#90 Another one bites the dust (not quite yet)
Not too long before US-based DIY giant Home Depot announced it’s almost complete withdrawal from China, similar news emerged about Europe’s largest home improvement retailer, Kingfisher PLC. Kingfisher, founded in 1969, which owns the B&Q and Castorama brands, operates close to 1,000 stores in eight countries including Britain, Ireland, France, Poland, Spain, Turkey, Russia and China. Kingfisher has been struggling in most countries, but it’s China troubles seem to be of a different magnitude. Ever since it first entered China in 1999, it has been uphill for Kingfisher in the Middle Kingdom. When losses hit more than $ 80 million, B&Q decided to cut the number of stores by 22 in 2009. Realizing that the “big box concept” is not very appealing to the Chinese market, it also downsized operations for its remaining 40 stores. As has become apparent in the recent Home Depot case, B&Q may be struggling with exactly the same difficulties – the fact that for cultural and economic reasons, the entire DIY concept is too foreign to most Chinese consumers. And for those who like the idea of tiling their own bathrooms and flooring their own living rooms, there is a plethora of local alternatives in a highly fragmented market. After all, brand is not as important in the DIY segment as it is in more visible FMCG categories. All in all, another case of the difficulties associated with the internationalization of retail businesses.
November 14, 2012 @ 6:33 am
As interesting is it is, I wonder how much research they did before thinking they could move into a culture such as this with low risk taking culture. In an area where the masters of design and trade need a job to make ends meet, it is interesting to see what was in the minds of DIY to try to get a culture who is heavy into tradition to leap into being innovative and risk taking and doing their own remodels. There are cute individualistic things that people can do, however I think with the community that is into doing primarily what the collective does, I just don’t see this as being a venture that would make money. Not to mention, I have yet to see a network show that shows DIY remodel shows of the weekend warrior in China. I however, do applaud DIY for trying to bring something interesting and different to a new group of people who may not have thought to take the risk, as i am sure that there are some who did like the idea, but I am sure that it just didn’t sit well with the collective group. Perhaps building up a different marketable product offering in the future may serve the company well to try to recoup some of the lost revenue.
November 17, 2012 @ 5:25 pm
In my opinion it is definitely possible to be successful in a foreign market as long as
a. the market is a developing market and
b. the company which wants to enter the market thinks about wants and needs of customers and employees in advance.
I suppose that Kingfisher did the market research properly and China offers an emerging market for the company. I assume as well that Kingfisher knows about the wants and needs of the Chinese. Mistakes often happen because enterprises forget to think about the wants and needs of the employees.
It is necessary for the entering company like Kingfisher to study the culture of the Chinese in advance. It´s important to know for the management that the power distance in China is very high compared to for instance Ireland or the United Kingdom. In China it is accepted that there is a rank between the boss and the workers. In contrast to the Irish society. They believe that inequalities amongst people should be minimized. If Kingfisher thinks about sending a Irish manager to one of the new stores in China this manager has to know that the management style should be completely different than in the home country just because of that power distance phenomenon.
Besides, China has a collectivistic culture. For the management team of the entering company like Kingfisher it is important to know that people in China love harmony and not competition. I worked in Ireland and for Irish employees a bit of competition in work is normal. For instance “the employee of the month” is voted and that will be as well announced in the company. In China I believe that would be against the harmony urge.
To conclude, the best product could fail because of a wrong or unfitted management style.
December 28, 2012 @ 5:33 pm
In my opinion, it is not a suprise that Home Depot failed to transfer their stores from the US to China, as China has a very different culture than the US does. Trying to implement a DIY store in such a traditional country like China, does not seem appropriate to me.
China scores very high on Hofstedes dimension power distance; China’s score is 80. People in a high power distance society look for products that correspond with their status and even push their image and reputation to a higher level. I can not see how this striving for prestige can harmonize with a DIY concept. DIY is for creative people, who mostly have a low budget – why would a person with a high budget, who wants to be seen as rich and powerful, do a DIY project? Moreover, the high masculinity in the chinese society pushes the importance of public acknowledged recognition even more; customers want exclusive prestige products and not “cheap” stuff they made on their own.
Furthermore China is a collectivistic culture. The name collectivism also tells us that people are NOT individualistic – why would they want to do an DIY project individually, so that it has an individual, unique outcome? Besides people in collectivistic cultures don’t want to stand out, so they want standardized products. Maybe Home Depot should have done some advertisment where people could see groups doing DIY projects together and tell the potential customers how it maybe feels to work in such a group and how a DIY project can strengthen this particular group.
