Groupon’s Chinese joint venture Gaopeng is not doing so well. It has apparently closed 10 offices and fired at as many as 400 employees over the past three months.
Executives of the Chicago-based daily deals company, which is planning an IPO at some point, say changes are part of a shift in strategy and that that the company will now concentrate on middle-tier and upper-tier cities rather than the smaller cities in more distance reaches of the country.
Focusing on a larger city means the company will be participating in commercial exchange where the market is more developed and the people are more affluent. Beijing, Guangzhou, Shanghai – that’s where people spend the extra income. You have to wonder why Groupon even went to the lower tier cities. Though 87% of China’s population lives in so-called “third-tier cities,” things are already cheap there and it’s not particularly clear how effective the online sales methodology would do in cities where mass retail is not a Western invention.
This is not the first time Groupon has tripped up in the world’s largest consumer market. Remember Chinese bloggers’ response to that offensive Super Bowl ad? Yeah. Read some of the Chinese responses in that link.
All this being said, Groupon may be wise to backtrack and focus on the low-hanging fruit. It may have seemed like easy cherry-picking in the lesser developed markets, but it seems they went into it too fast, before the market had a need to be ready for daily deals.
According to reports, Groupon invested $8.6 million for a 40% stake in the GaoPeng joint venture in January. Chinese social networking behemoth Tencent Holdings Ltd. and private-equity firm Yunfeng Capital are principal investors in the strategy.
It does seem that Groupon can’t catch a break in the US, either. The company faces a lawsuit from a group of employees who claim that the company failed to pay them overtime.
