#102 Groupon in Romania and China
I had been thinking about the Groupon model and its appeal in various countries for quite while when a Google alert recently hit my inbox – Groupon was to shut down its service in Romania. At the beginning of September 2014, Groupon pulled the plug on this market of just under 100,000 square miles and around 20 million population. Groupon simply stated that it never gained traction and failed to attract critical mass. Spoiled by impressive global growth of 23.5% globally and 42.3% YTD growth in its Europe, Middle East and Africa regions from 2013 to 2014, this acknowledgement of failure must have come hard to executives. So far, they have not not commented on the reasons for the failure, so all that can be said are wild guesses. What is known is that Groupon entered Romania in 2010 through the acquisition of local competitor CityDeal, a move that had spurred the emergence of smaller local deal sites – around 100 in 2012. Besides the competitive environment, another factor may have been that Romania is still a country where the digital divide continues to exist. The ultimate clue with regards to the reasons for the Romanian failure may lie in a far more distant and much larger market – in China. Groupon has had its fair share of difficulties in the Middle Kingdom: poaching of employees through high salaries didn’t show the results Groupon needed, the bid to take over local competitor Lashou had failed, aggressive commission tactics were rejected by vendors, and the practice to staff even remote regional markets with foreign managers who lacked both the knowledge and the “guanxi” didn’t go down well with the Chinese market. After years of trying in China, Groupon has decided earlier in 2014 to exit that lucrative market. Is it too far-fetched to assume that it’s been a similar lack of appreciation for local differences in the market has been the reason for the Romanian exit?
November 24, 2014 @ 9:21 am
Groupon is a multinational company which is offering vouchers and deals from short and medium enterprises also from key accounts and online shops to discounted prices. Altough the company is very successful in the US and European Market, they failed when adopting the Chinese and Romanian markets.
I would like to add some of my ideas concerning the issue of Groupon in the Chinese and Romanian market:
According to Hofstede’s 5 dimension model China is a high power distance country which also means that people like to show status. China as the world´s largest trading power may seem a very attractive market. But concerning risk and entry barriers China is also considered as a very difficult market. Groupon has expanded their business very fast over the last couple years and was spoiled by their impressive growth of 23,5% globally and 42,3% YTD growth in Europe, Middle East and Africa from 2013 to 2014. I personally believe that this massive success was the main driver to enter the Chinese market. Because of that, they underestimated the Chinese market and it´s difficult complexity. Chinas Market differs to the rest by their own culture, strong political differences, the mentality of people and the evolution of internet and technical products. A big mistake which also took a big part why Daimler Benz cooperation was not working has been the supervision department. Putting US citizens into leading position of a company working in china is hard to run. Chinese people are very proud and looking at their status. China and the US have never had a good climate in any relationship even more they have been opponents in most cases. Putting an US citizen in lead in a Chinese company, without the total understanding of the culture is in my opinion a huge mistake. You can even be an expert on the Chinese market but still if you do not have the mentality of this country and live and understand their culture, you won´t be able to lead a successful company there. Not knowing and understanding the complexity of a market will lead to a loss as Groupon had to learn.
The same has happened in Romania. Romania is very different to other countries in the EU. Romania is concerned to be 5 years behind the EU standard when it comes to internet and the connectivity of companies to consumers. Romania is very old fashioned and only slowly starts to enter the new era of technology. Groupon has neglected this and still entered the market with the same strategy as in other regions. The expectations Groupon put into the Romanian market have been too high for the current situation. On behalf of the above mentioned, also the culture and the people’s attitudes were not ready for this business model. In Romania are a lot of “one man stores” which are run by the owner with very poor office equipment and technological equipment. Another issue is the same as in china: supervisors. When putting a not Romanian citizen in charge of everything, there will be some cultural and social differences which can affect the success of a company. If a business does not understand and respect that, getting grip in this country will be very hard.
