Examples of International Expansion Failures

Introduction

In the dynamic landscape of global business, expanding internationally is fraught with complexities and challenges. This article examines several notable cases where international expansion did not go as planned. From well-known retail giants to innovative startups, these stories provide valuable insights into the pitfalls of entering foreign markets, the crucial importance of understanding local cultures, and the severe consequences of strategic missteps. By exploring these examples, we uncover the lessons learned and the resilience displayed by companies when faced with adversity.

Airbnb's Struggles in China

Airbnb's journey in China ended in July 2022 after seven years, marked by several obstacles. The company's attempt at localization for example, including platform adaptation and a name change, were not successful. Chinese people in general trust locally operated platforms more than foreign companies.

In addition, the concept of sharing homes with strangers was less accepted in China due to cultural differences, and Airbnb faced difficulties to attract users. Unlike the competitor Tujia, which provided a hotel-like experience, Airbnb could not establish the same level of trust with Chinese customers.

Challenges also included legal and regulatory constraints that were better understood and navigated by local competitors.

An initial in-depth analysis of Chinese customer preferences might have saved Airbnb years of struggle. In the end, the pandemic and continuous border closures further influenced Airbnb's decision to exit the Chinese market.

Uniqlo's Setback in the UK

The clothing company Uniqlo, part of Fast Retailing, faced significant challenges during its expansion into the United Kingdom. The brand's first international foray began in London in 2001, growing to 21 stores. However, the venture resulted in considerable losses, leading to a strategic withdrawal. Tadashi Yanai, the chairman at the time, stressed the importance of local management for overseas success. A British professional with experience in traditional department stores was appointed as president, leading to a conservative management style that contrasted sharply with Uniqlo's culture of open dialogue and collaboration. This mismatch and the failure to effectively integrate the company's ethos into local operations were major contributors to Uniqlo's setback.

The root causes of this failure were inadequate personnel selection and development, coupled with the company's ethos not being effectively communicated and embraced in London. While hiring local professionals knowledgeable about the business landscape is a valid approach, the transmission of the company's vision and principles is crucial. Effective international expansion requires personnel who not only understand these principles but can also apply them in harmony with local business practices.

In response, Uniqlo could benefit from deploying staff who are well-versed in the company's culture and collaborating with local experts to assimilate and adapt to local business norms. As of 2020, approximately 83% of Uniqlo's foreign subsidiaries were based in Asia, especially in Greater China (China, Taiwan, Hong Kong), where about 60% of its international stores were located as of 2017. This shift in focus suggests a potential future where international operations could eclipse the domestic market in Japan in terms of growth.

Starbucks: Misreading the Australian Market

Starbucks faced considerable difficulties when it entered the Australian market in 2000. Despite a deep understanding of its business model in the United States, the company underestimated Australia's robust coffee culture. Australians cherished their established coffee scene, characterized by personal connections with baristas and social gatherings in cafes. In contrast, Starbucks offered a more commercialized coffee experience, which failed to appeal to Australians who preferred to get their coffee served by their trusted local baristas at better prices. This mismatch led to Starbucks closing 61 stores, 70% of its Australian outlets, in 2008, marking a significant retreat from its ambitious expansion plans.

Startups can draw valuable lessons from Starbucks' Australian experience, particularly the importance of not presuming customer preferences to mirror those in their home market and the significance of understanding local culture and customs.

Interestingly, Gloria Jean's Coffees, another American coffee chain, has achieved considerable success in Australia. Entering the market in 1996 with a franchise model, Australians Peter Irvine and Nabi Saleh adapted the franchise to align with local preferences. They introduced the “Good Cup” philosophy, to ensure a great coffee experience for their customers. This concept includes several components, including roasts, menus, uniforms, beautiful take-away cups and an amazing service. Currently, Starbucks maintains 39 stores in Australia, primarily catering to tourists in cities like Brisbane, Melbourne, the Gold Coast, and Sydney.

Facebook's Neglect of Local Circumstances in Japan

When Facebook entered Japan in 2008, it seemed like a promising undertaking, due to Japan’s large and dynamic economy. But despite the success potential, Facebook failed to penetrate the market. The company neglected local circumstances such as established local competitors and relevant cultural norms.

In Japan, flawless localization is crucial for business success. But not taking this aspect seriously enough, the translation for Facebook’s Japanese website was perceived as “awkward to use”. The platform also failed to point out any critical difference to local, established platforms, thus not giving Japanese users a reason to switch to this new foreign platform.

Regarding cultural norms, Facebook failed to consider the Japanese concept of power distance, the importance of privacy, and the priority of security.

The platform was missing features aligned to Japanese communication styles, such as choosing whom to share specific content with (younger vs. older friends, close vs. distant connections, and younger vs. senior co-workers).

Since Japanese people highly value privacy, Facebook’s nature of sharing private information did not appeal to this market. They prefer to engage anonymously or with little personal disclosure, such as by using nicknames and alternative profile pictures.

As Japanese place a high priority on security and the safety of private information, the Cambridge Analytica data scandal in 2018 which Facebook was involved in was another major reason the platform did not take off in Japan at an expected level.

Mobike's Overreaching Global Ambitions

Mobike, a Chinese shared bicycle service founded in 2015, encountered significant hurdles in its global expansion. After growing quickly domestically, the company started its global expansion efforts in March 2017 with operations in Singapore and three months later in Japan. From there, a series of rapid market entries in several other markets in the Asia-Pacific region as well as Europe occurred.

But their global expansion is now seen as a strategic mistake. Although Mobike was very successful in China, regulation barriers were stricter abroad, and maintenance costs were more expensive as well. In addition, commuting habits were different from the domestic habits. These different circumstances abroad made copying the domestic strategy in foreign markets unsuccessful. The speed of expansion furthermore led to a fast burn of cash, eventually forcing the company to dissolve its Asia-Pacific operations in early 2019.

The failure of Mobike in their global pursuits is attributed to a strategic error: The shared bicycle model - which depends largely on every market’s circumstances such as commuting behaviors and regulations - was unsuitable for international expansion. Despite high resource investments, the intrinsic challenges mentioned above proved insurmountable. Mobike’s story offers a critical lesson for companies devising international strategies: An initial in-depth market research, understanding of circumstances in your target market, and meticulous planning are key to success in global expansion, and can - if not taken seriously enough - even threaten a company's survival.

Conclusion

The narratives of these companies, from Airbnb's retreat in China to Mobike's overambitious global strategy, underscore a critical aspect of international business: The need for understanding your foreign target market, adaptability, cultural sensitivity, and strategic planning. 

These cases serve as a cautionary tale for businesses aspiring to cross borders, reminding us that while global expansion can offer immense opportunities, it requires a nuanced approach and deep market understanding. As we reflect on these stories, it becomes evident that the path to international success is not just about scaling up but more importantly about adapting and evolving in a diverse and ever-changing global landscape.

The discussed examples of international expansion failures are not meant to discourage you from entering foreign markets. They are meant to serve as a caution for you to plan and execute your expansion efforts strategically in order to succeed! At GlobalDeal, we might be able to help you with exactly that. GlobalDeal is a one-stop-shop for businesses’  global expansion. We offer a variety of services, from market research to crafting localized business strategies and helping you find local business partners. In addition, we can develop digital products and a localized online presence. Feel free to contact us for a free initial consultation.