Groupon may be the 800 pound gorilla in the super-hot group buying space, but its prominent success story, coupled with low barriers to entry, has led to a significant amount of competition, both in Groupon’s home market, the United States, and globally.

Not surprisingly, Groupon isn’t content with its current U.S. dominance. Investors haven’t poured nine-figures into the company so that it can maintain its current market position. So it’s rapidly expanding internationally to tap into new sources of growth. But expanding beyond a home market almost always comes with challenges and risks, and that’s becoming apparent as Groupon tries to move at breakneck speed into far-flung markets.

As detailed on TechCrunch, Groupon’s expansion into Brazil has already hit an embarrassing snag:

…we’ve received three separate reports that ClubeUrbano, Groupon’s Brazilian site that it acquired earlier this month, is loaded with fake deals and venues that don’t even exist. As one source put it: “Fake names, stock photos, fake addresses, everything.”

We reached out to Groupon, which confirmed that the majority of the deals are not real, save for one running in São Paulo — deals from the site’s 30+ other locations are for venues that don’t exist. So why is this happening? Groupon President Rob Solomon explains that Groupon’s standard practice when it expands to a new market is to show users examples of the kind of deals they could get once the site goes live in their city. All of the fake deals on ClubeUrbano, he says, are meant to serve this purpose, but he concedes that Groupon has “done a terrible job of calling that out on the website”. Soloman says this will be fixed immediately.

Oops!

If ClubeUrbano’s non-existent deals were the end of the story for Groupon, that might be one thing. But they’re not.

Here in Chile, Groupon recently purchased ClanDescuento, a Groupon clone which launched a few short months ago. The deal was somewhat controversial here, as ClanDescuento has been the subject of more than a few spam complaints, sparking some to label the site ‘SpamDescuento‘. ClanDescuento’s parent company, Needish, has defended itself against these complaints. Its response, however, contained an interesting claim:

In the discussion with Groupon they never
asked how many users we have.

If true, that hints that Groupon’s rush to prevent upstarts from dominating local international markets has led to a flawed strategy under which the company is making big mistakes on many fronts. One TechCrunch commenter, for instance, apparently from Argentina, noted:

You can’t pay with local CCs, you are charge in Dollars
(and not the local currency). Even more, just enter any information when
entering your credit card (fake names, addresses, etc) and they charge will go
thru. Just an example they only care about “we are here”. What they did in
Brazil is also being done in other countries like Argentina, so there is “no
mistake” here. Cheers. Pablo.

Andrew Mason, Groupon’s CEO, admits that his company has to do a better job. “Although we’re clearly not off to a great start, I promise we will bring a first
rate Groupon experience to Latin America
,” he wrote.

Unfortunately, international expansion is never easy, nor are international acquisitions. In putting overseas flag-planting above customer experience, Groupon may be shooting itself in the foot. Often, such a foot wound isn’t fatal, but here it just might be.

The ease with which Groupon’s model can be cloned, and is being cloned, will create a number of very big challenges for the company. For instance, it will almost certainly have to deal with the inevitable pricing pressures that come with increased competition. For a company that has already commanded a billion-dollar valuation from its investors, the last thing Groupon needs is to find itself distracted and trying to manage a far-flung empire of ill-conceived acquisitions and half-baked foreign efforts.

From this perspective, if Groupon doesn’t rethink its international strategy (and quickly), the company may find that its success is a lot like its deals: short-lived.

Photo credit: griffithchris via Flickr.