January 3, 2013 @ 9:12 pm
I discovered that PLC Kingfisher decided after the failure in China to venture further into Eastern Europe by attempting to establish its home improvement offerings in the Russian market.
To fulfill the Group’s growth and returns criteria, Kingfisher aimed to tackle the large, growing and highly attractive Russian market, not least due to the strong GDP (Gross Domestic Product) growth, even stronger retail market growth, declining inflation and stable exchange rate.
Russia has 13 cities with more than one million inhabitants with a population that is also enjoying high disposable income due to low taxes, utility charges and housing costs.
PLC Kingfisher poses a valuable opportunity with great potential, but there are significant cultural differences between the Russian market and domestic market (United Kingdom) which may cause troubles, that can lead to communication difficulties, varied expectations and ultimately inefficiencies that would serve to hinder competitive advantage. The most important model to date for studying cross-cultural communication is Geert Hofstede’s model that defines national cultural values using five dimensions which I am going to use on this topic.
These five dimensions are Power Distance, Individualism vs. Collectivism, Masculinity vs. Femininity, Uncertainty Avoidance and Long-term vs. Short-term Orientation.
First, Power Distance, describes the extent to which the less powerful members of organizations and societies accept and expect the unequal distribution of power. Thus small power distance nations are more democratic whereas large power distance nations are more autocratic and paternalistic.
Russia maintains a relatively high Power Distance Index compared to the United Kingdom and also to the rest of the world. A recent study showed that the United Kingdom was ranked 30th in terms of Power Distance. Russia has low individualism and is a less masculine culture. Also Russia has a predominantly collectivist culture, whereby people are integrated into cohesive and loyal long-term groups. The United Kingdom by stark contrast is ranked the 3rd with respect to a highly individualistic culture with far less interpersonalties, less sharing of responsibility and encouragement of individual personalities and affiliations. The latter similarly, demonstrates a significant difference in national cultures whereby Russia represents a more feminine culture with greater emphasis placed on relationships and equality, whilst the United Kingdom has a highly masculine culture which values competitiveness, ambition, and the accumulation of wealth and possessions. Russia has relatively higher scores than the United Kingdom in the final two dimensions demonstrating a high degree of Uncertainty Avoidance and a strong orientation towards long-term objectives and ideals. A high Uncertainty Avoidance score indicates a low tolerance for uncertainty and ambiguity, with strict laws and rules to discourage innovative and deviant ideas, and resist change. On the other hand, British culture is far more accepting of alternative opinions and values differences and novelty. Unwillingness to adapt to change could prove particularly prominent for the Group’s expansion as in the past, the Russian home improvement market has for the most part, been dominated by small-to-medium, family-run businesses which offer products and services that are a far cry from the standardised offerings of large Western multinational retailers such as Kingfisher and Ikea.
The final dimension too, highlights another key difference in terms of British and Russian long term orientation. Russian society places greater importance on future rather than the past and present. The key values are perseverance, thrift and shame. British society contrastingly, values actions and attitudes affected by the past and present, such as personal stability and creativity.
The Group’s diverse range of products and services as well as its brand reputation and vast geographical reach, has enabled it to increase profits. Its commitment to international expansion and its keenness to explore potential new markets have been key to its rapid growth and establishment as a true international player. The Group’s expansion into Russia is at an early stage and cultural differences would need to be tackled in order to obtain significant market share. As outlined earlier, the United Kingdom and Russia are culturally distinct and operating a foreign subsidiary and catering for Russian demand both require an understanding and knowledge of the Russian market. It is crucial to note that the firm has already been successful in diverse markets by hiring top management staff who are well-experienced in the markets they are targeting. By employing international retailing talent with appropriate market specific experience, the Group has managed to close the gap in psychic distance and introduce Russia-specific knowledge to their management. Furthermore, having set up some 15 stores in Poland, an Eastern European and culturally alike nation to Russia, the firm has knowledge of how to cater for demands, tastes and ideologies similar to those of the Russian people. So whilst the culture divide between Kingfisher’s home country and its latest foreign target is considerable, the firm’s existing expansion projects and experience of international markets, on top of its wealth of market specific talent and know-how of its management team, has helped mitigate the effects of cultural differences and enabled the transfer of critical knowledge into the firm which will prove vital to its success.