Overseas companies are simply not ready for competition from China. For years, China was regarded as the world’s factory, allowing overseas companies to offer high-quality, low-cost products in their home markets.
But Chinese companies have quietly continued to improve their capabilities, increasingly becoming able to compete with overseas companies in China and in overseas markets.
You might remember iRobot, the maker of the Roomba, the first autonomous vacuum cleaner. Not only did the company recently declare bankruptcy, but they were later bought by its own Chinese supplier. This segment is now dominated overseas by Chinese players, including Roborock, Ecovacs, Dreametech, Xiaomi, and others.
In China, overseas brands are also under assault. Starbucks has continued to lose market share to local rivals like Luckin and Cotti. Nike and Adidas are facing competition from local brands. And various overseas fast fashion brands closed their Tmall stores, unable to keep up with local rivals. They all assumed their global brand equity would protect them. It didn’t.
This challenge will only increase for overseas companies, especially for those companies that do not diligently work to close the gaps that leave the door open for hungry Chinese companies that see larger, slower overseas competitors as easy targets.
I’ve spent 15 years operating inside Chinese organizations. In that time, I’ve seen four strategic gaps that impact overseas companies when competing with China. These gaps impact how they plan (or don’t) for competition from Chinese companies in China, as well as their home market: Perception, speed, assumptions, and talent.
Overseas companies that do not actively work to close these gaps will not simply fail to grow in the China market. They will also present opportunities for growth for ambitious Chinese competitors in their home markets.
The Perception Gap
What overseas companies and executives think is happening in China, and what is actually happening, is often very different. This results from not having eyes on the ground and only paying attention to surface information without diving deeper.
Being on the ground in China can be helpful for companies aiming to close their own perception gaps, but it’s not enough. It’s not just about having eyes in the right places. It’s also about having the people who are willing to go where others will not, and report uncomfortable truths to HQ management.
I’ve looked at this directly in two sectors – drones and robotics. In both cases, the surface signals failed to convey actual usage cases, and where Chinese tech companies were choosing to concentrate their efforts.
With drones, it’s common for tourists and executives visiting China to gush over the high-tech coffee and food deliveries made possible by delivery kiosks all over cities like Shenzhen. But the reality few talk about is how this is not a viable business – Meituan is focused on last-mile delivery with drones – coffee deliveries are simply good PR and a way to further refine drone systems.
Robotics is another high-tech sector in China that markets and tests publicly using spectacle, but is selling something completely different. Robots serving tea at expos are, in fact, being trained for lab work. Robots being displayed using musical instruments are being trained to handle machine parts. The truth is clear and obvious, but only for those who take the time to look.
The lessons from this type of perception gap should already be clear. When overseas companies and markets do not pay attention to the developments being made by Chinese companies, often done in the open, companies are not prepared, and markets and analysts are shocked.
We’ve seen this happen time and again with breakthroughs, including Huawei’s advanced chips, BYD’s electric vehicles, and DeepSeek’s AI. Other industries will follow. The only question is whether overseas companies are watching.
The Assumption Gap
It’s one thing to not understand what’s happening in China, far away from your home markets. It’s quite another to not understand your own consumers, what they want, and how their tastes might evolve to prefer offerings from Chinese competitors.
This shift has been going on for years in the domestic China market, with Chinese competitors gaining an edge with domestic consumers over global brands. And it’s not that this represents some form of nationalism or anti-global bias. It’s simply that Chinese companies can now offer products at a quality level as good as overseas brands, at lower or comparable prices, while also adapting faster to what local Chinese consumers want.
We’ve seen this with brands like GUESS, which shuttered stores across China, which was selling an Americana chic style at a price point Chinese consumers weren’t interested in. We’ve also seen it with Starbucks, which was surpassed in terms of the number of stores in China by Luckin in 2023.
I recently sat with a group of overseas executives visiting China and watched a familiar tension play out. They were so focused on what they thought their brand should be that they couldn’t see what local consumers actually wanted or how they thought about brands in the local market.
This tension is common for all global brands operating and selling in China. Multinational HQs are used to thinking in terms of global brand playbooks and global brand equity, leading to sales in international markets. But this approach increasingly does not work in China, where consumers move fast and increasingly want products built for local tastes.
Not understanding how incorrect assumptions shape China market strategy can lead overseas executives and HQs to assume they are losing in China because the market is “hard” or because there are cultural elements beyond comprehension. But this simply hides the real problem.