In my opinion the Romanian and Chinese market are very complex to enter and need a lot of knowledge as well as some “insight” people or employees which will help to understand the market and get started successfully.
December 11, 2014 @ 10:52 pm
Though Groupon seems to be pretty successful in several countries, there might be some difficulties that have been overlooked in Romania. The keyword ‘digital divide’ – like mentioned in the post – appears to be crucial in this context: As a result of that it is hard to meet the target group as an online service company. Having a look at the webiste of Groupon shows that already 54% of its global transactions happen via mobile devices. This depicts an issue in a country where the internet access is restricted.
Taking the Hofstedes’ dimensions into account, the crux may be the high uncertainty avoidance in Romania which amounts to 90%. This indicates that traditional buying patterns are dominant. Due to seeking security, there is a lack of trust into innovative methods like purchasing online. High uncertainty avoidance countries tend to stick to rigid structures rather than being open-minded for innovative business models. Or at least – in this case – it seems that there hasn’t been a stable market yet in Romania. A further barrier in a country with high uncertainty avoidance could be online payment, causing insecurity and scepticism.
Another interesting dimension of Hofstede concerning this matter is ‘Individualism’. With a score of 30, it is clearly visible that the country tends to be more collectivistic than individualistic. Building long-term relationships, may it be in terms of personal selling, appears to be essential. Moreover, loyalty and trust play a big role – and those things take time to establish when offering innovative services as a company.
In general, I think that the last question in the post is totally entitled, as local differences seemed to be exluded. Acquiring the local competitor might have caused a lack of trust on the part of the target group. Therefore, it is visible that not every culture accepts innovative business models; in any case, it takes time to establish trust. Thus, it might be critical for companies to convey clear feelings of security and trust.
March 26, 2015 @ 8:23 pm
Perhaps the reason for Groupon’s failure in Romania & China is due to an uncertain economic environment. Perhaps it’s simply too unusual of an e-commerce business model for Romania. Or perhaps it’s too culturally difficult to enter the current business environment in China.
One thing is clear, the amalgamation of an over saturated market, lacking management skills and a digital divide make stability for Groupon in these countries a disaster.
Romania’s macroeconomic situation and a lack of internet infiltration has not done Groupon any favors in terms of helping them get a foot hold in Romania. In short, this combination has really stifled Groupon’s ability to reach the masses. As a second world country, Romania, with it’s lack of digital technology, quality, interest and infrastructure makes Groupon a company that does not possess the appeal it does in other European countries. This begs the question; Was Romania ready for the product/service that Groupon is providing?
China, on the other hand, has different challenges. For instance, China is saturated with Groupon clones. Not to mention the typical problem for US companies in China that is: America thinks they know best. Additionally, this type of buying structure in China is incredibly difficult to profit from due to massive competition. This makes one wonder; Did Groupon prepare themselves for the business market, brand importance and the culture differences properly?
Groupon’s rather simple concept of offering goods at a one time discounted price in order to ploy customers to return and be willing to pay full price could be seen as a completely new and premature business model for a “still developing” country within Europe. Romania is on the “still developing” side of the digital divide in Europe and as with many other countries in that category, e-commerce sits as a gateway service to other tech developments. However, it is nothing new for China because in contrast to Romania, China is extremely tech savvy but their issue with Groupon comes from cultural and management complications. Therefore, if they don’t address management issues they will never be able to join the “big boy club” of technology with players such as Google, Apple, Amazon and Facebook who perform well on a global scale. Nevertheless, although many say the success or failure of Groupon lies on passionate and energetic talent, which they lack at the moment, the global future of Groupon has the potential to be quite robust.
