The Economics Of Failing in China (every western brand fall for it)

Summary

The video argues that Western brands often fail in Asia not because the market lacks demand, but because they keep relying on a business model that worked for years—even after customer behavior, competition, and sales channels have changed. Companies that adapt give local teams more authority, tailor products to local customers, and accept that their offerings or operating models may need to differ by market.

Why Established Brands Lost Ground

• IKEA China succeeded for decades by combining affordable furniture with large stores that became day-out destinations. But customers increasingly bought online, while copycat sellers offered similar products faster and cheaper. The property downturn also weakened the customer base IKEA had built.
• Sephora China initially offered shoppers a convenient place to try many international beauty brands. Over time, those brands began selling directly online, while duty-free shops and livestream sellers offered lower prices. Shoppers still visited Sephora to test products but could buy them elsewhere for less.
• The presenter’s broader diagnosis is that past success can make companies slow to respond. Their original customer proposition may remain familiar, but it is no longer distinctive or competitive.

Key Metrics and Business Outcomes

Company / market Figures cited in the video IKEA China Opened in Shanghai in 1998. Restaurants reportedly generated $180 million in 2017. Revenue peaked at about $2.3 billion in 2019, then fell to $1.6 billion in 2024—roughly one-third lower—with a 7.6% decline in the final year. In 2025, 25.7% of Chinese sales were online. IKEA shut seven stores in February 2026 and handed eight buildings to a property broker. Sephora China Its 2021 peak was $1.5 billion in revenue and $61 million in profit. The business then recorded losses, including $90 million in 2024 and $70 million in 2025, with cumulative losses exceeding $200 million. Store visits rose 24% in 2025, even as some shoppers bought elsewhere. Its partner Shanghai Jahwa sold its 19% stake for about $78 million after 22 years; the video says Jahwa had valued the investment at zero. Chinese cosmetics market The market reportedly exceeded $141 billion, with Chinese brands holding 57% of it. Starbucks China Its share of the coffee market reportedly fell from 34% to 14% in five years. The video says Starbucks sold 60% of its Chinese business to a Chinese fund. Sephora South Korea Announced 14 stores, opened five, and exited in 2024. Local competitor Olive Young reportedly held 90% of the market. Other exits Walmart sold its Japan business after 18 years, reportedly at one-third of its desired price. Amazon bought Joyo for $75 million in 2004, then closed its Chinese marketplace about 15 years later with less than 1% market share.

What the Survivors Did Differently

• Localized products and customer experiences. Nestlé let KitKat evolve in Japan after customers connected its name with the phrase kitto katsu (“you will surely win”). The company worked with Japan Post on exam-season gift packs and developed regional and seasonal flavors. The video cites more than 400 varieties.
• Gave local teams meaningful operating authority. KFC’s China team added local menu items such as congee and egg tarts, hired managers with regional experience, and built a cold chain. In 2016, Yum separated the Chinese business as Yum China, with decisions made in Shanghai. The video says it now operates more than 13,000 KFC restaurants in over 2,700 cities.
• Used local ownership and governance structures. McDonald’s handed its 2,500 Chinese restaurants to CITIC and Carlyle in 2017 while retaining a minority stake; a Chinese board made local expansion decisions. McDonald’s later bought back some of its stake.
• Built products and innovation locally. L’Oréal’s Shanghai research center has about 400 employees and is described as its largest in Asia-Pacific. The company also created the Meicifang fund to invest in Chinese beauty brands and learn from them.
• Adapted technology to the market. Volkswagen licensed Xpeng’s self-driving software for vehicles built in China.
• Let local teams shape products that may travel globally. After Greater China sales fell 36% in 2022, Adidas opened a Shanghai creation center. A China-only track top with a mandarin collar and knot buttons sold out and was later shipped to Europe after attracting demand there.

Actionable Market-Entry and Competitiveness Audit

The presenter recommends a quick, practical review before signing a long-term lease or local partnership:

1. State the customer proposition clearly. Write down why customers choose your product over the nearby alternative.
2. Test whether that advantage still exists. Search the relevant local marketplace, such as Taobao or Shopee. Compare your product with the first 20 results, especially on price and delivery speed.
3. Track local competitors. Review what local companies launched in the past six months; treat their launches as signals of changing market demand.
4. Listen to customers where they speak candidly. Search reviews, complaints, and category discussions on platforms such as Xiaohongshu, Douyin, and marketplace review sections.
5. Ask local distributors for a reality check. The presenter suggests asking a distributor what they would do in your position.
6. Avoid locking in too early. Complete this work before committing to a lease or partnership that ties the business down for three years. Recheck the assumptions regularly—the reason customers buy from you needs to remain true next quarter.

The core operating lesson is to treat localization as more than translation: it may require changing products, pricing, channels, decision rights, or ownership arrangements.

Presenter and Sources Mentioned

Presenter: Bertrand, who says he has spent 26 years doing business in Asia.

Companies and organizations discussed as examples: IKEA, Shanghai Jahwa, Sephora, Best Buy, Home Depot, Marks & Spencer, Carrefour, Suning, Metro, Amazon, Joyo, Uber, Didi, Grab, Starbucks, Olive Young, Walmart, Auchan, Nestlé, Japan Post, Yum Brands, Yum China, KFC, McDonald’s, CITIC, Carlyle, Volkswagen, Xpeng, L’Oréal, Meicifang, and Adidas.

Platforms mentioned: Tmall, JD, Taobao, Shopee, Xiaohongshu, and Douyin.

No formal external source citations are identified in the subtitles.