Groupon China Is A Disaster — Will The Company Just Give Up?

andrew mason groupon

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Gaopeng, Groupon’s China venture, is a disaster. The best outcome may be some kind of face saving deal with Tencent to prevent it from becoming a world-class embarrassment.Earlier this summer Jeremy Goldkorn chronicled some on Groupon China’s problems in two posts for Techcrunch-Groupon: “Getting It In The arse” In China and Groupon: Still Getting Pwned In China.

In today’s Wall Street Journal Lori Chao writes about some of Groupon’s China problems. In Groupon Stumbles in China, Closes 10 of its Joint-Venture Offices, Ms. Chao writes that:

Groupon Inc.’s joint venture in China has closed offices in some cities and laid off hundreds of employees, according to people familiar with the situation, raising questions about the online coupon company’s strategy in a big market ahead of its planned initial public offering of stock.

Former and current employees of the Chinese joint venture, which operates the website, say more than 10 offices around China have been closed, including one in the northern city of Tangshan where an employee said he and his co-workers were locked out last Friday after their lunch break just after being notified of the shutdown.

“They’ve been firing people for at least three months,” said the staffer, James Liu, a photographer for GaoPeng.

A Chinese lawyer representing some disgruntled former GaoPeng employees estimated about 400 people have been fired so far, a number that couldn’t be confirmed…

Since January, Groupon has invested $8.6 million for a 40% stake in the GaoPeng joint venture, which is also funded by Chinese Internet giant Tencent Holdings Ltd. and private-equity firm Yunfeng Capital.

Groupon and GaoPeng said Tuesday that the office closures are part of a change in strategy and don’t diminish their commitment to China. A spokesman for GaoPeng said it plans “to focus more on the middle to large-sized cities” in China where the market is “more developed,” adding that the company “is fully committed to the Chinese market for the long term.”…

Hundreds of Chinese companies were already offering online buying services in China by the time GaoPeng started offering deals to Chinese users in March. One of those competitors owns the Chinese domain which, according to research firm Analysys International, had more visitors in the second quarter than Groupon’s own GaoPeng.

While Groupon is the dominant daily-deals website in the U.S., GaoPeng was No. 8 among such websites in China in the second quarter, with 15 million unique visitors a month—less than 30% the number for the top website in the category,

Groupon’s PR folks are spinning hard today, as you can see in this Bloomberg story–Groupon’s Venture in China Is Said to Fire Employees for Poor Performance. I do not envy the PR folks their jobs.

Groupon has made many of the classic mistakes that American Internet companies like to keep repeating in China, including but not limited to:

1. Picked the wrong partner (see Is Tencent The Wrong Partner For Groupon In China?);

2. Hired too many foreigners as top management. Foreigners are not all useless (writing as a foreigner who likes to think he is useful), but Groupon had far too many;

3. Staffed up way too fast; you can not efficiently hire hundreds/thousands of qualified Chinese employees in just a few months;

4. Focused too much on hiring bankers and management consultants. In China especially group buying is a very dirty feet-on-the-street, local sales game, and that requires a very different skill set than what you will find in your average consultant or banker;

5. Allowed a competitor to register;

6. Have inadequate financial controls that have contributed to the losses and probably enriched some, just not the main Groupon and Gaopeng shareholders;

7. Mishandled layoffs, leading meaning potential Chinese job candidates to believe that Gaopeng is a toxic company.

Groupon bungled its China entry, the market is overcrowded and highly competitive, and Gaopeng is a fading also-ran. This Groupon may expire sooner than we expect.

Related posts:

  1. Is Tencent The Wrong Partner For Groupon In China?
  2. RedTech Advisors Report: The Rise And Stall Of SNS In China
  3. Sinica Podcast: Does China Have A Second Internet Bubble?


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