The Crocs story Crocs, the fast-growing maker of brightly hued plastic footwear, is one of those companies contributing to an impressive American record of international trade. It has reaped the benefits of the skyrocketing popularity of its odd-looking yet comfortable shoes. Crocs has steadily expanded the availability of its shoes internationally, adding Europe, China, India and Brazil as target markets. In 2004, Crocs expanded their product line, added warehouses and shipping programs for quick assembly in North America and distribution throughout the world. Today, Crocs are sold through over 6,000 US store locations and in 40 different countries. Sales channels are through retail stores, the internet and company-operated kiosks that promote their products and increase brand awareness “Every day we learn more about our business, particularly overseas. Plus the geographic diversity of our company-operated and third party manufacturing facilities allows us to move efficiently and cost-effectively serve specific markets around the world” said Ron Snyder, President and CEO of Crocs, Inc. Best Buy This big box store chain may appeal to Americans, but the electronics and entertainment retailer has struggled to make headway in foreign markets. Business Insider reported in 2011 that Best Buy bungled its European efforts through poor marketing strategy and for failing to notice that Europeans prefer smaller shops to large box stores, among other factors. Best Buy also closed its branches in China and Turkey. CNBC contributor and China Market Research Group founder Shaun Rein attributed Best Buy’s lackluster performance in China to “failing to differentiate its product lines” from local retailers and for not adapting to local consumers’ shopping preferences, such as preferring smaller, more conveniently located retailers. Why Best Buy Failed in China China may be the world’s biggest- and fastest-growing consumer market, but a handful of overseas retailers have continued to struggle in the market. Last week, U.S. electronics firm Best Buy shuttered all nine of its branded stores in China after five years in the market, saying it will now focus on the local chain
Transcript
The Crocs storyCrocs, the fast-growing maker of brightly hued plastic footwear, is one of those companies contributing to an impressive American record of international trade. It has reaped the benefits of the skyrocketing popularity of its odd-looking yet comfortable shoes. Crocs has steadily expanded the availability of its shoes internationally, adding Europe, China, India and Brazil as target markets.
In 2004, Crocs expanded their product line, added warehouses and shipping programs for quick assembly in North America and distribution throughout the world. Today, Crocs are sold through over 6,000 US store locations and in 40 different countries. Sales channels are through retail stores, the internet and company-operated kiosks that promote their products and increase brand awareness
“Every day we learn more about our business, particularly overseas. Plus the geographic diversity of our company-operated and third party manufacturing facilities allows us to move efficiently and cost-effectively serve specific markets around the world” said Ron Snyder, President and CEO of Crocs, Inc.
Best BuyThis big box store chain may appeal to Americans, but the electronics and entertainment retailer has struggled to make headway in foreign markets. Business Insider reported in 2011 that Best Buy bungled its European efforts through poor marketing strategy and for failing to notice that Europeans prefer smaller shops to large box stores, among other factors. Best Buy also closed its branches in China and Turkey. CNBC contributor and China Market Research Group founder Shaun Reinattributed Best Buy’s lackluster performance in China to “failing to differentiate its product lines” from local retailers and for not adapting to local consumers’ shopping preferences, such as preferring smaller, more conveniently located retailers.
Why Best Buy Failed in ChinaChina may be the world’s biggest- and fastest-growing consumer market, but a handful of overseas retailers have continued to struggle in the market.
Last week, U.S. electronics firm Best Buy shuttered all nine of its branded stores in China after five years in the market, saying it will now focus on the local chain 5-Star it acquired several years ago. The announcement came a month after American home-improvement store chain Home Depot closed down its last outlet in Beijing.
Critics have been quick to blame Chinese consumers for the failure of Western retailers. They say the Chinese are “too cheap” to buy expensive products, or to care about service, and prefer haggling for discounts over the set prices in these stores.
While the habits of the Chinese spender may have posed challenges, the explanations aren’t completely true. Local electronics retailer Gomeadopted fixed prices and non-commissioned salespeople in some flagship stores last year. Sales soared as a result because wealthier consumers fear over-paying and don’t want to waste time negotiating.
