By Dr. Catherine Hua Xiang

Copyright observer

China’s continued integration into global markets tempts Western executives to chase a consumer base that is larger than the combined populations of Europe and North America. Yet headlines are littered with high-profile withdrawals and costly blunders. These failures rarely stem from isolated miscalculations; they reveal deeper blind spots about China’s cultural diversity, regulatory architecture and competitive dynamics. Across sectors—from luxury and retail to technology, manufacturing and finance—recurring missteps reveal systemic misunderstandings that Western firms must address.

Cultural misreads and the danger of surface-level localization

China’s sociolinguistic landscape is far more diverse than most outsiders appreciate. It comprises 14 major cities, 23 provinces, 56 ethnic groups and seven major dialects. Treating this population as a monolith invites mistakes. In 2019, Burberry’s Lunar New Year campaign portrayed a somber family portrait that resembled funeral imagery; Chinese viewers considered it “inauspicious,” and the campaign damaged sales. Prada’s Shanghai-themed campaign likewise misfired—the brand’s use of outdated décor and a stark red palette drew comparisons to a horror film. These missteps were not isolated; they signaled a pattern of superficial engagement with Chinese aesthetics.

Western retailers have also misread consumer behavior. Best Buy and Home Depot brought big-box strategies to China but found that shoppers favored neighborhood shops and professional services. By contrast, IKEA adapted its showrooms to Chinese homes and offered inexpensive dining, illustrating that localization requires rethinking product formats, store footprints and brand names—not just translating slogans.

Navigating a unique digital and regulatory ecosystem

Western brands often assume that their digital playbooks will travel. China’s digital landscape, however, is self-contained and highly regulated. The country’s e-commerce market is the world’s largest, exceeding $3.5 trillion in retail sales in 2024, with over 1 billion Internet users. Chinese consumers prefer mobile-first “social commerce” that integrates livestreaming, influencer marketing and instant messaging. Platforms such as Tmall, JD.com and Pinduoduo each cater to different demographics; apps like WeChat, Douyin (TikTok’s Chinese cousin), and Xiaohongshu (Red Note) blend payments, entertainment and shopping. Yet many foreign firms launch websites or apps that mirror their Western platforms, ignoring the need to embed within China’s super-app ecosystems.

The regulatory environment further complicates matters. China treats data as a national-security concern. Laws enacted since 2017 restrict cross-border data flows and require local storage, meaning foreign firms must accept onshore data control. Uber, for example, retreated because operating rules demanded provincial and national approvals. Companies need robust compliance teams to navigate censorship, cybersecurity reviews and evolving regulations.

Underestimating local competitors and the pace of innovation

A recurring error among Western entrants is to assume that global brand equity or technological superiority will translate into market dominance. Samsung provides a cautionary tale. The South Korean firm once controlled roughly 20 percent of China’s smartphone market, yet by 2024 its share had dwindled to under one percent. Several strategic missteps accelerated the decline: after Google’s exit from China, Samsung failed to develop its own app ecosystem; it targeted only affluent metropolitan consumers while Chinese rivals courted users in second- and third-tier cities; and its mid-range “C series” handsets flopped. The Galaxy Note 7 battery fires in 2017 also led to a global recall that initially excluded Chinese customers, causing outrage. The combination of product missteps, slow localization and reputational damage allowed domestic champions like Huawei, Xiaomi and Vivo to eclipse Samsung.

Starbucks illustrates a similar dynamic in the food and beverage sector. The U.S. coffee chain enjoyed a 34 percent market share in China in 2019 but fell to 14 percent by 2024. Local competitors such as Luckin Coffee, Cotti and K Coffee launched price wars and introduced drinks with local flavors. Analysts interviewed by Reuters argued that Starbucks needed to avoid discounting battles and instead focus on strategic partnerships that could help the brand “move at China speed” with real-estate access and regulatory support. They urged Starbucks to restore the “third place” café experience and adapt menus to regional tastes. The lesson for Western firms is that domestic challengers are nimble and intimately attuned to consumer preferences; ignoring them is perilous.

Online commerce demonstrates how domestic platforms can leapfrog foreign brands. Chinese consumers prefer direct communication with sellers, and platforms integrate livestreaming, social interaction, payment and fulfilment. Western companies that separate social media from transactions appear clunky by comparison. They must localize interfaces, work with key opinion leaders and align campaigns with shopping festivals such as Singles’ Day or risk being eclipsed.

Talent, costs and the human factor

Beyond strategy and marketing, human resource challenges can derail foreign ventures. McKinsey estimated in 2005 that only about 10 percent of Chinese engineering graduates were suitable for work in multinationals. Recent surveys from the German Chamber of Commerce in China highlight persistent recruitment and labor-cost pressures, though reported turnover and salary-growth figures vary by sector and year. These findings illustrate the tight labor market and rising wage expectations in China’s private sector. Without strong local HR practices, Western companies may hemorrhage talent or inflate payrolls, reducing competitiveness. Building talent pipelines through partnerships with universities, offering competitive benefits and investing in management training can help mitigate these pressures.

A more sophisticated China strategy

So how can Western companies avoid the traps that have ensnared predecessors? The following principles emerge from cross-sector analysis:

Invest in deep cultural fluency. Go beyond superficial translation to understand symbolism, family dynamics, holiday taboos and regional differences. Employ native creative directors and involve Chinese consumers in product testing.
Embed within China’s digital super-apps. Build mini-programs for WeChat, collaborate with Douyin influencers and adapt content to each platform. Recognize that the user journey is social, mobile and interactive.
Prepare for regulatory complexity. Develop compliance teams that monitor cybersecurity, data and advertising rules. Accept that data localization is mandatory and that political developments can affect business licenses.
Partner strategically and localize operations. Seek joint ventures or partnerships that offer market insight, distribution networks and government relations. Avoid replicating Western business models without adaptation.
Protect intellectual property early. Register trademarks and patents before market entry, and enforce rights through Chinese courts when necessary. Use contracts governed by Chinese law to ensure enforceability.
Diversify across regions and customer segments. Target consumers beyond Beijing and Shanghai. Embrace tier-two and tier-three cities and tailor offerings to local income levels and tastes.
Develop and retain local talent. Create competitive compensation packages, provide training and build clear career paths to reduce turnover.

China will remain both an opportunity and a challenge for global companies. Understanding the systemic patterns behind past failures—rather than attributing them to isolated missteps—offers a blueprint for more thoughtful engagement. Companies that acknowledge China’s distinctive cultural, regulatory and competitive realities will not only avoid the pitfalls but also unlock a market whose scale and innovation can reshape global industries.

Dr. Catherine Hua Xiang is Director of the Confucius Institute for Business London and Programme Director for International Relations and Chinese at the London School of Economics. She is the author of Bridging the Gap: An Introduction to Intercultural Communication with China (LID Publishing) and winner of the Specialist Business Book Award at The Business Book Awards 2025.