February 15, 2011, 4:15 AM — While Groupon continues to say little about its plans for China, local group buying sites in the country already expect the U.S. company to arrive, but not without facing a host of challenges.
"Groupon can't use the same mentality when it comes to China," said Feng Xiaohai, the CEO of Manzuo.com, a popular group-buying site in China. "If they don't execute well, then they will be at a disadvantage."
Websites and Chinese microblogs have been abuzz for weeks now with reports on the company's moves to enter the group buying market in China. Still, Groupon's U.S. offices have not responded to the reports, while a public relations firm for the company's Hong Unit could neither confirm nor deny the company was expanding to China.
Now the big question has been whether Groupon will succeed in a country where many other global Internet companies have struggled.
Group buying, a hot new online shopping trend, works by offering discounted deals on products and services like restaurant meals or attending a health spa. To attain the discount, enough users have to buy into the deal. Once the threshold is reached, the deal is given out to all those who participated.
The group-buying model became popular in the U.S. with sites like Groupon. But starting in 2010, China began to develop its own group-buying market. Now the country is filled with competitors, with the number of group-buying sites reaching more than 1,000, according to research firms. About 18.7 million Internet users in the country visit group-buying sites.
The stiff competition, however, is just one obstacle the company will face. Groupon's profile as an international company could be it's largest weakness, said Feng.
The rules and regulations in China are different than in other markets, which usually cause grief for international companies that have yet to understand the way China operates, he said. "A lot of business-making here depends on having good relationships," Feng said. "Just because you sign a contract, doesn't mean the other person will carry it out."
Already Groupon has seen some resistance from its competitors. Manzuo and several other group-buying sites in China agreed they would not re-hire employees who have gone to work for Groupon, Feng said. The companies took the strict measure as a way to prevent Groupon from poaching their staff.
"We thought they were not competing fairly. Groupon was hiring headhunters and calling our staff," he said. "This made us upset."
Groupon has not responded to the allegations of poaching.