For now, this phenomenon of Chinese companies outperforming overseas competitors in understanding consumers’ needs is largely confined to the domestic China market. But that doesn’t mean it will remain there.
The Speed Gap
Chinese companies move very fast, launching new products in less time than it takes overseas companies to bring on a new senior hire.
But it’s not just chaos. There are several layers that both help and force Chinese companies to move fast: Infrastructure and government support, market pressure, and operational and structural choices.
For infrastructure, China’s intentionally designed industry hubs concentrate talent and manufacturing expertise, while using economies of scale to produce and sell at lower costs. Informal information networks between manufacturers also allow different companies to jump on new trends far faster than overseas competitors.
Government policies subsidize industrial parks, provide preferential lending, and provide quicker regulatory approval for new categories compared to overseas markets.
Market pressure also plays an important role. The China market has long been saturated with local players, leading to hyper competitiveness, as well as involution (a continuous vicious cycle of price cutting), which the Chinese government has taken a more active role in combating it.
But additional factors push that speed further. Not only do Chinese consumer trends change faster than in many other markets, but China’s digital e-commerce and social shopping closed ecosystems mean that companies can now view, analyze, and act on consumer behavior and feedback in real time, forcing other companies to try to move even faster to keep up.
This speed in the domestic China market has led to Chinese companies making decisions on their operational models to move faster, not just to grow faster, but to simply survive. It may look chaotic on the outside, but they are entirely rational on the inside.
This overall rapid execution speed, not just in manufacturing, but also in sales, marketing, and overseas expansion, presents a real challenge to overseas companies. Multiple Chinese competitors are now leading in consumer electronics and other industries overseas. And more competitors are also viewing overseas markets as new growth areas to escape the competition back home.
Overseas companies face a clear dilemma. Their Chinese competitors not only produce similar or better products than they do, but also do so more quickly and at lower prices. The gaps where overseas companies can potentially compete are narrowing, and overseas companies can no longer remain on the sidelines. Overseas companies can no longer treat this as someone else’s problem.
The Talent Gap
Having the right talent to remain competitive with China is not simply about having smart people who understand China.
After all, many overseas companies have smart, well-educated China teams with deep local experience. But the China team may not be giving the HQ the information it needs, or not moving as fast as local competitors.
In these cases, overseas companies’ China teams are often not working inside the “Chinese system” – they are working inside the “overseas system” with Chinese characteristics.
Overseas HQs that need to approve everything slow down execution and rob local teams of decision-making authority. At the same time, there are many reasons why local China teams might not share the full picture with overseas HQs.
In China, it is common to manage upwards information flow, and this will be intensified when overseas HQs react badly upon learning uncomfortable truths about the China market.
When looking at overseas HQs, it is also common for executives and teams to be incentivized to act in accordance with overseas logic and tempo, instead of China-side speed and logic.
So on one hand, it’s certainly important to have smart, skilled people, both in the HQ and in China. But it’s also vital to ensure both have the incentives and support to act in ways that support the growth (or slow the decline) of the China business.
Sometimes this requires organizational change. Sometimes it requires bringing on outside partners who understand the needs of both sides, where execution, communication, and collaboration break down, and who can say things neither side feels free to.
What overseas HQs urgently need are China teams that can act with authority in accordance with the needs of the China market while communicating clearly with HQ. Repeating the playbook that worked before is simply asking for failure.
How Leadership Can Close These Gaps
These gaps don’t exist in isolation; they compound. A company that misreads what’s happening in China will make decisions based on wrong assumptions. Wrong assumptions then slow the organization’s ability to respond closer to China’s speed. And without the right people in place, people who can operate across both systems and say what neither side feels free to say, none of it will get fixed.
This is not about copying the Chinese approach. It is about understanding that Chinese companies across many industries have spent decades being forced to move fast, iterate constantly, and compete with no margin for error. Many now have the capabilities to compete directly with overseas companies, in China and in their home markets.
We’ve already seen the effect across sectors in China and overseas, where overseas companies were the traditional leaders. Automotives, luxury, consumer electronics. All are facing significant challenges from Chinese players, and the competitive gap has closed faster than most planned for.
Organizations that have not yet adapted are finding that the window to do so is closing fast. Surmounting these gaps requires honest answers to uncomfortable questions about what is actually happening on the ground, whether internal assumptions reflect market reality, and whether the right people are in place to bridge both sides. Those answers rarely come from inside the organization alone.
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