The Best and the Brightest

In The Best and the Brightest, David Halberstam’s classic book on how the United States got itself into the quagmire in Vietnam, he identified several reasons for why a superpower would fall to what President Lyndon Johnson called a “raggedy-ass little fourth-rate country”, and why brilliant men like Johnson himself as well as his subordinates such as Robert McNamara and McGeorge Bundy were unable to foresee and forestall a tragedy of Greek proportion.

Though written forty years ago, the lessons drawn by Halberstam from the debacle still ring true today. The best and the brightest still fails, and such is the case with Gaopeng.com.

A joint venture between Groupon and Tencent, Gaopeng had the best of both worlds from the get-go. Groupon’s American can-do spirit and experience combined with Tencent’s local knowledge seemed to be a winning combination. However, armed with a tremoundous amount of resource (100 million dollars), Gaopeng stumbled from be beginning. Blind expansion into dozens of cities required the company to hire quickly, resulting in a bloated 3000 men staff.

High operational cost and fierce competition meant the company bled money, which wasn’t ameliorated even as the company beat a fast retreat by closing operations and cutting staff. Further scandals such as the selling of counterfeit watches and handling employee relations callously (the company famously fired people right before they took off for the Chinese New Year holiday) made the company not viable. As rumor has it, Tencent is planning on merging Gaopeng’s operation with FTuan, another Tencent brand, and Gaopeng’s operation will eventually be winded down and folded, its staff purged.

What resulted in Gaopeng’s quick demise? To go back to Halberstam’s book, we can see that missteps of the U.S. in the 60s and Gaopeng are extremely similar. They both failed because:

1) False belief of invincibility and omnipotence

The U.S. never thought it could lose to Ho Chi Minh, so there was never any consideration for Ho’s strength or how North Vietnam would respond to American moves. On various occasions, Americans believed that by simply waltzing into Saigon, it could put the fear of God into Hanoi and force it to surrender. That never happened, and many of America’s moves look miscalculated and simply foolish.

Gaopeng also thought its genes impeccable, and thought it could dominate the market simply by walking through the door, even though Chinese Groupons had gotten head starts and have shown to be extremely tough competitors. This explains why Gaopeng was expanding so furiously: they thought the mere presence of a company with such pedigree will sweep away the Chinese companies. Of course, this didn’t happen, and like the Americans in Vietnam, Gaopeng was caught off guard and didn’t have a backup plan.

2) Lack of respect for the nuance of history

If Americans had any respect for the “arch of history”, they would have long ago realized that pumping up South Vietnam was a lost cause. Anti-colonialism was in full rage, and “white men” could no longer dictate terms. The French learned the hard lesson by fighting hard and losing big in Vietnam; Charles De Gaulle himself warned the Americans that fighting Hanoi was futile. Unfortunately, the warnings were ignored.

Gaopeng, too, should have realized that foreign Internet companies have a notoriously bad track record in China. Yahoo, Ebay, and Google are some of the well known cases where foreigners lost out to their more tenacious and well adapted local competitors. With that in mind, shouldn’t Gaopeng have substituted its extreme confidence for caution? After all, Groupon is a foreign company, and the employees they deployed to run the show at Gaopeng are also foreign. Why would they succeed where others have failed? This question was never asked.

3) Failure to recognize that people do things differently in a foreign country.

Vietnam is a unique place, with a unique history and unique culture. This obvious fact was ignored by the best and brightest of Americans; they all wanted things in Vietnam to work exactly like they do at home. By ignoring local logic, these most rational and intelligent men built extremely beautiful edifices based on the foundation of false assumptions and it all crashed down because of that.

China, too, has its unique logic. Because of differences in political and economical environment, the Chinese simply do things differently than Americans. Gaopeng didn’t appreciate many of the subtleties, and it was simply devoured by the beast of the jungle. In hindsight, it never stood a chance. If other foreign companies do not appreciate that, they too shall suffer ignominious defeats.