Differences Between Chinese and American Culture: Groupon and Tencent

A cultural environment is a set of beliefs, values, practices, customs, and behaviors that are discovered to be shared amongst the ones that are living within a certain population. They consist of the influence of religion, family, education and social systems. On the other hand, the institutional environment includes the combination of regulations, customs and norms widespread in states, societies, professions and organizations which shape organizational behaviour and outcomes. This essay will describe the background of Groupon and Tencent as a company. Secondly, this study will look at the nature of the failure by analyzing the differences between Chinese and American culture and institutional environment using the Globe cultural dimension and the Psychic distance dimension. Lastly, this essay will look at how Groupon and the top management could address the failure for the future course of action.

Over the years there has been a greater evidence of globalization with the shift from domestic to international business activities. This has increased the abilities to function in cross-cultural situations, institutional environment and additional knowledge required to succeed in the fast-paced, diverse and complex global economy. Culture and institutional environment influence numerous aspects of international business such as negotiations, international management, and marketing communication strategies, business relations and decisions concerned with brand and consumer behaviour. An understanding of cultural and institutional differences can allow firms to gain competitive advantage on the global market. As a result firms not implementing cultural and institutional environment into their business strategy can affect the development of business in host country.

Groupon is an American online local e-commerce platform that connects merchants to consumers by offering goods and services at discount (Reuters, 2019). It offers goods and services in three primary categories of local deals, Groupon goods and Groupon Getaway. In February 2011 Groupon entered China by setting up a joint venture partnership with Tencent Holdings Limited, where Groupon invested $8.6 M for a 40% stake in the GaoPeng joint venture. Tencent Holding Limited operates as an investment holding company. The company provides internet and mobile value added services, online advertising, and e-commerce transaction through its subsidiaries.

Groupon failed in China because of their assumption that their one size fit business model will work in China. The one-size-fit model included the same strategy used in the US and Europe to hire employees using high salary approach (Lee, 2018). The company also used western management structure using expatriates to operate in China because their hiring strategy did not go well. Similarly, Groupon used aggressive sales and marketing tactics to build a relationship with local vendors and local consumers. Additionally, Groupon did not consider the importance of building Guanxi and trust with its partner Tencent.

The cultural environment significantly varies across countries and also within the boundaries of a country or a market such as rural areas and metropolitan. The cultural differences are important because they can determine the MNEs success. In order for the company to success in the foreign market, the firm has to add value to meet the desires of the local market, this means understanding the cultural environment of consumers. As a result understanding the culture is about identifying and understanding the cultural dimensions.

According to the GLOBE study, cultural dimensions can be classified into nine categories of power distance, in-group collectivism, institutional collectivism, uncertainty avoidance, future orientation, gender egalitarianism, assertiveness, humane orientation, and performance orientation. The cultural dimensions are separated into two variants of values (society as it is) and practices (society as it should be). The GLOBE study defines In-Group Collectivism as a degree to which people should take pride in and should feel loyal towards their organizations and employers. Based on GLOBE study the U.S. practices are lower than values while China’s values are relatively higher than practices. Drawing out from the GLOBE model it can be interpreted that China is a highly collectivist culture society, their practice is higher than in America, where people act in the interest of the groups and take care of each other in exchange for loyalty. In contrast, Groupon did not consider this factor (practice medium) because it hired expatriate managers to run its operation in China who did not have a local understanding of culture. As expatriate managers were hired, this resulted in employees being managed in western style (individual level) as reverse to how Chinese employees would want. This approach of management style led to very low efficiency and employees did not respect or feel loyal to their managers. Henceforth, Groupon experienced a high turnover of employees.

Uncertainty avoidance is described as a degree to which culture’s people should rely on procedures, rules and norms to ease the unpredictability of future events. According to GLOBE study findings, the US values are higher than practices while Chinese values are relatively higher. The findings suggest that the US value strong resistance to change and rely on formal strategies and procedures but doesn’t practice much. This can be applied to their performance in China when they used the one size fit all strategy which was previously successful in Europe, which they thought will be effective in China. The one-size-fit strategy included a high-salary approach to attract and find the best employees China had to offer. However, this did not go well in China as a number of large Groupon competitors fought back by stating that if employees leave to work for Groupon, they will not be rehired by any other firm within the alliance. This resulted in the failure of hiring local managers, hence Groupon hired expatriates.

Assertiveness is based on the degree to which a culture’s people are (should be) aggressive, assertive and confrontational with others (Virkus, 2009). The globe study findings suggest that China values assertiveness more compared to the U.S. Nevertheless, the U.S. practices assertiveness at a relatively high level compared to China. This practice was seen when Groupon used aggressive marketing tactic at their Super Bowl ad to communicate with consumers. The script was quoted saying “people in Tibet are in trouble”, “free Tibet”, “culture in jeopardy”. This was seen as politically insensitive because China has a history with Tibet and was one of the national minorities living in China at the time. This showed Groupon’s ignorance and had a bad reputation among Chinese consumers. Additionally, Groupon’s aggressive sales tactics of giving their partners 10% of profit instead of 50 % made local vendors taken back. This is because in China local vendors normally have the upper hand when negotiating with group buying operators. Groupon’s assertiveness can also be linked to their aggressive strategy to enter the Chinese market and their assertiveness of firing employees and shutting down offices without informing or giving an explanation to the employees.

