American Companies That Failed in China
For decades, China has been a top priority for American companies looking to expand.
This is because the country’s middle class is simply enormous, growing from 3.1% to 50.8% of the country’s total population between the years 2000 and 2018. According to Brookings, there are now at least 700 million people in China’s middle class, and this group has never had more disposable income to spend on consumer goods and services.
Despite the size and potential of the market, China is not an easy place for foreign businesses to enter. As this infographic shows, many of America’s biggest names eventually admitted defeat.
Companies by Tenure
The following table lists the tenures of every company included in the graphic.
It’s worth noting that Google’s parent company, Alphabet, still maintains a physical presence in China. Google’s services were banned by the Chinese government in 2010.
|Company||Enter Date||Exit Date||Tenure in months|
|eBay||July 2003||December 2006||41|
|Amazon||August 2004||July 2019||178|
|Yahoo!||September 1999||November 2021||266|
|Best Buy||May 2006||March 2011||58|
|The Home Depot||December 2006||September 2012||69|
|January 2006||March 2010||50|
|Forever 21 (1st attempt)||June 2008||June 2009||12|
|Forever 21 (2nd attempt)||December 2011||April 2019||88|
|Forever 21 (3rd attempt)||August 2021||Ongoing||Ongoing|
|Groupon||March 2011||June 2012||15|
|Uber||July 2014||August 2016||25|
|Macy's||August 2015||December 2018||40|
|February 2014||October 2021||92|
Dates were gathered from various media reports and sources. There may be small deviations from when a company actually entered or exited.
The reasons for why these companies withdrew are surprisingly similar, and can be broken down into two broad categories.
Retailers Fail to Adapt
Failing to adapt to the cultural differences of Chinese consumers is a common mistake. Here’s how two American retailers learned this lesson the hard way.
Best Buy struggled because Chinese consumers were not willing to pay a premium for brand-name electronics. Local retailers could often source similar (or counterfeit) goods for much cheaper, and undercut Best Buy’s prices.
“Why buy a Sony DVD player or Nokia phone at Best Buy when you can pay less for the exact same product at a local store?”
– Shaun Rein, China Market Research Group
Best Buy also made the mistake of bringing over its large flagship stores, which were out of reach for most consumers. Due to severe traffic congestion, locals preferred smaller shops that were closer to home.
The Home Depot expanded into China around the same time as Best Buy, but unfortunately it was another cultural mismatch.
Home Depot failed to acknowledge that “do it yourself” repairs are not a strong cultural match for China. Labor costs are relatively low, so rather than do the work themselves, many homeowners prefer to rather hire someone else to do it. On the other side of the equation, the American brand failed to win over contractors doing the repairs and renovations.
The Home Depot’s product offerings were also left unchanged from America, making them a poor match for local tastes. As a point of comparison, IKEA has had a presence in China since 1998, and continues to open new stores to this day.
Tech Firms Clash with Regulators
Uber’s experiences in China make a good case study on how American tech firms struggle to succeed in Asia’s biggest economy.
For starters, breaking into the Chinese market was incredibly expensive. Uber spent billions on subsidies to attract customers and drivers, and losses were quickly piling up. To make matters worse, domestic rivals like DiDi were also handing out subsidies.
On the operational side, Uber ran into several hurdles. To avoid issues with China’s data localization laws, the company needed servers on Chinese soil. Its navigation provider, Google Maps, also had limited accuracy in the country. This left Uber with no choice but to partner with Baidu, a Chinese tech company.
The final straw, however, was likely a set of impending regulations which targeted the ride-hailing industry. Under these rules, Uber risked losing control of its data, and would need both provincial and national regulatory approvals for its activities. Even further, subsidies would also no longer be allowed.
Uber realized that doing business in China was unsustainable, but its exit wasn’t exactly a failure. In 2016, Uber sold its assets to rival DiDi and took an 18.8% stake in the company. Ironically, DiDi is now embroiled in a conflict with Chinese regulators over its listing on the NYSE.
The Tech Fallout Continues
Since Uber’s departure, the Chinese government has increased their grip over the tech industry. This has driven more American firms out of the country, including Yahoo and LinkedIn, which is now owned by Microsoft.
Both firms announced their withdrawals in 2021 and were rather clear about why they made the decision. Yahoo cited its commitment to a “free and open” internet, while LinkedIn says its decision was due to a “considerably more difficult operating environment and higher regulatory requirements”.
Given the geopolitical tensions between the U.S. and China, companies that generate data (often seen as a national security concern) are likely to continue facing regulatory hurdles.
Outside of tech, China is still a massive opportunity for American businesses. By 2027, the country’s middle class is expected to reach 1.2 billion people, or one quarter of the global total.
Ranked: The 20 Best Franchises to Open in the U.S.
