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Why China Breaks Western Playbooks — And What It Takes to Win
Why China Breaks Western Playbooks — And What It Takes to Win
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0:01
China is the world's second largest consumer market behind the US.
0:05
In 2025, the country's total retail sales of consumer goods exceeded about
0:10
50 trillion Yuan or about 7.2 trillion US dollars, up by 3.7% year on year.
0:17
With a population of 1.4 billion people, the market has long been a "cash cow" for
0:23
global brands. But today, success is no longer a given with some western
0:27
brands struggling and even scaling back operations in the country.
0:32
China has been a hub for e-commerce innovation and consumer momentum
0:35
moves quickly as a result. Brands that fail to keep pace run the risk of becoming irrelevant.
0:41
When you think about live streaming and social media,
0:44
the hottest new thing is going to bubble up overnight and you have to have it the next day.
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The number one thing that you will see is how little loyalty Chinese consumers are because of
0:54
the brands and how fast they innovate and how quickly they push things out.
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Consumers are very used to being hit by new concepts, you know, new designs.
1:04
So, what does it take to win in China? And why are some of
1:07
the world's biggest brands rewriting their entire playbook just to survive?
1:19
For years, many Western brands entered China by replicating the products, pricing,
1:24
and strategies they used at home. That might have worked at a time when people had a lot
1:29
more reverence for the Western brands. But increasingly, a lot of people in the business
1:33
say you really have to localize beyond just the culture. Like it's a completely different
1:37
way of operating and selling to consumers in China today than it is in other countries.
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But that's beginning to change.
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Home furniture giant IKEA, which has been operating in China since 1998,
1:49
is facing fresh competition from e-commerce giants like Alibaba and JD.com.
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In early 2026, IKEA announced plans to close seven large format stores across the country,
2:01
blaming intensifying competition and weaker demand
2:04
as China's property slump left fewer people buying new homes.
2:08
But IKEA isn't retreating. Instead,
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it's shifting towards smaller urban stores closer to where customers actually live.
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It's also expanding its digital presence across platforms like JD.com.
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The western brands used to do new product launch in a very methodical but lengthy
2:25
process. These local insurgents, you just run really fast kind of test and learn process.
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As China's consumer market has matured, its homegrown brands have gained ground on foreign
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competitors. They've done this by scaling faster, launching new products more quickly,
2:42
adjusting prices in real time, and tailoring their offerings more closely to local demand.
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So, we talk about Western brands that have struggled more recently in China, definitely
2:51
Starbucks comes to mind because there have been so many other companies like Luckin Coffee and
2:57
boutique coffee shops that have come in and sold coffee for much, much less than Starbucks.
3:02
Starbucks has sometimes run into challenges by creating new drinks
3:06
or products that maybe weren't exactly what Chinese consumers were looking for.
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These pressures have driven more Western brands to partner with local private equity firms,
3:16
bring in capital and local operational expertise to manage or grow their China businesses.
3:22
If you actually look at the historical growth of China's PE market, it reached a a height in 2021.
3:30
However, the good news is 2025 for consumer products in the retail sector, that part of
3:36
the investment increased about eight times versus 2024. So this is actually a historical high that
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we haven't seen since you know 2022. So deal value actually reached about $7 billion US last year.
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The first couple of changes that are really really important are number one, the governance and also
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the operating model which enables that kind of decision making to be within China and also in a
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China speed. So you don't really have to go report to committees or headquarters to gain approval.
4:08
And the second thing that PE partners can bring to this kind of JV relationship are really
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uh lots of ecosystem partners that they already have. So whether it is the digital
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capability partners or whether it is let's say strategic access to certain locations.
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As economic growth slows and household confidence
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has weakened Chinese consumers have become more cautious with spending,
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increasingly prioritizing value for money while still seeking experiences and emotional value.
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So for a lot of the international brands, you have to think about
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how do you maintain the brand heritage that you have and also connecting it
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with a different market where people have different habits and cultural background.
