A surprising number of high-profile Western companies have stumbled in e-commerce in China. To succeed requires new thinking.

Why have so many Western companies — including heavyweights like Amazon and Google — struggled in China’s e-commerce market?

Amazon entered China’s business-to-consumer market by acquiring Joyo.com in 2004 for $75 million. From the start, it faced fierce competition, in particular from Tmall.com. Today, Amazon’s market share in China stands at 3.5%, with indigenous companies such as Tmall.com (51.5% market share) and 360buy.com (22.7%) controlling the bulk of the market.

Google entered China by setting up its local domain google.cn in 2006. Though Google is the de facto word for “search” and the number one search engine in many parts of the world, it never gained a major share in China’s search advertising market. Baidu.com, a company founded in Beijing in 2000, now has 78.6% market share, with Google trailing at 16.6%.

And these are just two examples. Numerous prominent American companies — including eBay, Expedia, Groupon and Yahoo! — have also struggled to replicate in China their success in other markets. Which brings us back to our opening question: Why? After years of effort and millions of dollars spent, armed with the most sophisticated technology and premium brand names, these Internet giants have all failed to claim a leadership role in China’s e-commerce. So what happened? Why can’t these smart, formidable companies gain more traction in China?

Hitting the (Great) Wall

First, some background: China is the world’s largest e-commerce market, and, with more than half a billion Internet users, China boasts the greatest number of Internet users in the world. Its online shopping market hit 766.6 billion yuan in 2011 and, according to a recent report from Boston Consulting Group, China’s e-commerce market is expected to be worth 2 trillion yuan by 2015. At press time, one yuan was worth about .16 American dollars — so 2 trillion yuan, at that rate, is the equivalent of $320 billion. No wonder all the e-commerce titans have thrown themselves at the Great Wall, looking for a piece of the market.

For our research, we used industry analysis, case studies and interviews with executives in China’s e-commerce industry, as well as primary research about companies’ online store presences. In addition, we examined various high-profile e-commerce entries into China. All told, we identified four key ways in which U.S.