It’s also been reported that Apple’s new store in Shanghai sells more iPhones per square foot than any other store in the world, despite the phone being priced 30 percent more than in the United States.
So what happened?
According to our research, Best Buy in China was perceived as being too expensive, with many of their products priced higher than in local markets. Why buy a Sony DVD player or Nokia phone at Best Buy when you can pay less for the exact same product at a local store? Consumers will only be willing to pay more, like at the Apple stores, if they are buying something they cannot get elsewhere.
While scales of economy have allowed big chain stores in America to offer cheaper prices than niche players, local retailers in China are able to undercut prices because they pay less in salaries, benefits, rent and electricity. Rampant piracy in China also means local computers shops are willing to install counterfeit Microsoft software in products, which makes it more appealing for customers.
Apart from failing to differentiate its product lines, Best Buy also made the mistake of focusing on building large flagship stores, like in the U.S., rather than smaller, conveniently located retail outlets. China may have one of the highest car adoption rates in the world, but its perennial traffic congestions and lack of parking mean consumers often prefer to shop closer to their homes. A government ban on free shopping bags have also resulted in consumers shopping more often, but buying less each time, further fueling the popularity of neighborhood stores.
To stay competitive, Western retailers like Wal-mart and Carrefour , which continue to lean on the model of big box retailers in China, need to overhaul their business strategies and better understand the evolving Chinese consumer preferences. Local players like Jiadeli and Lianhua, for example,
have been quick to adjust their focus on neighborhood stores and stock better products.
Going forward, foreign retailers need to localize their product selection, sales formats and be smarter in their location choice in order to compete with emerging brand savvy, local players.
eBayThe popular ecommerce site eBay was no match for TaoBao, China’s heavyweight
company, in this industry. In an article for the Association of Computing Machinery, two
Hong Kong-based professors cited TaoBao’s built-in instant messaging system as a
reason for its edge over eBay China. Customers wanted to be able to see a seller’s
online status and communicate with them easily — a function not seamlessly
incorporated into eBay’s China system. Despite eBay’s seller rating system based on
feedback from past buyers, the ACM article noted that Chinese customers prefer to
develop trust through their own interactions with sellers rather than acting on other users’
ratings.
eBay also struggled in Japan, where it launched in 2000. Both Forbes India andFinance
Elements noted that the company did not adjust its strategies and purchasing methods
according to local preferences. For example, buyers had to input their credit card
information in order to make a purchase, a practice that was not popular in Japan at the
time. The company did not offer a cash-on-delivery service, which Finance Elements
asserts would have made a significant difference in how it was received. Forbes noted
that eBay learned from these early mistakes and made more successful returns to both
countries several years after its initial failed attempts.
GoogleThis most massive of Internet companies faced notorious issues with the Chinese
government over censorship, but its struggles in China go well beyond that. The New
York Times reported in 2010 that Google could never catch up to Chinese competitor
Baidu, which initially catered to consumers by offering easy access to pirated media,
rapidly growing their user base.
However, the Times also noted that in all cases with American Internet companies that
fail in China, it’s difficult to compete with Chinese entrepreneurs who are better equipped
to cater to the local market. Lee Kai-fu, a former Google exec in China, echoed that
sentiment in an interview with Abu Dhabi’s The National. He blamed corporate
bureaucracy in part for U.S. companies being unable to compete with Chinese ones, and
said being attuned to the local market, having a strong local team and long-term strategy,
and the ability to respond quickly to customer demands were essential for success.
does in the United States because customers associate low prices with cheap quality,
making them wary about shopping there.
Wendy’sYet another American fast food chain that struggled to make foreign consumers fall in love with their greasy goodness, Wendy’s left Japan in 2009, shutting the doors at its 71 locations in the country. At the time, a Wendy’s spokesman said the company hoped to return to Japan to explore new opportunities in a timely manner, according to the Associated Press. But in a country that already has McDonald’s and Burger King, not to mention its own burger chains that focus on the Japanese palate, it’s small wonder that Wendy’s was ultimately edged out.