March 31, 2015 @ 9:19 pm
Groupon entered Chinese market in a form of Joint Venture with a very powerful Chinese Internet company Tencent. This partnership offered Croupon numerous advantages; however the company did not use them. Tencent could close the biggest gaps in corporate readiness of Groupon for Chinese market entry: absence of knowledge and experience in China, no established relationships with vendors, wrong marketing model. However, Groupon preferred to do it its own way. First of all, the company did not know and did not understand Chinese culture and new customers. This led to application of ineffective in China marketing tools, like for example direct marketing model, which is very efficient in America, but hardly brings any results in China (Chinese people do not read that type of mail). Lack of local understanding led also to failures in sales. In the beginning Groupon insisted on 50/50 split of profits with its partnering vendors. However, Chinese vendors, acting in the market with app. 5.000 of group-buying operators, have usually the upper hand in negotiations. Usually only 10% of profits is left for such operators like Groupon. So, the absence of knowledge about local market and relations with suppliers did not make Gorupon’s negotiations with vendors more successful. But Groupon did not rely on Tencent’s expertise in local market not only in the mentioned above areas, but also in terms of HR: the company preferred to hire foreigners in order to run its operations all over China (even in remote regions). Moreover, language barrier prevented the expats from efficient and easy communication with their staff. As a result, it was just a question of time when Groupon will fail in China.
The same story happened with the company in Romania. This market is also very different from American or Western European ones. Even though the company improved its corporate readiness by hiring local management, it still failed to understand the new customer and culture. Of course, one can argue that low internet availability and difficult economic situation played the decisive role in Groupon’s failure. However, from my point of view, also other factors were in a game. E.g., Groupon entered the market by acquiring the company City Deals, which did not have good reputation in the country and had lower end customer base (both in terms of income and buying interests). Furthermore, Groupon has never tried to grow the business by offering new deals in order to reach other customer segments. The company stayed with the offers City Deals had before the acquisition and this allowed it to reach only a certain segment of users. So, here we come to the question – what is about Groupon’s product readiness? On the one hand, there were technical restrictions in form of low internet penetration (leading to a reduced customer base), like it was mentioned earlier; as well as lower purchasing power (GDP rate of 8.000 USD per person vs. 53.000$ in USA). On the other hand, from political and societal point of view the product readiness was present, however the company could not turn it into their competitive advantage by e.g. partnering up with vendors who would make special offerings not available at other operators, etc.
The disappointing moment in the whole story is that Groupon does not make its homework and does not learn from its mistakes. The chain of its failures continues – the company left Korean market as well and it was well acquainted with the reasons of the new failure. Perhaps Groupon simply needs to learn selecting the markets and saying “no” to some of them?…
Sources used:
http://techcrunch.com/2014/09/03/le-revedere-groupon-shuts-down-service-in-romania/
http://www.onedaydeals.co.nz/webapps/i/84412/184209/groupon-romania-closes.html
http://www.vitaminimc.com/2012/08/how-internet-giants-can-succeed-in-china-learn-from-groupon-chinas-failure/
http://e27.co/another-one-bites-the-dust-groupon-another-global-tech-corporation-plans-exit-from-korea/
April 12, 2015 @ 11:17 am
There is outside (environmental) reasons like level of IT readiness and digital reasons.
Reason is for sure due to not modernized retail structure in a high priced market /(with barter/haggling economy), low Internet-Computer/ Mobile user penetration. Low response to digital advertisements but here is also cultural differences.
I’m wondering would they be successful in Muslim cultures when you haggle and negotiate over price when you make a purchase. A seller would feel offended if you don’t haggle. Naturally, you don’t need Groupon for this, when you know you can get it cheaper :-). Then you have power distance e.g. Hofstede’s model…..But I would also put a point on their marketing perspective as Groupon is not having a sustainable business model. It is based on one-time-purchases designed for people looking for a deal not a brand. Without customer loyalty the vast majority of consumers do not come back for repeat purchases. It may be helpful for a business needing to move surplus inventory fast, but it is a short term fix. This is where good branding is the most beneficial thing a business can do, it organically stimulates sales and generates loyalty and a larger depth of repeat purchases. I’m not sure they have build a brand in Romania in a right way.