The first Home Depot to enter the Chinese market was in Shanghai in 2006. They quickly grew to 12 stores across six cities in China- Tianjin, Beijing, Xi'an, Qingdao, Shenyang, and Zhengzhou. They acquired their stores from the Chinese home improvement company known as Home Way, which was China's first big-box home improvement retailer (wholly owned subsidiary- acquisition). The Chinese translation for Home Depot, “Jia De Bao” meaning “getting treasures for your home” relates to the do-it-yourself (DIY) model that was developed for Home Depot to base its store format off of. The company had ambitious plans for its 12 locations across China and things seemed to be looking promising until 2011 when a few major stores were shut down. The failure of business expansion continued when all 12 locations in China officially closed in 2012.
Two years after the Homeway acquisition, Home Depot got a new CEO, Frank Blake, who assessed Home Depot's progress in China's market. He declared that the company was pleased with the overall business performance but still not confident in the business model. Raymond Chou, managing director for China retail for Home Depot made a statement in 2010 acknowledging that Home Depot has considered bringing the existing Home Depot business model, store, and merchandising approach to China and building from scratch-a Greenfield entry approach. However, after further consideration a small acquisition approach was decided upon due to the practicality and simplicity.
One of the main qualities that attracted Home Depot to China was the housing market. In contrast to the U.S., where buyers typically purchase their houses furnished, the apartments in China are bought essentially as an unfurnished shell, leaving the customer responsible for all the work. However, One of Home Depot's biggest mistakes was not adapting to the Chinese culture. Adapting to local conditions and knowing the specific consuming habits of the market you are trying to enter into can be fatal and in this case, was for Home Depot in China. The Chinese culture tends to be very collectivist based, where people do not want to try products and services until they have been widely accepted by those around them. This collectivist culture does not go hand-in-hand with the do-it-yourself business model that Home Depot is based upon. By failing to recognize the cultural difference between American and Chinese consumers, Home Depot's attempts to expand business in China were unsuccessful.
It is important for a company to enter the market at the proper time and in order to do so they must recognize consumer's needs. Home Depot unfortunately put themselves at a disadvantageous position from the start, in terms of their competitors in China. IKEA had already occupied the top position in the home improvement market in China, so Home Depot was going in trying to obtain a late-mover advantage that ended up being a disadvantage. IKEA's success was too hard to match as they were extremely efficient in attracting the locals with cheap products. DIY is complicated and time consuming for Chinese consumers and they would prefer to have the service provided by others. A “do-it-for-me market is preferred over a do-it-yourself market in China, therefore, if Home Depot is not offering them that, consumers will look elsewhere. Consumer segmentation was also over-looked when entering China as the marketing plan lacked the proper detailed research of the consuming behaviour and market feature of local conditions. For example, the company had failed to take into consideration the consumer's resistance to DIY products and services while only focusing on the opportunity to appeal to a dense population in China. These things considered, led to management's demise in China.
The company had also turned a blind eye to women when they should have been the focal point, especially in China. Women tend to make final decisions when it comes to buying home décor products and manual labour is culturally considered to be for lower-class citizens. However, many of the Chinese consumers felt that Home Depot's higher-end products were too expensive, in turn focusing on the lower-class market in China was not beneficial and ultimately led to failed market behaviour in the local market.
Home Depot placed an emphasis on improving customer relationships but at the same time, failed to maintain positive relations with influential individuals in China with decisive powers, which was important for business. This vital flaw had a major influence on marketing performances in market entry and international expansion for Home Depot and put the company in a disadvantageous position, ultimately leading to a shrunk market share in China.
...(download the rest of the essay above)