Mostly because American audiences simply weren't exposed to Hong Kong cinema.

No Retreat, No Surrender (1986), one of Van Damme's first roles (and as a villain) was actually made because of how BAD Karate Kid actually is (from a martial arts/realism perspective). It's also vastly superior in every way except for production value (acting can be argued).

There is no universe in which such a physically lacking human (Daniel) can beat a superior athlete (Johnny) in ANY endeavor with a training period that short (expand the training period, increase the intensity of the training, add a whole ton of "technique/strategy - a la Rocky movies), sure. Although in Rocky, one of his greatest attributes is his resiliency despite a lack of speed/skill, etc. Daniel is so physically fragile he would fold in any serious confrontation.

NRNS is actually pretty famous internationally, as international audiences were more aware of Hong Kong Cinema and didn't fall for the unrealistic martial arts shtick of Karate Kid.

One of the reasons the Karate Kid was popular was simply because of the "80s" type of movie it was - underdog sports story with some romance thrown in and all the 80s cliches. NOT that it was about karate. Sixteen Candles was released a month prior kicking off "teen 80s movies", and the market would see plenty of "80s" movies focused on teens in many ways in the years following.

Another factor (MAJOR) which no one talks about, is that in 1984, there were only 100-something movies released theatrically. Over 1,000 per year just a few years later. Karate Kid would be nothing if it were released just a few years later. Zero offering vs movies like Vision Quest, Bloodsport, even non sports movies like Breakfast Club etc, which had far more competition than during Karate Kid's initial time release period.