IKEAIKEA is one of the biggest international retail companies worldwide; and expansion is a strategy which has helped the company to accomplish its well known brand image and strong position among its competitors. The Swedish company has started its expansion by entering its nearest countries such as Norway and Denmark in its early years of operation. (IKEA Group Corporate site) Later on IKEA considered expansion to Asia by starting with Japan referred to as "the second-biggest economy and retail market in the world" by Tommy Kullberg, the president and CEO of IKEA Japan from 2002 until 2006. (Wijers-Hasegawa, 2006) Detailed factors and market environment conditions which have contributed to the company's decision to enter Japan are discussed later on in the paper. Although, IKEA was successful in Europe and North America, the company had serious obstacles and difficulties expanding into the Asian market. Since, in the early 80's most of the Asian countries were closed to the outside world, Japan was considered by IKEA as an attractive market to start its performance on the Asian continent. (Encyclopedia of the Nations) IKEA's attempt to successfully enter the Japanese market is an interesting and educational case due to the fact that the company has entered Japan twice. In 1974 IKEA came into Japan by franchising with a Japanese company in order to avoid possible financial risks in the new market. (Wijers-Hasegawa, 2006) Due to differences in culture, consumer behavior, and lifestyle IKEA has experienced a failure and has withdrawn in 1986. (Lane, 2007) President and CEO, IKEA Japan K.K., Tommy Kullberg, has stated that the company's failure happened as a result of lack of international experience and knowledge of the Japanese consumers. The poor cooperation with the Japanese company IKEA had franchised with also has contributed to the IKEA's failure of expansion to Japan. (Japan External Trade Organization)
Based on the unsuccessful first try of market entry but carefully considered marketing and consumer factors, IKEA prepared itself and expanded a second time to Japan twenty years later - in 2006. In the second try the chosen market entry is a self-owned store established by the group's own direct investments. (Japan External Trade Organization) Nowadays, IKEA is successfully operating five stores in Japan - Tokyo, Kokoku, Port Island, Osaka, and Saitama. (IKEA Group Corporate site) The market entry and operations of IKEA's first try to expand in Japan are scarcely discussed since the aim of the paper is to analyze updated facts and figures. The report concentrates on the second try which is most recent, thus attractive for the learning outcomes of the project. Nonetheless, some essential factors which contributed to the company's failure in the first
try will be taken into consideration when analyzing the key issues of IKEA's entry to the Japanese market in general.
Failures in Russia
It's one of the few markets where the worldwide dominant producer has failed to penetrate the market. Well... the other is perhaps McDonalds in the Philippines. But Nescafe has failed to gain traction in Russia.
Coke was not a "failure" as it successfully entered into the Russian market and now has the largest market share. While its initial entry was disappointing due to the Party endorsement, 10 year head start by Pepsi and slow growth due to the collapse of the economy post-Peristroika era, it now has the largest market share - over taking Pepsi. Coke continues to gain good growth from its Russian ventures, as is noted in its 10-Ks. See the following article for follow up. http://www.time.com/time/magazine/articl...
If you want other examples of failures, you can use any of the oil major companies (e.g. Royal Dutch Shell - which was forced to exit by Putin as he consolidated Russian control on oil & gas resources earlier this year).
Credit Suisse tried to enter the Russian market in 1998 and got blasted for it.
The failure of AMWAY Corp’s marketing strategy in China
WHAT IS AMWAY ?
Amway Corporation was founded in 1959 in Ada, Michigan, USA, by two entrepreneurs. In their first full year of business, Amway’s sales were more than half a million dollars. Their concept for an innovative business opportunity, centered around person-to-person marketing, established itself as a leader among one of today’s fastest-growing industries.
Today, more than 3.6 million independent business owners distribute Amway products in more than 80 countries and territories. Indeed, the Amway Business can be found in Americas, Europe, South Africa, Greater China, Korea and South East Australasia. Amway offers a complete range of products for home care, laundry care, personal care, skin care and cosmetics, nutritional supplements, hometech and fragrances.
