Z.J Ren on Why U.S. Companies Fail, and How they Can Succeed, in China’s E-Commerce Arena

in Digital Technology Sector, Emerging Research, Faculty, Global Work, News, Operations & Technology Management
October 24th, 2012

Ren’s “How to Compete in China’s E-Commerce Market” Appears in Sloan Management Review, Fall 2012

Z. Justin Ren

Z. Justin Ren

In the most recent edition of Sloan Management Review (SMR), Xin Wang and Z. Justin Ren explore the world’s largest e-commerce market—and the failure of America’s most successful companies to crack it successfully.

Ren is an associate professor of operations and technology management and Dean’s Research Fellow at Boston University School of Management, as well as a research affiliate at MIT Sloan School of Management. Wang is an assistant professor of marketing at Brandeis University International Business School.

On the history of corporations reproducing their domestic successes abroad, Ren comments, “Big e-commerce companies often focus on scalability upon entering foreign countries and tend to undervalue or neglect local specifics that often clash with their business models at home.  It is a fine balance they have to strike.”

Ren and Wang address this challenge in their SMR article “How to Compete in China’s E-Commerce Market.” “With more than half a billion Internet users,” the authors write, “China boasts the greatest number of Internet users in the world. Its online shopping market hit 766.6 billion yuan in 2011,” while by 2012, its e-commerce market is expected to be worth 2 trillion yuan, the approximate equivalent today of $320 billion.

“Big e-commerce companies often focus on scalability upon entering foreign countries and tend to undervalue or neglect local specifics that often clash with their business models at home. It is a fine balance they have to strike.” – Z. Justin Ren

So why, they ask, have companies such as Yahoo!, Groupon, and eBay failed to create the same successes in China as they have at home, or in other international markets? “After years of effort and millions of dollars spent, armed with the most sophisticated technology and premium brand names,” the authors write, “these Internet giants have all failed to claim a leadership role in China’s e-commerce.”

Wang and Ren address this market mystery by combining industry analysis, case studies, and insight from leaders in China’s e-commerce industry, with an examination of high-profile entry players in the Chinese e-commerce arena. “We identified four key ways,” they write, “in which U.S. e-commerce companies proverbially hit the Great Wall when they tried to enter the Chinese market.”

These fatal blunders include:

  1. a failure to modify the business model for Chinese customers,
  2. insistence on a standard global technology platform,
  3. a habit of overlooking the competition, and
  4. an inability to address challenges from Chinese authorities.

Tapping lessons from their research, the authors then offer practical advice to counter these errors and build success in the Chinese e-commerce market.

Read more at Sloan Management Review online.

Banner image courtesy of flickr user DavidDennisPhotos.com.