The institutional environment plays a significant role in MNEs growth and prosperity as firms entering a foreign market are subject to the liabilities of foreignness. MNEs not knowing the rules and regulations when expanding to a new country can have a severe effect on the organization. Psychic distance plays an important role in the institutional environment because it presents a supporting structure for perceiving and formulating opportunities. Psychic distance is defined as factors that interfere with the flow of information between the firm and the market. Psychic distance is a broad view and features other than cultural norms that influence business strategies (Ionascu, Meyer and Erstin, 2004). The psychic distance dimensions include geographic distance, cultural differences, language, education, technical development, economic development, logistics and infrastructure, political systems, legal systems, regulations, business practices, and business ethics. Sousa and Bradley (2006) direct that the greater the cultural differences between the two countries, the greater is the psychic distance.

Geographic distance is the physical distance between the home and the host country. It is perceived that the higher the geographical distance, the higher the perspective differences are between home and host country in terms of a diverse set of institutional conditions. The distance between China and the U.S. is too big, therefore the cultural differences were too large for Groupon to overcome. Although Groupon operates as an online platform and the geographic distance did not really matter, however, it’s business strategies required the company to build a relationship with local vendors to enter the Chinese market. The perception of Groupon that relationships did not matter in business caused barriers to understanding the vendors and further build relationships.

The perception of language comprises the variance in the script, the tonality used, a language written and the pattern of discourse. Chinese rely heavily on indirect communication, less on words, and use silence as a tool to communicate. This indirect communication is focused on expression and the tone of the voice drawing meaning to it. Tencent had warned Groupon about the issues they were facing but Groupon failed to understand the meaning behind it and insisted on doing business its way. This can be linked to the perception of Americans that they think the American way is the right way of doing business. Tencent founder Pony Ma commented to the reporter’s question regarding Groupon, by saying that he did not want to say anything bad about its partner Groupon but the Chinese market is immensely different from America. This message had an indirect meaning to Groupon but the company failed to understand. It can also be perceived that Tencent did not want to cause conflict and argue with Groupon to create harmony in the partnership and save face. On the other hand, Americans are perceived as direct communicators and tend to express their message verbally and get to the point. This practice can be seen in Groupon’s aggressive strategies and caused miscommunication and issues between the two partners to understanding each other.

In terms of economic development, China is an emerging economy that offers market opportunities for foreign investment. The economic reforms and opening-up policy in the late 1970s have allowed the Chinese economy to experience rapid economic growth. In 2010, China’s economy was growing rapidly and the Chinese consumers were expected to boost the deal sectors. This was perceived as an opportunity by Groupon to enter the Chinese market. Business practices vary between the two countries. In China business practices, and negotiations depend on building guanxi (connection) and business ethics is believed in everything should be in harmony and take long-term approach on things. For instance, in China final negotiations and deals are made outside of meetings in casual settings such as restaurants and bars to build a relationship. However, American find socialisation to be time-wasting and thus turn discussions towards negotiation much faster than in Chinese culture. Americans do not approach business relationships but aim to generate money out of them. In this case, Groupon was primarily money-oriented instead of building Guanxi.

For the future course of action, Groupon should take a mindful approach by picking up cues in the situation (local working environment, management style and structure, organizational culture, behaviors) and able to apply knowledge about what culture is, how it varies from the U.S and how it affects behavior. For instance, different norms for social interaction, showing respect, and nonverbal behaviour to recategorize the local culture and then seek out additional information to confirm this sophisticated categorization. As a result of doing this, Groupon can adapt internal state and then consider possible behavioral responses. Groupon should have monitored the Chinese market and the local competition carefully, as Groupon believed they could win Chinese consumers and markets with the same strategy they used in Europe. In addition, they should have regulated their mindful attention and mindful monitoring to adopt appropriate marketing strategies by understanding consumers and local culture. For instance, direct marketing works well in the U.S. market but this did not work in China because customers are price sensitive and loyal to domestic brands. Furthermore, they used mass mail marketing in China but Chinese consumers rarely use emails.

This essay recommends that China is too big of a market to ignore and with the fact that China’s middle class is still growing which offers lots of market opportunities for foreign firms. Groupon could enter the Chinese market by partnering up with a start-up Chinese firm because it would be harder to partner up with Tencent because it is now multinational. Additionally, Groupon could enter other Asian markets such as South Korea because as a country it offers a less uncertain business environment than other Asian countries. It could then gradually make its way towards other emerging Asian markets then enter the Chinese market with their experiences. Overall failure in China can be seen as a learning experience and a stepping stone towards entering the Chinese market. For instance, Google and other MNEs have failed to enter the Chinese market but some are planning to re-enter the market.