#89 Home Depot Packs Bags, Leaves China
Late last week, US-based home improvement giant Home Depot announced that it would take a $ 160 million after-tax charge and close seven of its big-box home improvement stores. Home Depot entered China with high hopes in 2006 when it acquired 12 stores across China. Over the years it had reduced the number of stores to the seven it is now closing. Home Depot, which of course also sources heavily from China, does have plans to keep two speciality stores in the city of Tianjin and also to be active in online retail, but for now the dreams of making it big in a market of more than a billion consumers are over. While it is true that many retailers in China are currently struggling as slow economic growth is curbing consumer spending, the roots of Home Depot’s failure may be somewhere else.
The first reason may be that China is not so much a Do-it-Yourself (DIY) culture, but more of a HIDBO (Have-it-done-by-others) culture. Cheap labor is abundant, but even more importantly for a culture that values status and prestige, tiling your own bathroom or painting your own window frames is not necessarily a desired activity for the masses. You may ask why it then is that IKEA is hugely successful in China – a company that also makes you assemble your own furniture. The answer leads us to the second reason behind Home Depot’s failure. Chinese are looking for guidance in acquiring Western lifestyles. IKEA provides this guidance by showing their customers how to decorate their homes in a Western fashion. The fact that you have to assemble your own furniture is a little more appealing when you know what the final product is supposed to look like. Besides, there’s always someone to assemble your IKEA furniture for you. Home Depot, however, leaves consumers largely alone and guessing about the final look and feel. Also, most Chinese live in small apartments and don’t have the room to keep tools or work on DIY projects. And ultimately, Home Depot is selling commodities – nails, screws and paints aren’t necessarily the same cultural icons like IKEA, McDonalds or KFC that so many Chinese middle class families are looking for. There may also be a third reason. Generally, as has also been featured in this blog, retail somehow doesn’t travel easily across international borders. But that’s for another time.
December 2, 2012 @ 3:00 pm
In my opinion such difficulties can have different causes. First of all, I think it is possible to enter such a market successful. But therefore a very well knowledge of the inhabitants, the culture and behaviour is fundamental. For example, Home Depot should really think if their entering market has potential for their products and if there is really a need of the products from the consumers.
It is a fact, that China not really is a DIY country and that they like it more, if they things are done from others. Due to that, Home Depot should think about adapting their products or the presentation of the products for this market. I think in that way, they have been also be able to be successful in China. Ikea, in contrary, is also a type of “do it yourself”, but they were able to transfer the western-living-culture to China and they also find a good way to present the products in a way Chinese people like to have in their flat.
In my opinion for companies, such as Home Depot, it is really necessary to be informed about the country you like to enter. Because of culture, behaviours, values and so on, countries are really different. Consequently, maybe for a successful entering, one way is to adapt the products, so that they fit to the target market. I think nearly every company has the chance to be successful in China, if there is a need for the product and if the entering company try to adapt the products to the Chinese behaviours.
To conclude, I think such struggles in a country are avoidable if companies really know the country and people there. It is also a possibility to have people in the entering country which know the country and the behaviours and needs in the target market. Otherwise the best product can fail.
January 5, 2013 @ 1:03 pm
I did a little research and found out that ‘The Home Depot’ is the largest home improvement retailer in the United States. As a matter of fact their strategy is highly successful in the American market. The Home Depot has already entered Canada, Mexico, China, United Kingdom and South America.
As your blog-post explained, The Home Depot shut down all stores, due to the poor return of products and slow economics of the country.
While China’s growing market has become a major profit center for many brands, an unusually high number of global brands have failed to live up to expectations in the world’s second largest economy. Not only the Home Depot, also eBay and Amazon didn’t succeed in the Chinese market.
In my opinion one reason might be that these companies did not localize business strategies and models enough. They too often tried to transplant what worked in America to China with little effort at localization. Furthermore senior executives sitting in foreign headquarters often ignore what local country heads, who are more attuned to local conditions, have to say. Or they hire the wrong country heads in the first place. Business Managers need to hire senior executives who understand how to operate under local market conditions. China has become a big player in the global market. As a result billions of dollars a year are being invested in the country. The reality is that many companies end up failing there, or missing expectations, because they don’t localize their business models and management teams enough to compete with fast emerging domestic players. Local needs and wants and cultural differences need to be considered.
