The biggest reason is that China is not a country ruled by fair application of law. To win in China, you have to be willing to bend the law as much as possible without getting slapped (or at least, just slapped on the wrists). American companies can't execute like that: if fuzzy application of Chinese law doesn't get them (either by getting slapped, or having to follow laws that their competitors don't have to), the American government anti-corruption laws will (it is illegal for American companies to participate in any bribery...we aren't even allowed to take Chinese or grad students professors out to lunch!).
Facebook has done very well in South Korea and Japan. Russia is similar to China in the "rule of law" category.
You are right. There are several main reasons why US-based firms fail in China market.
1. Government regulation: China government and other centralized power governments such as Vietnam, and Russia always try to keep their eyes on Internet activities, audit informations on the Internet. These government's activities may put automated systems (algorithms) of US-based firms in difficult. It seem to violate the notion of free speech that US-based firms follow.
2. Illegal activities of these local firms: Does any US-based firm dare to share illegal documents, videos on their platform? This may be a big difference between US-based companies and Chinese's ones. Another aspect is under-table money, US companies are more more and more strictly regulated by law that prohibits them from giving under table money to local governors. There is ton of unethical ways that Chine firms can do to beat you.
3. Localization
There is vast, majority people in developing countries who can't speak English;therefore, blocking them from approach US products. It turns to be a great opportunities copy-cat model for Chinese firms.
4. In some countries such as China, citizens more and more pride of their nation. Chinese are great in this aspect since they usually are member of various social guilds that respect and help each other. This tendency is in contrast to US culture that promotes individual. Thus, Chinese tend to use local products than US's one.
5. A firm in centralized governments such as China not only act as a business that seeks for profit but also act as a political tool for government. So, they receive a lot of support from government such as infrastructure, money, ...
For those above reasons, I totally think that Chinese firms are in great advantage to the competition in compare to US's ones. What I put in my consideration is how these Chinese firms can succeed in global, or Western market. If they win, what I cited above maybe wrong.
2. Actually, under US safe harbor law, providers are only liable to take down illegal content when notified of it; they do not need to be proactive about finding such content. This is quite different in China: providers must be proactive at finding illegal content...but its even worse than that...illegal content is vaguely defined (what is a state secrets? What goes against social harmony?).
3. US companies are more capable of not speaking English than Chinese companies are in not speaking Chinese. Spanish is already a big language in the US given our proximity to Mexico and South America. India and much of Africa speaks a western language (English, French, Portuguese) as a defacto unifying language...
4. Tell that to the Taiwanese, HK'ers, and Singaporeans who prefer Facebook and Twitter to Kaixing, Renren, or Weibo. Also, how many Chinese want to drive around in a QQ or Xiali vs. a Toyota or Audi? What about iPhone vs. Xioami? Chinese are much more open and pragmatic than say...the Japanese or Koreans.
5. The loans that the SOE's are getting today from the banks are really going to hurt us this year or the next. The whole solvency of the nation is at risk.
The Communist Party of China will only allow large corporations to function insofar as they retain some control over their operations, even if that control is only occasionally utilized. The degree of guanxi necessary to succeed at the less formal regulations present in China is at a minimum that a Party member gets some degree of control - and their loyalty is not to the company, but to the party, like a political officer on a submarine.
That means, effectively, that every relationship with a Chinese arm of one's company is a partnership with the Chinese government, if push comes to shove, rather than a subsidiary relationship.
This is the clearest explanation I've found of the enormous difference between the somewhat alien structure of Chinese ventures and the familiar Western model:
"By “the Party,” I’m of course referring to the Communist Party of China (CPC, also known as the Chinese Communist Party or CCP), the political organization founded in 1921 which, under Mao Zedong, fought a revolutionary war that ultimately brought it to power in 1949. It is a Leninist party, which means that unlike most Western political parties, it is a tightly-organized, hierarchical organization similar to a military unit or religious order. In the United States, there is no such thing as being a “member” of the Republican or Democratic Party — the closest thing would be to register to vote in either party’s primary. Republican or Democratic “committees,” on either the local or national level, are really just funding and support co-ops for helping candidates; they are in no position to issue orders to voters, activists, candidates, or elected officials. Joining the Communist Party of China, in contrast, is a formal and highly selective process that takes several years to complete. Once initiated, a member must obey Party directives and take on whatever task (including official positions) the Party assigns. If they misbehave, or even break a law, they will be detained, investigated, and punished by the Party, not the police — only after being expelled from the Party will they be turned over to the country’s regular legal system for prosecution.
The best way to think of the Party is to imagine the human resources department of a huge multinational corporation — except that in this case, this HR department is so powerful it gets to appoint everyone from the Board and the CEO to the lowliest janitor, so it effectively calls the shots. In China, every government ministry, every military unit, every state-owned company – and in many cases private companies as well – has a Party committee that decides all major personnel issues and, in doing so, essentially acts as the power behind the throne. Now sometimes the boss of the more visible entity is also head of the Party unit, which means the formal boss actually does call the shots. But if the two roles are split — as they are, for instance, in every province — you can bet that the Party chief is the one holding most of the real power.
The Party’s 78 million members (a little over 5% of China’s total population) are essentially a pool of pre-screened candidates who can be slotted into whatever official role the Party leadership decides — with the understanding, of course, that their primary loyalty remains to the Party that put them there. Directives from Party superiors — on who to assign or promote, or what policies to pursue– are ultimately far more important than instructions received from more formal channels like ministries, courts, or corporate boards."
Facebook has done very well in South Korea and Japan. Russia is similar to China in the "rule of law" category.