Considering factors like the cost of investment and number of locations, this graphic breaks down the best franchises in the U.S.
Ranked: The 20 Best Franchises in the U.S.
The U.S. is famous for chain restaurants, franchised shops, and brand name hotels. One thing these franchises aim for is consistency in store feel, customer service, product offerings, and prices, no matter which state you’re in.
This visualization uses Entrepreneur’s annual Franchise 500 Ranking to showcase the best franchises in the U.S. worth owning, from Dunkin’ Donuts to Snap-on Tools.
The Best and How They Were Selected
The report assessed five broad categories to score the country’s famous chains:
- Costs & fees: including franchise fee, total investment needed to open one store, and royalty fees
- Support: including training times, marketing support, operational support, franchisor infrastructure, financing infrastructure, and litigation
- Size & growth: including open & operating units, growth rate, and closures
- Brand strength: including social media, system size, years in business, years franchising
- Financial strength & stability: including franchisor’s audited financial statements
A franchise was only considered if it was actively seeking new franchisees and must have already had at least 10 units operating.
Here’s a closer look at the top 20:
|Rank||Franchise||Initial Investment Needed||Global Units 2022|
|#1||Taco Bell||$576K - $3.4M||7,900|
|#2||Popeyes Louisiana Kitchen||$384K - $3.5M||3,851|
|#3||Jersey Mike's Subs||$194K - $955K||2,402|
|#4||The UPS Store||$122K - $508K||5,464|
|#5||Dunkin'||$438K - $1.8M||12,957|
|#6||Kumon||$67K - $146K||26,527|
|#7||Ace Hardware||$292K - $2.1M||5,746|
|#8||Culver's||$2.3M - $5.8M||871|
|#9||Hampton by Hilton||$12.3M - $22.8M||2,824|
|#10||Wingstop||$315K - $948K||1,873|
|#11||Tropical Smoothie Cafe||$277K - $584K||1,142|
|#12||Arby's||$629K - $2.3M||3,561|
|#13||KFC||$1.4M - $3.2M||26,498|
|#14||McDonald's||$1.4M - $2.5M||39,696|
|#15||Wendy's||$330K - $3.7M||7,049|
|#16||Servpro||$217K - $271K||2,050|
|#17||Smoothie King||$264K - $1.2M||1,373|
|#18||7-Eleven||$125K - $1.3M||81,887|
|#19||Budget Blinds||$141K - $212K||1,378|
|#20||Snap-on Tools||$201K - $465K||4,771|
The number one franchise, Taco Bell, has been in business since 1964 and has 7,900 locations as of 2022, spanning beyond the U.S. to Canada, Australia, Europe, and other regions of the world. The average cost of investment to be a franchisee is between $576,000 to $3.4 million.
While most of the top 20 are in the food service industry, there is also one hotel, one shipping company, and a few hardware and home goods stores that make the list.
Ace Hardware (#7), for example, which specializes in home improvement goods, is actually an international franchise with close to 6,000 units. Kumon (#6) is an education center and is the only non-U.S. franchise on the list.
The Feasibility of Being a Franchisee
To get a better sense of the costs needed to start a franchise, let’s take a look at one of the most famous convenience stores in the world. Here’s a sample of the different fees involved in 7-Eleven’s initial franchisee process:
|Initial Franchise Fee||$0 - $1,000,000|
|Initial Investment||$125,250 - $1,333,500|
|Cash Requirement||$50,000 - $250,000|
|Veteran Incentives||10-20% off franchise fee, up to $50,000; preferred interest rates and special financing|
|Ad Royalty Fee||1%|
|Term of Agreement||15 years|
|Is franchise term renewable?||Yes|
In terms of low-cost franchises, 7-Eleven is among one of the cheapest to open, according to Entrepreneur, sometimes costing less than $150K. Other franchises with lower cost barriers of entry include UPS ($122K – $508K) and Cinnabon ($112K – $547K).
There is more to consider than cost, of course, and some franchises provide better support than others in aspects such as financing, industry training, or legal support. Popeye’s, for instance, provides in-house financing for their franchise fee, as well as connections with third-party sources to help cover equipment, inventory, payroll, and other expenses.
Looking at feasibility in regards to opportunities, some of the fastest-growing franchises include chains like Jersey Mike’s Subs and Wingstop. Here’s a closer look at the Franchise 500’s fastest growing list:
- #1 Stratus Building Solutions
- #2 Jersey Mike’s Subs
- #3 Goosehead Insurance
- #4 Signal
- #5 Wingstop
In total there are almost 800,000 franchises in the U.S. The franchise market in the country has an economic output of over $825 billion and employs over 8.4 million people. With many of these franchises continuing to grow and seek new franchisees, there is ample opportunity in the market.
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