According to Hofstede, China has a very high Power Distance. In other words, individuals in the Chinese culture are not equal – and this inequality is accepted by the whole society. Individuals are influenced by formal authorities and need good leaders.
The next dimension is the ‘individualism’. China is a highly collectivist culture where people act in the interest of the group and not necessarily of themselves. Especially for ‘The Home Depot’ it is important to know that employee commitment to the company is low.
According to the next dimension ‘masculinity’ China is a masculine society, which means that the society is success oriented. Managers like challenges and consider work the most central element in their lives. Employees tolerate companies’ interference with their private lives. Moreover workers feel worthless without work, fear retirement and unemployment.
China has a low score on uncertainty avoidance. The Chinese are comfortable with ambiguity, they are adaptable and entrepreneurial. Another important fact ‘Home Depot’ obviously didn’t consider is the fact that the majority of Chinese businesses tend to be small medium sized and family owned.
The Home Depot did not consider all cultural differences. The Chinese business world, the buying behavior and management styles are completely different in China than in the US.
“Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.” – Dr. Geert Hofstede
January 8, 2013 @ 7:41 pm
I do totally agree with Ann-Kathrin that many companies which are not able to successfully enter a foreign market don’t put enough effort in the customization of their strategies. In my opinion a market entry in a culture which differs so much from the western culture definitely needs a manager who was born in this culture and knows nearly everything about this culture. But beside this managerial experience, the right adaption of strategies is an important action. Furthermore I think it is important to realize if a market entry is nearly impossible with a certain product or service due to cultural reasons (e.g. too big differences which force changes in the product which are not compatible with the brand or company).
In my opinion China is such a case where the product/service is hardly compatible with the culture. I will try to explain this using Hofsteede’s dimensions as Ann-Kathrin did before.
Power distance: The high score of 80 means a high acceptance of difference between social classes. Therefore, Chinese people may not hesitate to pay a craftsman if they have some work which has to be done. One might even suggest that they are too proud to do home improvement on their own as it might put them on the same level as the craftsman even if they are better educated than he is. Furthermore, big chains like Home Depot often have very big shop areas with only a few workers there. The high power distance might prevent people from going there as they expect to be supervised by a worker due to their social rank.
Individualism: The very low Individualism score of 20 describes Chinese people as very collectivistic. One may assume that this leads, regarding the high Masculinity, to a strong wish to use the rare leisure time with other people instead of doing lonely home improvement.
Masculinity: The score of 66 describes Chinese people as very success oriented. Therefore people from China sacrifice a lot for success in business life. Many of them do not have the time to do home improvement at home as they only go home to eat and sleep due to the high stress they suffer from in business life. Another point may be the desire to show success. It is far more representative to possess some expensive pieces of furniture than to possess some self-made ones.
Uncertainty Avoidance: China reaches a quite low score of 30. Therefore, many people in China might be insecure about the safety of home improvement tools which are sold at Home Depot as there might be some loose regulations and laws concerning security. If they do home improvement on their own they would have to pay for any damage they cause, therefore it is much easier to hire a craftsman who takes the whole responsibility for any damages. Furthermore, the low Uncertainty Avoidance leads to the fact that many Chinese businesses are family owned and quite small. This may lead to a high contest between craftsmen which results in low prices. This enables the cheap hiring of a craftsman for nearly everybody.
If Home Depot would have taken a critical view on Hofsteede’s dimensions and would have combined them with some kind of market research, they would have revisited their wish to enter the Chinese market or at least made a quite big change in their product and service.
November 21, 2013 @ 2:49 pm
In my opinion, market research is the key. You cannot enter a foreign market if you do not know it. If a business goes well in a market, it does not mean that it will work in another market. Home Depot is a great example to underline this statement.
Home Depot is the world´s largest home improvement specialty retailer with a retail sales of $74.8 billion and earnings of $4.5 billion. The Home Depot has more than 2,200 retail stores in the United States, Canada and Mexico.
The company caters to three main types of retail costumers:
– Do it Yourself Customers (DIY): home owners who tackle their own home improvement projects as non-professionales. The employees have specific expertise to provide an excellent support. Home Depot also offers clinics and “how-to” workshops in order to attract DIV customers.
