflix and Google — some of the world’s biggest names and most-visited websites, all of which flopped when they went to China. The story for payments has looked much the same. It turns out that market entry is not as simple as localizing the interface and setting up a few branch offices.

Blame any number of factors — and Wang can list a few — but the bottom line is that many of these companies missed the window of opportunity, and that window may not open again, as the role they’d hoped to occupy has been quickly filled by homegrown alternatives.

So, what went wrong, and what should these companies do if they get a second chance? Wang shared his thoughts in a recent interview with Karen Webster.

Where the Giants Went Wrong

There are four reasons Wang said the world’s largest players couldn’t get a foothold in China. He would go so far as to say some of them never even really got a foot in the door.

“All they did was tweak a global platform or service into the Chinese language or build a Chinese server,” Wang said. “They didn’t have localized product offerings; they didn’t spend the time to find that core customer that they’re supposed to serve and offer value to.”

The first reason international companies don’t make it in China, he said, is they never create a bespoke service or product that fits any particular cultural niche. They assume the same strategy that worked everywhere else will work there, too. It won’t.

For example, Wang said, when Apple came to China, the company didn’t make many changes to its product. It did translate various product offerings into Chinese, but did not customize user experience or pricing for the local market. In addition, Apple’s prolonged negotiation with China-based carriers slowed its adoption, and the air is still releasing from that balloon today. In September, local smartphone maker Huawei surpassed Apple not only on Huawei’s home turf, but also as the second-largest smartphone maker globally.

Regulations can be another killer for cross-border business, Wang said. PayPal, for example, was never able to secure a payments license in China, so the platform never even had the opportunity to localize.

Third, in some cases, there is simply a better product being made by a local competitor. Why couldn’t eBay get big in China? Because Taobao was doing the same thing, but cheaper, said Wang. While eBay charges 10 percent or so between listing fees and final value fees, Taobao allows merchants to list for free.

On the payment end, Chinese merchants using PayPal for sales on eBay must pay a base rate of 2.9 percent plus 30 cents, a 1.5 percent cross-border fee, spread on currency conversion and 1.2 percent to the local third-party payment provider for RMB disbursement, since PayPal has no license in China. That, Wang said, is 6 percent right off the top.

Meanwhile, Alipay, Taobao’s native payment method, charges a maximum of 1 percent, which decreases significantly as sellers’ transaction volumes grow.

Wang said speed and quality of decision-making comprise the fourth reason international giants don’t succeed in China. The market, he said, is much faster than other markets in which they may operate successfully.

Internally, the remote nature of local management reporting to overseas headquarters adds to the cost of communication. On the consumer side, China largely leapfrogged the landline phase of telecommunications and went straight to mobile. As a result, the country’s communications are much more efficient, Wang said, and the market is able to move much faster. For foreign businesses, though, it’s a bit like stepping onto a moving walkway without warning.

For example, Wang said, Uber was very successful in its early entrance to the country. But the company was slow to enter a second phase of growth after establishing a beachhead, because when it came time to scale up, the layers of management became painfully clear. Uber had a short window of opportunity to win over regulators at different levels while fending off fierce competition from local alternatives such as Didi. While Uber’s exit from China was honorable and face-saving, it was apparent the war was lost when it ceded its China operation to Didi.

The Other Way Around

It makes some sense, Webster agreed, that Chinese consumers would prefer a local alternative like Alipay or WeChat Pay, especially if that local company is providing a better product or service than an international competitor — or an equivalent one at a better price.

But, what happens when domestic platforms and products want to cross the border the other direction and expand outside China? How do they continue to serve the Chinese consumer wherever he or she may travel in the world, and perhaps pick up a few international customers along the way?

After all, Webster noted, it seems Chinese consumers want to shop outside China to purchase authentic merchandise, yet still complete the transaction using the same trusted method they use in-country. Meanwhile, Chinese merchants want the same level of local support and familiarity in capturing new buyers abroad.

The answer, Wang said, is simple: Start putting the merchants first.

“Chinese merchants have never felt like the incumbent payment providers were on their side,” Wang explained.

Although selling abroad has long been an option, the costs and risks have been always been high. Initially, merchants felt like they had no choice but to go to eBay with its 10 percent sales fees and 6 percent payment fees if they want to serve an international audience. When Amazon displaced the auction website, they no longer even had access to a wallet feature and were unable to collect payments without a foreign bank account or a costly third-party payment service.

If either party encountered a legal dispute on either website, there was no one to stand up and appeal for them, and they may lose their sales revenue entirely. Merchants collectively lost hundreds of millions on inventory in early 2016, for example, when Amazon decided to recall and refund hoverboards.

The goal of PingPong is to reduce those fees and serve as a payments partner that is truly a partner, Wang explained. That means aggregating those merchants’ needs to give them a voice, and it means creating leverage and bargaining power with the marketplace by acting en masse — the same way a labor union works. For PingPong, it also means acting as a go-between to pass payments from Amazon back to Chinese merchants, so Amazon’s disbursements function more like a vendor payment than anything else.

In short, said Wang, it means having the merchant’s back no matter what, and cheering them on to international success by clearing hurdles along the way.

“We lowered the fee price, provided fully localized customer service, built multiple conversation channels with the platforms to provide feedback on sales and marketing, compliance and risk issues — anything merchants may want,” Wang said. “We try to be the bridge of communication.”

One reason the vibrant Chinese FinTech sector has stayed mostly within the country’s borders is the difficulty in meeting international compliance standards and establishing credibility abroad. In helping merchants reach new markets, PingPong has formed strong partnerships with global banks and worked proactively with regulators to understand and help shape crime prevention and consumer protection protocol. In September, it became the first Chinese FinTech company to receive a Payment Institution license in Luxembourg, enabling it to operate throughout Europe.

Of course, building a product around China’s merchants means growing with them as their needs evolve.

“China has tremendous manufacturing power, but many sellers are now trying to establish an international brand,” Wang observed. “Production in China is changing at the same time as aspirational consumption has changed consumers’ tastes toward globally recognized brands.”