ANALYSIS OF THE SLEPT FACTORS :
Market entry barriers are critical factors that influence entry decisions and a firm’s performance. In the course of international expansion, a firm encounters new factors such as new government regulations, new legal and financial systems, new cultures, new languages, greater distances, new modes of transportation, currency exchange rates and their vagaries.
The environmental influences on international marketing that Amway must consider :
Economic : Fuelled by foreign direct investments, China’s economy is beginning to dominate the Asian economic landscape. Indeed, China springs past tiger nations. It has had positive GDP growth in the last five years, while other Asian economies have stalled. China’s economy is growing at a rate of about 8 percent, the fastest in Asia. It means that this country is certainly profitable. But Amway must ask itself if the market demand is important and if it will be competitive.
Indeed, China is an emerging economy but a dual economy too, with a wealthy urban professional and a poor country people. The gap between rich and poor has grown almost as fast as overall income, meaning that inequality is increasing nearly with the country’s development. There are huge income discrepancies that are emerging within social groups and between regions.
The Chinese market has attracted foreign investors because of its huge size and market potential. Some predict that China will become in few years the world’s largest economy but that could fall flat due to political circumstances.
Political : The Communist Party of China has transformed itself. It has declared that it represented capitalists as much as workers and peasants. The Old China defended the working class against the capital class. China has just begun its transition to become a democratic country. China’s new leadership has come to power facing enormous economic, environmental, political and social challenges at home. So, Amway faces the challenge to interpret the very different cultural and political implications of their presence in a changing communist country.
Social : The Chinese population = 1.2 billion of people. The past decade has seen a phenomenal rate of growth in China. It represents an important potential of customers for a firm.
Cultural : The consumer buying process is consistent across cultures. The level of consumer involvement : The Chinese are seen as having a low level of involvement when purchases are for private consumption but a high level of involvement when they are buying products for their social or symbolic value. Since the Chinese greatly value social harmony and smoothness of relationships within the extended family, the social significance of products are highly important be it to express status, gratitude, approval or even disapproval.
The level of risk consumers associate with a purchase varies enormously across cultures and as such it is an important variable in consumer behaviour. It will determine whether a consumer will go for the comfortable purchase or is willing to try new products and services.
The Chinese are sensitive to social risk and the loss of social status if a wrong buying decision is made. The level of brand loyalty found in a market is also closely related to the perception of risk. There are huge variations in attitudes to brand loyalty across different cultures.
In China, consumers are loyal, not really brand conscious and not really used to cross product comparisons, except the urban consumers, who have a wide recognition of foreign brand names. Indeed, there are sharp differences between rural and urban attitudes. On a national level, Chinese consumers prefer to buy domestically manufactured products rather than comparable foreign-made goods. But, consumers in big cities are less likely to favour domestic products than are consumers nationally.
And, typical Chinese consumers do not want to be amongst the first to try a new product. They are reluctant to be pioneers, especially for an expensive, unrecognised (in terms of brand) , foreign product. Concerning the cognitive style ; the Chinese have a quite synthetic, concrete and contextual orientation in their thought patterns. Thus culture not only impacts on how we behave as consumers but on the whole decision-making process, advertisers, and marketing managers need to examine how they can exploit such nuances in building their global brands.
There is a cultural gap between the USA and China. Chinese cultural values are largely formed and created from interpersonal relationships and social orientations. Chinese nations tend to rely heavily on personal relationship (Guanxi) in business dealings.
A culture of Guanxi networking is already established. "Guanxi" means connections or relationship. Guanxi is essential in the initial stages of entering the Chinese market. For foreign
investors who seek to do business in China, to understand the dynamics of Guanxi can contribute to the success of business.
Finally, Amway produces standard products to meet consumer needs in Japan, Philippines, Taiwan, Singapore..., but their product range may not be appropriate to China. Indeed, even if Amway has considerable experience in the Far East, the Chinese market is not a mirror image of these countries. Then, door-to-door selling and “party programmes” are not part of the Chinese culture.