– Do It for ME Customers (DIFM): they often are in the process of remodelling their homes. DIFM customers purchase materials and then hire professionals to install them. Home Depot matches DIFM customers with qualifies professionals and arranges installation services for its products.
– Professional Customers: Home Depot targets professional contractors and repairmen through delivery services and extended credit programs.
China is a HIDBO (Have-it-done-by-others) culture. If anything in a Chinese home is broken or needs to be renovate, they call the owner. It is the job of the owner to fix everything in the home. So there is no need to go in the Home Depot, buy tools and repair things by yourself.
In the United States it is totally different. They do not need professional help. Men want to prove that they are able to do things by themselves.
To conclude, a market research would have shown that there is no desire for home improvement goods in China. Especially not in the way Home Depot offers it.
September 10, 2017 @ 2:27 am
Home Depot’s difficulty entering the Chinese market tells a classic tale of just how entering a new market while not really understanding cultural differences can impact your success. Home Depot missed the mark in several places, but most of them were based in a culture clash. With Home Depot being a large and successful organization, I have to wonder if these cultural issues were identified by market researchers before entering the Chinese market – and if they were ignored or if they just took a gamble on it.
In any case, this cultural miscalculation cost Home Depot $160M to close their remaining failed retail stores in China. It is also surprising that they encountered these cultural problems since other large retailers, such as IKEA and Wal-Mart, had some public short-fallings in China years before Home Depot entered the market. It seems that as western companies enter the Chinese market, that they could learn from one another’s mistakes and successes.
Some of Home Depot’s cultural issues in the Chinese market included the fact that China does not have a ‘do-it-yourself’ culture. This is a widely known fact and it seems hard to imagine that the market researchers missed information. Perhaps Home Depot overlooked this by acknowledging that construction must still take place, but missed the fact that the average Chinese home owner does not have the skill, the desire, or the space to use and store tools.
Knowing your market including political, cultural, regional, and economic is paramount before entering a new market.
January 15, 2022 @ 1:25 am
I can see why Home Depot has decided to leave the Chinese market. However, if they had done more market research into the Chinese culture they might have been able to forecast this happening. Additionally, once they realized that their stores were not performing well they could have changed the way they operated. Just as the article mentioned, IKEA did exactly that and was able to see a notable difference. Although Chinese culture tries to replicate a lot of the western styles, they differ in that they have a high power distance. This means that there is a social structure in which some people are above others. This accepted social structure is what causes the Chinese culture to be HIDBO (Have-it-done-by-others). As a result of this, Home Depot’s business model does not work well in the Chinese market. Honestly, I think a lot of this problem was avoidable if they had just done the proper research. Even just opening one store, to begin with, would have been a better strategy. This way they would have been able to avoid having to eventually close all 12. Regardless, businesses today can use the mistakes made by Home Depot and others alike to avoid being in similar situations.
February 17, 2022 @ 7:59 am
It can be difficult to enter into a market that is completely different than the home country. Any company and any industry will probably have a challenge finding their way into the Chinese market, either they enter too early, or they are spending a lot of time doing the research on finding the best way to enter the market. Even when a company is doing all of the right things, it is ultimately up to the consumers within that market to determine if that company is going to have a future in that country. In China, consumers have very different life styles, habits, and culture overall so that is where many companies mess up. The concept of Home Depot does not really match their life-style which doesn’t really make sense because with the small spaces the have in their homes and part of their property that need to be taken into consideration.
April 1, 2022 @ 11:23 pm
Home Depot’s failure in China back in 2012 is a perfect example of how not being able to adapt to the local environment will impact the success of a company. It was interesting to learn that China relies on the HIDBO culture, rather than a DIY culture, and if Home Depot knew this prior to market entry, they would most likely be less inclined to try and enter that market or might have severely changed their business to adapt to the culture. This shows how important it is to understand your market before entering it, as it could save an organization a lot of resources and money. I also think that a slow entry in large cities in China or urban areas would have benefited Home Depot’s internationalization process. By starting with two stores in the cities mentioned, and then possibly expanding to more cities if these stores were successful, I think would have been a better way to enter the market. The IKEA comparison was also interesting, as Home Depot is truly a DIY process, while IKEA shows you pictures and steps of the finished project. By doing more research on the local environment of China, Home Depot could be successful in 2022.