Over 20 years of advising international companies entering China, I've watched many succeed and many fail. The difference rarely comes down to the quality of the product or the size of the company. It comes down to two fundamentals that apply in any market, but that foreign companies consistently underestimate in China specifically.
The first is understanding the local market
This sounds obvious. Most companies think they've done it. Most haven't.
The mistake is assuming the formula that worked at home will work in China. It won't. Chinese consumers have different tastes, different price sensitivities, and different buying behaviors. A product positioned as premium in Europe may land in entirely the wrong bracket in Shanghai. A marketing message that resonates in the United States may miss its audience completely in Chengdu. The consumer research that companies treat as optional in familiar markets is non-negotiable in China.
Regulatory constraints fall under this same principle, and this is where companies are most often caught off guard. China has regulated industries where standard marketing approaches are simply not permitted. What you can say, where you can say it, and how you can promote your product are all subject to constraints that don't have obvious equivalents in Western markets. Foreign companies that walk in assuming free-market norms apply universally will find themselves redesigning campaigns after launch, an expensive lesson.
Understanding the market means understanding both the consumer and the legal environment they operate in. Miss either one and your entry point is already compromised.
The second principle is controlling your costs
China's scale works for you or against you depending on how well you understand what you're spending and why.
The country is enormous. Reaching consumers meaningfully, not just technically, requires real investment. A marketing budget of $100,000 and one of $10 million will produce very different results in a market this size, and the gap between what companies budget and what effective reach actually costs is where many market entry strategies quietly fall apart. The instinct to go big is not wrong. The mistake is going big without understanding what you're buying.
On the other side of the ledger, certain operational costs in China can be managed far more effectively than foreign companies assume, provided you have the right people making those decisions. Which brings me to the most consistently undervalued lever I've seen in 20 years: localizing your operations.
Local management isn't just a cultural nicety. It's a cost control mechanism. People who understand how business is actually conducted in China know where money is being wasted, which vendor relationships are worth maintaining, and how to avoid the structural inefficiencies that come from running China as a remote extension of a foreign headquarters. Companies that keep decision-making offshore invariably spend more and move slower than those that put experienced local operators in charge.
Ultimately, if you cannot control your cost of goods sold, the market opportunity that makes China attractive will work against you. Scale cuts both ways.
The companies that failed weren't necessarily bad businesses
They were businesses that treated these two principles as secondary considerations, things to figure out after the opportunity was secured. In China, that order of operations is exactly backwards. The companies that succeed do the hard work of understanding the market and building cost discipline into the structure of the operation before they scale. The ones that don't are usually the ones I watched leave.