In 2006, Home Depot Inc. decided to enter the Chinese market. First, they acquired 12 stores from Home Way, a Chinese company. By September 2012, all Home Depot stores had closed. They announced that it would close all of its big-box stores in China, ending an investment that cost the company upwards of $160 million. Home Depot, like every big company on the planet, saw a massive opportunity in China, where the dramatic growth of the middle class has opened up a vast new market and the potential for profits yet they failed to capitalize on any of that market share and the investment was a failure.
So what went wrong for the Atlanta-based company?
According to a recent case study, Journal of Business and Management Studies, the failure of Home Depot in China can be attributed to a number of complicated reasons. One of those reasons was a disconnect between the needs and wants of the market. In order to achieve true and successful globalization of business, business leaders need to possess the right mindset, a Global Mindset.
According to the Journal article, there are two main reasons why Home Depot failed in China:
- Incompetent local adaptation
- The wrong entry time and entry mode
1- Incompetent Local Adaptation
First, Home Depot did not address the Consumer’s needs and wants and they ignored the local culture. “When in Rome, do as the Romans do,” says Josh Noble at Britain’s Financial Times. In other words just because it works well in Atlanta, does not mean it will work just as well in Tacoma, Toronto or Tianjin. The Biggest assumption that Home Depot made is that middle-class Chinese would act like their American counterparts in areas of home improvement. However, the “comparatively low cost of labor prompts middle-class Chinese consumers to pay handymen or independent contractors to do the kinds of projects American homeowners tackle on their own,” Indeed, Home Depot spokeswoman Paula Drake described China as a “do-it-for-me market, not a do-it-yourself market.”
Second, Home Depot did not see the importance of preparing managers/executives to deal with local management practices. The lack of awareness of the various social relationships (in Chinese “Guanxi”) was also a fatal problem of the company’s management. Overall, Home Depot neglected to deal with relationships with outside entities and in some cases, instrumental in for developing business in China. Home Depot failing in this management behavior resulted in the disadvantageous position of the company in the local market.
2- The Wrong entry time and mode
At one point Home Depot blamed the slow economy and even the cultural differences, but that hasn’t stopped Ikea. “The furniture retail giant from Sweden is killing it in China, and it’s famous for making its customers put everything together themselves,” says Kim Bhasin at Business Insider. The difference? Ikea understands what the Chinese consumer wants and has therefore adapted their strategy to the fulfill the needs and wants of their Chinese customers.
“The successful company of the future will have a global mindset as a core characteristic of its leadership”
-Dr. Gary Ranker
Surprisingly, Home Depot did not do detailed research of consumer behavior and market features of the local Chinese conditions. First, the company made one big assumption, they only saw the “potential” market size based on population and home ownership, rather than on the market needs and wants.
How is possible that a company as large as this would make these “basic” mistakes?
Organizations increasingly need executive talent to lead their growing international operations. They need truly “global executives”—those who can work effectively across countries and regions to advance corporate goals while balancing regional and local interests. They need leadership with a Global Mindset.
How does it relate to Global Mindset leadership?
We welcome your comments.