Editor’s note: This article was first published in August 2011. It reports news from that month. The IPO planned for mid-September actually took place in November 2011, and the layoff figures of 10 offices closed and at least 400 people let go in three weeks were unconfirmed at the time.
Groupon was counting on the Chinese market to raise the company’s value ahead of its stock market debut, planned for mid-September. What Groupon hadn’t counted on were the obstacles the Asian giant puts in the way of companies that compete with its local businesses.
According to recent figures, 10 offices have been closed so far and hundreds of workers have been laid off. Some of them have said they were unhappy with the way they were dismissed.
“We went out for breakfast and when we came back, they wouldn’t let us in. They had shut down without warning and without any kind of explanation.”
The Chinese lawyer representing the disgruntled former Groupon employees says that at least 400 people have been laid off over the last three weeks, although for now the figure hasn’t been officially confirmed.
Groupon’s strategy was simple and ambitious. It just had to enter the country with the most internet users and win over a share of them. Yet even though it was never made public, there were already rumors that the discount coupon company had problems from the moment it landed in China.
Faced with the hurdles Groupon kept running into, it had no choice but to acquire a 40% stake in the Chinese company GaoPeng, worth $8.6 million, and practically partner with them to win local goodwill.
In a joint statement, Groupon and GaoPeng argued that they are hiring Chinese employees, while acknowledging that they have let staff go, and insisted that it is a change of strategy to position themselves better in the country.
Obviously, this statement isn’t very credible. The only reality is that Groupon has already had trouble appearing on Baidu (the Chinese Google), and it can’t use the social network it already dominated in half the world (Facebook) because it isn’t allowed in China. On top of that, China already has its own online discount coupon companies, so Groupon is merely a nuisance to them.
Groupon is now in a situation similar to eBay’s when it entered China: within a few months, having seen the market and its drawbacks, eBay had to cut back its presence there significantly, as Google, Facebook and Yahoo have also done. Yahoo even had to hand its business over to a Chinese company (Alibaba).
As we’ve said on several occasions, for foreign companies China is not a market of potential consumers but rather a potential competitor on our own turf, protected by an impenetrable barrier on its home ground.
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Featured image: N509FZ, CC BY-SA 4.0, via Wikimedia Commons.
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