All these aspects need to be examined to understand the consumer in any international market. If a company is to fully empathise with a culture they must pose a series of questions about buyer behaviour, culture and the suitability of various marketing communications approaches for that culture. The local distributor must understand the cultural drivers of its market.
Legal : Government policies are barriers in international markets. In China, policies and regulations are often applied inconsistently and can vary between regions. Both foreign nationals and Chinese officials themselves lack a solid understanding of China’s policies. The key policies which act as barriers to entry relate to foreign exchange control policies and foreign investment policy. Concerning foreign exchange control policies, the state is responsible for formulating and promulgating the principles, degrees and regulations for foreign exchange control.
The acquisition of foreign exchange is a significant non-tariff barrier to doing business in China. Concerning foreign investment policies, China encourages joint ventures. The barriers to access China’s distribution system make this system unstable : wholesalers at both the local and central levels, new collective and private enterprises and factories, as well as some foreign companies compete to distribute consumer products. Local ministry of commerce wholesalers traditionally served as intermediaries between the producer and retail outlets.
Foreign companies are not permitted to engage in wholesale trade. A strict isolationist policy kept foreign goods and trends out of reach of the average Chinese person, because Chinese consumers have less abundant information and purchasing experience with foreign products, they may rely more heavily on information such as the producing country’s image in product evaluation.
Which consequences could this strategy have ?
In China, direct-selling operations function as a base for criminal activity. Indeed, the market is riddled with unscrupulous operators selling substandard goods with poor services, claiming to be legitimate direct marketers. So, Amway’s direct-selling techniques could scare the Chinese government and all direct selling could be ban ; it means that Amway China affiliate could have to make changes in its distribution methods in order to work with China’s regulations. Amway could have to revise its business plans to only sell products in retail outlets.
Concerning the personal sales, customers could receive discounts by paying a small annual fee, similar to buying a membership in a wholesale club. Goods could be sold by “sales representatives”. They will theoretically operate from the retail establishments. But most former distributors will probably continue to do business as usual, telling the retail centre they are purchasing goods for themselves and then re-selling them to customers on the rare occasions where there actually is an end consumer. In fact, there is a cultural gap between an American company trying to use American sales tactics in a foreign country like China.
Technological : China has become a competitor for the medium/ high-tech industries that still power growth in its more developed neighbours, the Asian tigers. The internet and the access gained to the world wide web is revolutionising international marketing practices. This explosion of international marketing activity and the associated emergence of the global information highway will impact on all businesses. But the poor country people probably don’t have a computer and internet, and some don’t even have electricity at home.
ANALYSIS OF THE REASONS OF FAILURE :
1- Inability to find the right market niches
2- Unwillingness to adapt and update products to local needs : Amway produces standard products to meet consumer needs in Japan, Philippines, Taiwan, Singapore... but their product range may not be appropriate for China.
3- Not having unique products that are viewed as sufficiently higher added-value by customers in local markets : no added-value.
4- A vacillating commitment. It takes time to learn how to function in countries such as Japan : Amway had not considered the environmental influences on international marketing that could represent barriers to their entry in China.
5- Assigning the wrong people. Picking the wrong people or the wrong top team in an affiliate : no information
6- Picking the wrong partners : no information
7- Inability to manage local stakeholders. This includes an incompetence in developing a satisfactory partnership relationship with unions and governments : Amway had not developed a partnership/relationship with the Chinese government
8- Developing mutual distrust and lack of respect between headquarters and the affiliates at different levels of management : no information
9- Inability to develop ideas developed in one country to other countries worldwide : Amway tried to use American sales tactics in China, but cultural gaps are too important.
In conclusion, the barriers to market entry make China a challenging market for foreign enterprises. The possible modes of entry into the Chinese market include equity joint ventures, contractual joint ventures, joint exploration projects and wholly foreign owned enterprises. But, Amway must consider the environmental influences on international marketing, which are the SLEPT factors, especially cultural, political and legal factors.
