China's robust economy makes business success look easy. But the Asian country has rules, mores, and costs that multinationals ignore at their peril, as Hewlett-Packard (HPQ), Google (GOOG), and Yahoo (YHOO) painfully learned.
HP, the leading personal computer vendor worldwide, stumbled in China when it produced a line of faulty laptops and didn't fix them quickly enough. Google ran afoul of China's censors in a standoff that made international news and stopped the company's growth in China in its tracks. Yahoo relied on the parent company of Alibaba, China's eBay, to run its Chinese operations. But Yahoo's business and reputation have suffered in China because of trouble at Alibaba, whose chief executive and chief operating officer resigned amid an internal fraud investigation.
These examples underscore the need to adapt to Chinese culture in order to achieve long-term success there. My employer, Nalco (NLC), as well as such corporations as IBM (IBM) and KFC (YUM), have spent decades in China learning its nuances. All multinationals in China must deal with the government's "Buy Chinese" policy, which favors domestic manufacturers. The American Chamber of Commerce in Shanghai notes China is a difficult place for foreign businesses—companies are profitable, it says, but regulation, bureaucracy, and variable enforcement standards remain big challenges.