#100 Media Markt Exits China

mediamarkt-chinaAfter only three years in China, German electronics retail giant Media Markt in 2013 joined the list of companies that have left China after years of trying, including US-based companies Best Buy and Home Depot. Not too long ago, the store, owned by Metro-group had lofty plans of 100 and more stores. In 2014 it’s a distant memory at best.

According to some analysts, the Metro-group owned chain simply didn’t understand the mechanics of the very competitive Chinese market. Some even say that they didn’t know why they were in China in the first place. What was it that went wrong. First, Media Markt didn’t understand how price-sensitive Chinese consumers are. While Media Markt focused on the consumer experience, Chinese consumers were using its stores as showrooms before buying the products they wanted online or at another retailer. In addition, other retailers, such as local competitors Gome or Suning kept their cost down by setting up shop in less fancy locations than Media Markt. Chinese competitors usually also sub-let space to brand manufacturers who bear the bulk of the risk. Media Markt’s flagship store, however, not only was fully self-operated, but also  occupied too much space on one of the most expensive retail streets in China. That amounted to cost pressures and brought Media Markt’s (necessary) nationwide expansion to a screeching halt. While Suning had built 1,700 stores all over China, Media Markt had only 7. This resulted in a situation where Media Markt only made about 5 % of local Chinese competitor Suning’s revenues. As a result – according to the Financial Times – the group didn’t want to invest the several hundreds million Euros annually needed to establish a significant Chinese operation. Media Markt wanted to build a famous brand for its store, in a market where consumers are looking more towards products as brands.

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6 Responses to “#100 Media Markt Exits China”

  1. Reinhard Franz Says:

    A lot of big international companies fail in China. In my opinion the failure of Media Markt in China shows mistakes in the target market selection, the entry mode choice and of course the implementation.

    At the first glance concerning the target market selection, China as the world´s largest trading power may seem a very attractive market. But concerning risk and entry barriers China is also considered as a very difficult market. So China should only be entered by companies with a very high company and product readiness. I am not sure, if for a company like Media Markt, that is market leader in Europe, China is the very best market to start the internationalization outside of Europe.

    Reading the articles about the failure, I also think that Media Markt did not do their homework well, as they did underestimate consumer price sensitiveness and also the power of the competitors in China. It looks, like the example of Wal-Mart in Europe, that Media Markt did not adapt their strategy to local needs. As the Chinese market and system is very different to Europe, a localized strategy and an intense market know-how with local expertise is important to outperform local competitors and be successful.

    How different the consumer behavior in China is compared to Europe, is very great explained by the example of Ikea:

    http://www.scmp.com/news/china/article/1300942/ikea-last-cracks-china-market-success-has-meant-adapting-local-ways

    It took them around 10 years, a lot of lessons learned and adoption to local needs to be successful in China.

    I recently read, that Media Markt will try it´s luck in China through online-shopping. I hope they have learnt their lesson and will adapt their digital strategy to China (eBay has failed there, because they did not take into consideration, that a lot of Chinese people do not use or possess credit cards).

  2. Andrea Beit-Grogger Says:

    So many companies have already failed in China, I cannot understand why the companies do not learn their lessons at least from the failures of other firms. Media Markt did what many other firms on the list ‘failed in China’ did before, they only saw the huge market potential due to the high number of Chinese inhabitants with the fast developing economy and did an unsystematic market entry. Thus I am wondering why they have chosen a premium retail street for its flagship store although they wanted to compete on the lowest prize.

    In addition to Reinhard’s statement I would like to add that even the first step for a systematic market entry, the corporate readiness, was not given. The Media Markt and Metro group CEOs were not all on the same page concerning the engagement in China. As long as there is no common understanding of the global strategy the corporate readiness cannot be seen as given for a systematic international market entry. A strategy can only work if the top managers are aligned and support it. I also doubt that the financial resources for a broad net of stores in China were given to be competitive with Suning with their 1,700 stores all over China. Today Media Markt operates roughly 700 stores worldwide only.

    In my opinion a comprehensive opportunity and risk assessment before the market entry was missing. Applying the risk assessment with best care and attention would cause all questions of a systematic market entry concerning corporate readiness, product readiness, target market selection, entry mode choice, the final planning of marketing mix and the implementation to rise.

  3. Patrick Gogeissl Says:

    Looking at the four phases of the systematic market entry mode, I personally see the main mistake in the Target Market Selection. Media Markt is market leader in Europe and internationally successful with their product and the concept, which in turn means that the corporate readiness and product readiness is present. But why exactly the Chinese market was chosen probably Media Markt does not even know itself. Of course, the Chinese market is one of the biggest in the world and so there must be a big potential, but in the case of Media Markt it was the false decision. The concept was not designed for the Chinese market and they made a similar mistake like Walmart entering the German market. The flagship in Shanghai was huge with its 9,000 square meters and at first glance it was everything that belongs to a typical Media Markt: Flat-screen televisions, computers, washing machines and also products specifically for the Chinese market like massage chairs, toilets with heated seats and the largest offering of rice cookers throughout Shanghai. Nevertheless, the store was mostly empty. But not “empty” meaning that the products were sold out, but “empty” meaning that there were no consumers. Meanwhile, the competitors do not place much emphasis on friendliness or clean stores. The competitor Suning had dusty shelves, torn packaging but unlike Media Markt they are successful. This does not mean now that Media Markt is just too clean and tidy for entering the Chinese market or that the secret recipe to success is a dirty shop. No. One secret recipe is to adopt their strategy to the local needs from the market. Media Markt did not understand the price sensitive Chinese consumers; in summary they did not do their homework. But Media Markt is not the only and first one that was“crowned” with failure in China. Even the US electronics retailer Best Buy, located in the global competition in front of Media Markt, failed against Chinese competitors.

