Individual Case Study Home Depot

Miranda LaBate


Table of Contents
1. Background
2. Difficulties
3. Analysis and Alternatives
a. Lack of Market Information
i. Problem
ii. Solution
b. DIY vs DIFM
i. Problem
ii. Solution
c. Management Team
i. Problem
ii. Solution
d. Poor Adaptation
i. Problem
ii. Solution
e. Poor Retail Tactic
i. Problem
ii. Solution
f. Chinese Economic Downfall
4. Other Market Information
5. Implementation Plan

Miranda LaBate
INTB 200-002 Case Study 1
Home Depot Expansion into China
May 12, 2014

Background:
The Home Depot is the world’s largest home improvement retailer. It has retail stores in
the United States, Canada, and Mexico. They have over 2,200 retail stores worldwide and
international operations represent 12.6% of their store base. In this case we reviewed the failed
attempt at penetrating the Chinese market due to various differences. Most of the success in
America is due to the fact that America’s suburbs are full of do-it-yourselfers where as in China
they prefer do-it-for-me. Home Depot carries power tools, building materials, hardware supplies,
and other products for DIY connoisseurs. When Home Depot entered China in 2006 they started
with 12-stores. None of the stores profited and all of them have since been closed. This case
study will analyze why this happened and the most efficient and appropriate way for Home
Depot to enter the Chinese Market.

Difficulties:
Home Depot failed in the way that they chose to penetrate the Chinese market. By
analyzing each aspect of the failure and taking corrective measures Home Depot will be
successful in their attempt at opening retail stores in China. Each of the failed aspects are as
follows:
 Lack of Market Information
 DIY vs. DIfM
 Management Team
 Poor Adaptation
 Poor Retail Tactic
 Chinese Economic Downfall
Analysis and Alternatives:
1. Lack of Market Information:
a. Problem: One of the first and most important parts in entering a foreign market is
market research to understand your customer base and the most effective way to
reach said customers. Home Depot failed to have definitive evidence as to why
entering the Chinese market was beneficial, how they were going to do it, what
they were going to supply in their stores, and where they were going to place
them.
b. Solution:
i. How? The first question when doing market research for entering the
Chinese market is to ask, “how are we going to enter the market?” There
are multiple ways of doing this one being franchising, another being oil
stain, and lastly joint ventures. Seeing as a standard company owned
business failed in the first attempt it is not a good solution to the problem
of how to enter the market. The best method of entering will be discussed
in a later section (5-B-ii.)
ii. What? China and those who inhabit it are much different from those of us
in the United States; therefore the method of satisfying their needs must
also be much different. It is important for researchers to understand and
report the differences between the two groups of people that way Home
Depot can answer the question of “what should we sell in China?”
iii. Where? Research on the specific towns with the most use for the products
sold by Home Depot needs to be done. That will help decide which town
will be most profitable. On their first attempt Home Depot put their retail
stores far away from city, which Chinese people did not like to travel to.
This was a contribution to their failure and needs to be corrected by
understanding what cities are best for stores. They need to answer the
question, “where should we put our stores?”
2. DIY vs. DIfM
a. Problem: In China, Home Depot quickly learned that they prefer having their
projects done for them. One of the first reasons for this is that labor is so cheap
that they have little motivation to do anything themselves. Another reason that
they prefer having projects done for them is because most Chinese inhabitants buy
homes for investment and speculation, not to improve them.
b. Solution: By incorporating “Do It for Me” methods into their branding Home
Depot will be much more successful in China. The first way that they can adjust
to this ideology is by putting more emphasis on their Home Service program,
which is already in place. Their Home Services program allows customers to have
qualified professionals complete home renovation projects for them. If they make
their service prices competitive with the cheap labor, or possibly go into a
partnership with those cheap laborers and offer them some sort of commission for
each deal they make then they will be much more successful at moving product.
Another method of changing Home Depot into more of a do it for me atmosphere
is by heavily marketing their products to the companies and the laborers
themselves. If they can become a reliable supplier to Chinese construction
companies, Chinese laborers, and Chinese manufacturers in general then they will
get a grasp of much more market share.
3. Management Team
a. Problem: As most successful market entries go, the manager of the team should
have a deep understanding of the area. Home Depot failed to hire a manager from
China that could give them a better understanding of the culture.
b. Solution: The obvious solution to this problem is to hire someone who was either
born and raised in China or has a very good understanding of Chinese culture, the
areas in China, and also a very good understanding of Home Depot as a company.
They need someone who can convert those skills into necessary changes in Home
Depot’s retail stores.
4. Poor Adaptation
a. Problem: When Home Depot entered China they offered the same products that
they offered in the United States. Countries that are so vastly different require
changes to be made in order for success. By not changing the way that they
present things they did not succeed.
b. Solution: First Home Depot needs to change the products that they offer. If
Chinese citizens have very little motivation for completing projects themselves it
is not a good idea to offer products such as lumber or other products that are on
the extreme end of doing it yourself. They should introduce new products that are
easier and less work for Chinese people to use. Next, Home Depot has begun to
develop specialty stores such as painting and flooring stores. It is important that
they continue to do this for continued success. The Chinese consumer likes things
to be easy and straightforward when purchasing products.
5. Poor Retail Tactic
a. Problem: Home Depot entered the Chinese market through company owned retail
stores. With very little background knowledge on the area and the customers, it
was not successful.
b. Solution: There are three methods in order to solve this problem and they are as
follows:
i. Partnership: This method is already in place according to a Chinese
spokeswoman. They plan to launch online operation with a Chinese
partner, which is still anonymous. By partnering with a local Chinese
company they will understand better what needs to be done to reach the
customer.
ii. Oil Stain: Through the oil stain method, Home Depot can open up one
store in an area that they have researched and believe is successful. Once
they see how the store does, they can open stores around the original for
continued success.
iii. Joint Venture: This is a great tactic for accessing new markets and would
allow Home Depot a safe entry into China.


