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RMIT International University Vietnam BUSM 3311 – International Business

A2 Subject Code:

BUSM-3311 / 4626

Subject Name:

International Business

Location & Campus

RMIT Vietnam , HCMC

Class Group Number:

1

Student Name:

Tran Minh Anh

Student Number:

S3818309

Your Teacher:

Tzach Ronen

Word Count:

1195 words

1

“I declare that in submitting all work for this assessment I have read, understood and agree to the content and expectations of the assessment declaration” Home Depot Succeed in America but Failed in China I.

Introduction

Home Depot was founded in 1978 from America that specializes in supplies and tools to innovate houses for people that want to do it by themselves (The Home Depot 2020). As The Home Depot (2020) stated, currently they have more than 2,256 stores in the US (1976 stores), Canada (180 stores) and, Mexico (100 stores) after withdrawing from China. According to Shedd (2019), Home Depot entered China by 2006 by acquiring a local company in China, Home Way. From then, The Home Way became a wholly owned subsidiary of Home Depot. They used a global strategy when they came to China to sell American DIY (Do It Yourself) stuff for house improvement that followed the needs of consumers that want the American housing style. Furthermore, they operated 12 stores across China but mostly in suburban areas with a big-box concept. Unfortunately, by 2012, Home Depot withdrew from China’s market by closing all of its stores and failed from this market (Gao 2013). This report will discuss Home Depot’s background, three main factors that affected Home Depot’s loss, and follow it with recommendations as well as a conclusion. II.

Analysis

First of all, Western culture and Asian culture are different in many aspects from lifestyle to the beliefs of the locals. Home Depot used globalization of markets and they applied the same concept when entering China without realizing that their foreign target markets were not familiar with the Do-ItYourself model. The firm did not research well about the values and norms of China, they made assumptions about the business environment of America would be the same as China, which has led to company failure. According to Tulshyan (2013), Chinese prefer products that are fully-designed rather than do it by themselves because it can be assumed that people make things by themselves are poor in China as the labor cost in China is low. To be more detailed, Chinese people work hard to have a better life and stay away from manual labor. On the other hand, America’s labor cost is high so when they make something by themselves, it could show that they are talented. Moreover, China applied the “one-child policy” in 1979 which in Asian culture, that child would be the owner of the house when they old enough (Zhang 2017). From that, that child would be the target market of Home Depot, but for them, instead of using the DIY model, they rather hire construction 2

labor to innovate the house for them (Gao 2013). Furthermore, China is all about ascription culture, they show their social status based on who they are and they prefer products that are high brand awareness. Home Depot is not a well-known brand in China so they are not in the consumers’ top choices. The second problem is the locations that they put their “big-boxes” in China. According to Xie et al. (2016), Home Depot operated their stores mainly in suburban areas, which is far away from the cities. As the middle class focuses on the city more, this could be a disadvantage for Home Depot to engage and establish themselves to the consumers. Why Home Depot Failed In China (2019) stated that American people tend to move to suburban areas when they have money, which is the opposite of China, Chinese people living in cities are middle class or higher. To get to the store, the locals have to drive a few hours from the cities and that inconvenient location of the stores creates a disadvantage for the firm (Gao 2013). With Dunning’s eclectic paradigm theory, it is clear that Home Depot is lacking the location advantage and internalization advantage. Their locations do not offer any benefit to the consumers and for them neither. In addition, they have no control in their foreign market because they did not succeed in introducing the DIY model to their Chinese customers. Home Depot’s third problem is their warehouse-style stores could not compete with its competitor, IKEA. It has a handy-man appealing as the store want to target Chinese man. In China, women make most of the decisions about their house decoration, and how it should look like (Li 2019). As Tulshyan (2013) mentioned, the stores could not attract women customers because they are not in the great location where women go shopping and their warehouse model is not suitable for women that like American finished products. Instead of buying tools to fix things at home, women always go for a service that does that for them, and Home Depot did not use that in their strategy. According to Bhasin (2012), Chinese people like Western house decoration and modern furniture. Alternatively, Home Depot only did their job in providing solutions for fixing things, not really about Western furniture and decoration. Referring to the views of Zheng (2017), the entry time of Home Depot is late, it came to China when IKEA is successful in this market, their biggest competitor. IKEA is also focusing on the Western housing style but it did offer finished products that follow the needs of the Chinese customers and showrooms that attract a lot of women which made IKEA popular in their foreign market (Doland 2015). To give an illustration of their time entry, Chinese people at that time were mainly bought houses for investment, so IKEA took that as an advantage that gave consumers a variety of products 3

and difference of prices. On the other hand, Home Depot sells products that are easy to find in China that have lower prices and no difference (CNBC 2019). III.