  4. Norbert Bäck Says:

    Media Markt failed because of wrong assumptions and therefore lack of understanding of the Chinese’s business model that led to wrong strategies (wrong market entry strategy, wrong implementation (choice of location and partner) etc.). They believed in its own business model too much (typical hybris of big successful companies) and therefore did their risk analysis with wrong assumptions. Prior to entering the market the management found out that there is currently no competition for a service-orientated electronic retailer, which is one of the competitive advantages of Media Markt and never asked why it is so? So instead of adapting their product and market strategy to the local market – several examples like KFC and Mc Donald’s showed there is a big need for adaption to be successful in China – Media Markt entered the market with its standardized strategy model, which has been successful before and had some advantages like reducing costs and promotes efficiency. The management also made a very common mistake of thinking that the big market of china (1.3 billion) would enable them to further grow and compensate for the crisis in Europe. But the reality is that the profit margin in the Chinese retailer sector is very thin and that the Chinese customer is looking for best price and quality and not for the best service. In fact the service offered by Media Markt only helped its competition. Chinese customers went into the Media Markt store tried out the product and bought it elsewhere cheaper. Also Media Markt also wasn’t ready for the competition and the price war they would face. The local market in Shanghai was already dominated by domestic brands. So Media Markt had also to face the disadvantage of a late-comer. These brands had already established close connections to the suppliers (getting probably lower prices for the products), had built up and consolidated the market with a network of 100s of stores throughout the country (operated way cheaper than the giant store of Media Markt) and were better prepared for the new challenge that was caused by the emergence of the e-commerce market than Media Markt.
    So to summarize the fiasco:
    1. Media Markt came in late;
    2. Chose the wrong implementation;
    3. Product wasn’t ready for the market or the competition;
    4. Didn’t understood the customer needs;
    5. Couldn’t cope with the challenge of the e-commerce market.
    What could have been done better?
    First I believe Media Markt should have never entered the Chinese market with its own brand. A better strategy would have been to search for a partner in the e-commerce market (now the late-comer disadvantage would disappear), take advantage of the better logistics abilities of the ally and strictly focus on online stores. It would also allow Media Markt to align their corporate strategy with the demands of the Chinese customers.

  5. Peter Berger Says:

    In recent years many large electronic retailers tried to enter the Chinese market. Not only Media Markt, but also BEST BUY for example failed.
    But what were the reasons why such successful companies failed on the Chinese market? Of course China is a difficult market with very special customers, but Media Markt must have known what they would face, or did they make mistakes during the market entry.
    If we lool at the four phases of the systematic market entry mode, Media Markt´s main mistake was the wrong Target Market Selection.
    Media Markt or also BEST BUY are market leaders in their home market and internationally successful with their products and shop concepts.
    But especially these concepts, with nice flagship stores and providing consumer experience are not suitable for the Chinese market. The Chinese customer is more price sensitive and often purchases consumer electronic products online. Therefor the Chinese customer is not delighted by fancy flag ship stores, the price counts, nothing else. And this is what Media Markt did not understand, but their local competitors, like Suning for example.
    In the end the costs for maintaining flag ship stores in expensive locations and failing of approaching the Chinese customers led to Media Markt´s failed venture.
    In order to summarize what went wrong:
    - Media Market never understood the Chinese market needs.
    - Media Markt chose the wrong strategy, what is working in Europe is not the right strategy for China.
    - Media Markt had a bad cost structure.
    - Media Markt underestimated the competition from online retailers.
    From my point of view – Media Markt should have never tried to start a business in China.

  6. Willibald Erhart Says:

    From my point of view many large international companies fail in China because of the ignorance of the local culture and complex entry strategy. Those international companies often see the impressive population of 1,350 billion possible customers, but only a small share of them is able to buy a brand-name product. First of all your product and company must have an international business readiness. Furthermore it is absolutely necessary to adopt your business to the local culture and customer expectations. In addition Porter five forces will help you to get a better understanding of the external forces you have to manhandle. A look at the Hofstedes Cultural Dimensions [1] will shows that China compared with Germany have many differences for example in Power Distance, Individualism and Uncertainty Avoidance. In summary Media Markt did not do their homework very well, at least after reading the Walmart case they should know that you have to adopt their business to special markets like that one in China.

    [1] http://geert-hofstede.com/germany.html

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