6. Chinese Economic Downfall
a. Problem: Home Depot entered China at a time when they were not doing great
economically. Chinese economic growth is the slowest it has been in three years.
Along with the economic downfall other competitors were already commonplace
in the market. Home Depot’s timing was off.
b. Solution: Home Depot needs to enter the market at a time in which the economy
is looking better. It is smarter to start out with fewer stores so consumers can get
acclimated to the products. They should not dump a bunch of money into a
project that people may not be able to afford. Along with this they should price
their products competitively.

Other Market Entries:
One of the most successful market entries was Home Depot’s entry into Mexico. In 2001
Home Depot entered the Mexican market through an acquisition of “Total HOME” and in 2002
they acquired “Del Norte”. Lastly in 2004 they had an acquisition of Home Mart, which was the
second largest Mexican home improvement retailer. Through the buyouts of these companies
they became the number one home improvement retailer in Mexico. Many of which they did
wrong in China they did correctly in Mexico. By analyzing their business actions with Mexico it
is easily determinable what will work best for entering China.
The President of The Home Depot Mexico is Ricardo Saldivar. He is a great choice and
led to the success of the company because he knew how to market the products to a Mexican
consumer. If the retail stores in China were to follow in these footsteps they would have been
much more successful.
Another great decision when entering Mexico’s market was to use acquisitions to get
ahead. Through the use of Total HOME, Del Norte, and Home Mart they were able to acquire
the title of number one home improvement retailer. If they entered the Chinese market through
the same means it would be successful.
The last smart decision that was different from Mexico and China was the quality of
research done on the area. They researched customer needs, shopping trends, customs, and
unique geography. It is clear that this was not stressed as much when entering China and could
have been the reason that Mexico was a success for Home Depot and China was not.

Implementation Plan:
My personal recommendation for Home Depot entering the Chinese market is as follows:
1. Undergo extensive Market Research
a. Thouroughly understand the Chinese Market
i. What products will they buy?
ii. How much are they willing to spend on household upkeep?
iii. Which aspects of home improvement are most appealing to them?
b. Understand Locations
i. Do people like to shop in the city or the suburbs?
ii. Which towns are most populated?
iii. Which towns are surrounded by the most homes?
iv. Which businesses would use the materials at Home Depot? Is there a way
to reach these businesses for a possible deal?


2. Revamp inventory:
a. Get rid of any product that is too “hands on” to complete
i. This includes lumber, drills, etc.
b. Develop more specialty stores that allow consumers to focus on one thing at a
time
i. Paint stores that are partnered with local “cheap labor” who will complete
the project for you
ii. Gardening Stores that are partnered with local “cheap labor” who will
complete the project for you
iii. Stores that are heavily machinery located in an industrial town that will
use them
c. Add more inventory that comes pre-assembled or that is easy to do
3. Acquire Chinese Equivalents of Home Depot
a. Through working with a company that is already familiar with the market and the
area it will be easier to enter
4. Hire a President of Home Depot China
a. Interview applicants that have a strong background in Chinese culture, their wants
and needs, and most importantly Home Depot itself
b. Create a business plan with the president
c. Allow him or her leniency when implementing the business plan
5. Decide Where to Place Stores
a. Use the market research to see which cities prefer which specialty stores
b. Enter cities that are economically sound with positive economic growth
6. Utilize the Oil Stain method
a. Enter the most economically sound city first
b. Analyze figures to determine success
c. If successful expand upon successes in comparable areas.
7. Marketing Strategy
a. Develop a branch that markets and sells merchandise to Chinese construction
Companies
i. Give them special deals on bulk orders
ii. Make shipping easy and affordable
iii. Create good customer rewards and credit cards
b. Be in a partnership with local labor
i. Utilize their cheap labor by saying that if they use your product that they
will be allotted a certain amount of benefit.
ii. Use them as a word-of-mouth marketing
iii. Create a team of cheap laborers that are heavily involved in the expansion
of Home Depot products being used for everything
c. Create the image that Home Depot is for more than just do-it-yourselfers
i. Discontinue workshops that show customers how to assemble themselves
and use the costs saved to hire more handymen
ii. Rebrand the idea that someone will be doing it for them
8. Continual Upkeep
a. Make weekly conference calls with the President of Home Depot China
i. Let him lay out his successes and failures
ii. Analyze what could be being done better
iii. Make changes
b. Make visits to each retail store
i. Privately assess the condition of stores
ii. Assess that that ethics and values are still being followed
iii. Assess the friendliness and helpfulness of the workers and managers
c. Present the findings in a board meeting on a bi-yearly basis
i. Consider what is working and what is not
ii. Make any changes necessary
iii. Continually expand into the future

Through following these steps and avoiding the mistakes from the past, Home depot will
crack the Chinese Market.









Works Cited
"Home Depot." Home. N.p., n.d. Web. 12 May 2014.
<https://corporate.homedepot.com/OurCompany/StoreProdServices/Pages/de
fault.aspx>.
The Wall Street Journal. Dow Jones & Company, n.d. Web. 12 May 2014.
<http://online.wsj.com/news/articles/SB100008723963904444335045776510729
11154602>.
"Why Big American Businesses Fail in China." CNBC.com. N.p., n.d. Web. 12 May
2014. <http://www.cnbc.com/id/101067298>.