In the age of globalization, there are many companies try to participate in international business, and developing to become a multinational company. However, operating an international business is very different than doing domestic business. Companies must recognize and understand the culture differences between countries. Failing to do so could potentially lead to many difficulties or even failures. In this report, I will evaluate the mistakes that Best Buy Co. Inc. made, and its failure due to the lack of understanding of the culture differences in China.
Best Buy Co., Inc., was founded by Richard M. Schulze and incorporated on October 20, 1966 in St. Paul, Minnesota, USA. The company is a provider of technology products, services and products to its customers visiting the stores, engaging with Geek Squad agents, or using its Websites or mobile applications. The company operates through two segments: Domestic and International. The Domestic segment is comprised of the operations in all states, districts and territories of the U.S. Best buy is now the leading consumer electronics retailer in the United States (Pederson 2004). The International segment consists of all operations outside the U.S. and its territories, which includes Canada, Europe, China, Mexico and Turkey.
Best buy entered China markets using two methods. It first opened a sourcing office in Shanghai in 2005 and then put efforts to expand into markets in May 2006 by “acquisition”. Best buy invested $108 million to possess Jiangsu Five Star Appliance – China’s fourth largest consumer electronics retailers (Bloomberg 2006). Best buy manipulated the “greenfield” of entry to open the first store which followed its US business model, providing Chinese customers a pleasant outlet with professional and dependable services in Xujihui shopping district in December 2006. The chairman and general manager of Best Buy China, Lu Weiming confidently d eclared that they will differentiate them from other competitors and consequently help them win the consumers’ heart (Kurtenbach 2006). Soon later, Best Buy opened another eight stores, increasing the number of Best Buy stores in China to nine.
With US business model, Best Buy intended to deliver a better services than competitors, did not match the expectation in China. According to Chen Can, a senior analyst from Analysys International said: “The multinational brought in a Western business model and it failed to sufficiently attract the Chinese clients and customers.” (China Daily, 2011). After doing business in China for five years, Best Buy failed to expand and operate its business; it only earned less than 1% of the Chines markets. As the results, the giant name decided to exited from China markets, shutting down its headquarters along with all its nice stores in Febuary, 2011 (Birchall, Strauss & Waldmeir 2011).
International strategy is a strategy where the firm uses the core competency which it developed at home, as its main competitive weapon in the foreign market (Sumantra & Nitin 1993). Best Buy used this strategy to enter China, with the intention to build talent that only understands to run business in United States, rather to create local talents who have experiences in doing business in China (Adam, 2011).
Chinese consumer’s preferences are generally different from consumers in the United States. According to Wei and Salil (2010), stated that the Chinese consumers have a higher cognitive age perception, lower levels of physical health status and lower life satisfaction levels as compared to their American counterparts. In addition, Chinese consumers were more materialistic than those in the United States. They also were more brand conscious and would go shopping with brands as a key influencing factor (Eastman et. Al. 1997). However, Best Buy in China divides their electronics and other large-ticket items by category. In contrast, Chinese consumers put more interests in brand names which they would generally prefers items to be categorized in the store based on the preferable on brands as a key shopping factor.
Moreover, in typical outlets, Chinese consumers were more similar of electronics stores being managed by the manufacturer’s employees who have more expert knowledge (Jopson 2011). In spite of that, all sale staff of Best Buy was the company’s direct employees, wearing the same blue Best Buy uniform.