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For Lululemon, they've actually even created their own series of events. Rather than just
4:57
setting up a booth somewhere or handing out flyers at the mall, they're actually hosting
5:03
small-scale fitness events or some other ways where people can play and have fun or compete
5:09
with each other. That also tied with many cities across China. So there's a localization aspect
5:15
to it and they can draw in more people who live outside of the big cities of Beijing
5:19
and Shanghai and really build that brand awareness and engagement. For Kraft Heinz,
5:25
they decorated a lot of these subway stations in Shanghai to look like ketchup bottles. The other
5:30
is that they worked a lot with restaurants to talk about how you could use their ketchup in some very
5:36
traditional Chinese dishes. So, one popular dish is stir- fried eggs with tomatoes. So,
5:42
that was a way that they brought ketchup into what people in China eat quite often.
5:48
This consumer behavior shift shows up most clearly during China's
5:52
major shopping festivals when shoppers lean into discounts. In November 2025,
5:57
Singles Day generated 1.7 trillion yuan or about 238 billion in online sales,
6:04
up about 14.2% year-on-year, but slower than the 26.6% year-on-year growth in 2024.
6:12
The festivals and sales promotions inside China provide opportunities,
6:15
but those opportunities differ based on the life cycle and the age of the brand inside the market.
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We like to characterize an event such as Singles Day as a gust of wind going into the sales. So,
6:26
a new brand that's in the market, that gust of wind can really help that brand get up to speed,
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but a brand that's already been in market for a number of years, that gust of wind doesn't
6:34
necessarily really change the trajectory, it might just give it a little boost.
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But while local partners and operational control both matter,
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they're only part of the equation. In China, the consumer market runs largely on mobile with
6:47
e-commerce dominated by several major platforms in a country with 1.1 billion internet users.
6:54
Alibaba's Taobao and T-Mall remain the largest players, holding a combined 35%
6:59
market share. Pinduoduo has rapidly gained ground at 21%, while JD.com holds 17%.
7:08
Other apps include Douyin, the Chinese version of Tik Tok. It is a short video platform that is also
7:13
owned by Byte Dance and Xiaohongshu playing a key role in product discovery and influencer shopping.
7:20
We hear from our clients that they have a hard time collecting such rich data
7:24
in Western e-commerce platforms such as Amazon when they look at the data
7:28
that's available on platforms such as T- Mall and Jingdong.
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When a new brand is going to enter in China and we can pull down data that helps them understand
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how many people are purchasing your particular product, at what price point are they buying,
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what time of year are they buying, what time of day are they buying, what the competitors are
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selling, how much the competitors are selling that product for, it really demystifies the market and
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it really allows them to pinpoint exactly on that dart board where they're going to throw that dart.
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But a plethora of data can also intensify competition because so
7:58
much marketplace performance data like prices, sales ranks and reviews are
8:03
publicly visible. Rivals can quickly spot winning products and undercut on price.
8:08
Everything on those platforms are public. Private domain data, whether it's your CRM
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database, that is definitely by far the most valuable and most important.
8:19
Private domain data refers to audiences that brands own and
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operate - things like WeChat groups, Mini Programs and brand apps where
8:27
they control first-party data and can use it for personalized experiences.
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If you have some way to tie, you know, store level things with the consumer data,
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then you can actually trigger purchases, you know, targeted promotions,
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those things you cannot do if you only rely on the public domain data that everybody has.
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To really act on that data, having local R&D centers just makes that all come to
8:50
life much more because they can figure out what segment of the market is really buying,
8:55
where do they have gaps, and then create a product right away.
8:59
Another important part of understanding the modern Chinese consumer is recognizing how
9:04
fragmented the market has become across cities, regions, generations, and digital behaviors.
9:11
Brands from all over the world,
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notably domestic brands, are all trying to compete for that same share wallet.
9:16
It's not zero sum, though. The rise of domestic competition does not come at the expense of
9:21
international brands by any means. Distance can be a brand killer inside of China. So,
9:26
having too much distance between the brand promise, the brand equity,
9:29
and the end consumer is an area that brands particularly fail inside of.
9:34
Even for the post-covid era, what you've used and made you successful in the last
9:39
maybe let's say you know two years may not be actually what's going to make you successful
9:44
in the next two years. So change is the only constant. How nimble you can be and
9:50
not rely on just one formula, one product, one playbook, is going to be very important.