Recommendations

When entering China, Home Depot should have used a multi-domestic strategy as it focuses on the local environment rather than use a global strategy (Roth 1992). This helps Home Depot understand more about the Chinese market and fewer risks. Moreover, they could provide services that help consumers build things. Home Depot used a wholly owned subsidiary by operating 12 stores, instead of doing that, Home Depot should have tested the market by opening a few stores first to get customers’ reaction. For a better location that can interact with female customers, Home Depot should operate their stores in the malls, downtown for easier when engaging with consumers. As China Daily (2011) mentioned, Chinese people prefer shopping in a mall rather than to stop at a specific location to buy stuff. Placed stores in mall or in cities would not only build their brand name but increase their overall sales in China’s market as well. According to Dalgin et al. (2018), using bright and pastel colors would attract customers and influence their decision of purchasing. For the last recommendation, I would recommend that Home Depot should design their stores that look like Western-style with a modern and simple atmosphere to attract their right target consumers, Chinese women. IV.

Conclusion

In conclusion, when doing business in a foreign market, Home Depot is lacking their research skill about the Chinese business environment, they made assumptions about the culture. Overall, Chinese market is big and hard to control, in other to success, the firm needs to establish themselves and understand their consumers’ needs.

Reference list 4

Bhasin, K 2012, ‘Why IKEA Took China By Storm, While Home Depot Failed Miserably’, Business Insider, 15 September, viewed 1 August 2020, < https://www.businessinsider.com/ikea-home-depotchina-failed-2012-9>. China Daily 2011, ‘Home Depot shuts Beijing store due to difficulties’, China Daily, 27 January, viewed 4 August 2020, < http://www.chinadaily.com.cn/bizchina/2011-01/27/content_11927821.htm>. CNBC 2019, ‘Why Chinese consumers rejected Home Depot’, CNBC, 14 June, viewed 2 August 2020, < https://www.cnbc.com/video/2019/06/14/why-home-depot-left-china.html#:~:text=The %2012%20stores%20it%20gained,easy%20win%20for%20Home%20Depot.>. Dalgin, M, Sraiheen, A & Akcay, O 2018, ‘GENDER DIFFERENCES IN PRODUCT COLOR IMPORTANCE, COLOR CHOICE, AND MEANING OF COLOR: A CROSS-COUNTRY STUDY’, vol. 30, pp. 88-99, viewed 4 August 2020, < https://search-proquest-com.ezproxy.lib.rmit.edu.au/docview/2058607203/fulltextPDF/ 6C639F593DF44733PQ/1?accountid=13552>. Doland, A 2015, ‘WHY FOREIGN BRANDS HAVE TO FIGURE OUT CHINA ALL OVER AGAIN: THE COUNTRY WAS ONCE THE LAND OF EASY GROWTH, BUT NO LOGER. TODAY, MARKETERS AND AGENCIES IN CHINA MUST WORK HARDER TO GIVE CONSUMERS WHAT THEY WANT- -AND DO IT FASTER’, vol. 86, pp. 6-10, viewed 4 August 2020, ProQuest Central database. Gao, M.H 2013, ‘Culture Determines Business Models: Analyzing Home Depot’s Failure Case in China for International Retailers from a Communication Perspective’, vol. 55, pp. 173-191, viewed 3 August 2020, ProQuest Central database. Li, X 2019, ‘Chinese women enter property market’, Global Times, 10 April, viewed 3 August 2020, < https://www.globaltimes.cn/content/1145355.shtml>. Roth, K 1992, ‘Implementing International Strategy at the Business Unit Level: The Role of Managerial Decision-Making Characteristics’, vol. 18, pp. 769-789, viewed 3 August 2020, ProQuest Central database. Shedd, K 2019, ‘Why Home Depot failed in China’, CNBC, 14 June, viewed 1 August 2020, < https:// www.cnbc.com/2019/06/14/why-home-depot-failed-in-china.html#:~:text=The%20company %20doesn't%20break,on%20consumer%20needs%20and%20culture.>. The Home Depot 2020, About Us, The Home Depot, viewed 1 August 2020, < https://corporate.homedepot.com/about>. Tulshyan 2013, ‘Home Depot’s failure in China: Ignoring women’, The Business Journals, 26 April, viewed 1 August 2020, < https://www.bizjournals.com/atlanta/blog/femme-fortune/2013/04/homedepots-failure-in-china.html>. Why HomeDepot Failed In China 2019, YouTube, 11 June, CNBC, viewed 3 August 2020, < https://www.youtube.com/watch?v=d7QxeBwWXvY#:~:text=Home%20Depot%20bought%20Home %20Way,easy%20win%20for%20Home%20Depot.>. Xie, Y, Chen, Z, Huang, X.B & Qiao, S.Y 2016, ‘Learning from Failure: How to Succeed in the Chinese Retailing Market’, Management Science and Management Innovation, pp. 131-134. Zhang, J 2017, ‘The Evolution of China’s One-Child Policy and Its Effects on Family Outcomes’, vol. 31, pp. 141-160, viewed 2 August 2020, ProQuest Central database. Zheng, S 2017, ‘The Failure of Home Depot in China- A Case Study’, Business and Management Studies, vol. 3, no. 4, pp. 54-58.

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