It means that Amway must follow the culture rather than imposing itself, as its rival direct marketer Avon did. So it has to start practically from scratch in marketing the business in China, otherwise, the probable bans of the Chinese government could be dangerous for its activity. It should begin with new distribution methods in order to work with China’s regulations and adapting the products to local needs.
WAL-MART’S ENTRY INTO JAPANCase Study: “Wal-Mart’s Rising Sun? A Case on Wal-Mart’s Entry Into Japan
This information was taken from the book Global Marketing Management (Kotabe & Helsen, 2010).This is a case write-up meant to introduce and provide examples of basic concepts involving international business, global marketing and globalization in the real world. The following is a summary of the business situation and what I learned after reading.
About Wal-Mart
Wal-Mart is a retailer of consumer goods founded in 1962 by Sam Walton. The company obtains profits through volume, with a low-cost strategy. It’s “Every Day Low Prices” business plan is supported by aggressive pricing policies, a state-of-
the-art retail and supply chain distribution system, advanced inventory management systems, and little promotion and advertising efforts. The large success of the company led to global expansion that began in the early 1990’s.
Global Expansion:
Wal-Mart, the second largest retailer in the world, entered Japan in 2002.
It used its usual foreign strategy of forming a joint-venture (used to help with economic and political challenges). The company enters foreign markets by purchasing large stakes in similar retailers and takes gradual control of ownership by increasing investment through time. Historically these acquisitions are gradual, and have been met with both success and failure.
The retailing giant has operations in 28 countries under 60 different banners. Examples of failed and abandoned markets include South Korea, Germany and Indonesia. Expansions that have proven largely profitable are Mexico and Canada. A struggling market similar to that of Japan is the United Kingdom. Judging from these varying country performances, one can see that its formula for success has not yet been perfected.
Summary of Strategy & Performance: Wal-Mart in Japan
1999-
Talks begin with struggling Japanese retailer Seiyu. Seiyu had 400 retail units across Japan
2002-
Wal-Mart purchases 6.1% stake in Seiyu, beginning expansion
2003-
Seiyu begins reorganizing structure; implements point-of-sale and SMART inventory tracking systems across 53 stores. Store efficiencies increase by capturing consumer trends
Wal-Mart acquires 34% stake in company, becoming the Seiyu’s biggest shareholder
Net income fell to lowest level between 2002-2007, with a loss of $772 million
9 new locations open
2004-
Wal-Mart opens its first pilot superstore, Japanese are not familiar with the “supercenter” concept
The company implements its supply-chain and distribution management system, Retail Link, in half of its locations
Company lays off 1500 (25%) of headquarters staff, resulting in bad PR Reduces advertising Seiyu manages to cut costs by 6.1% Reports annual loss of $66 million
2005-
Seiyu announces loss of $118 million CEO Masao Kiuchi takes blame and resigns Wal-Mart increases ownership to 42%
2006-
Wal-Mart built and opened U.S.-style distribution center Some individual store sales turned positive Company reports loss of $151 million Wal-Mart ends year with 54% stake in Seiyu
2007-
Wal-Mart implements SMART system in more than 75% of its stores to help better meet customer needs, enhance product selection, hopes to increase sales
Seiyu reports loss of $469 million
2008-
Wal-Mart completely acquires Seiyu for $875 million, taking 100% ownership of the company
Makes Seiyu a subsidiary of the company Introduces new activities including merchandising, distribution and
logistics
Closes 20 outlets and cut 6 percent of its workforce
Business Challenges and Suggestions:
So, where did Wal-Mart go wrong? The company’s global marketing strategy had many flaws. Read below to find an explanation of these challenges and what could have been done to prevent or control them.
Cultural misunderstanding:
Wal-Mart failed to grasp the consumer and retail environment in Japan. With a population of 127 million, the highest per capita income and the second largest economy in the world, Japan is a very attractive market for retailers. The opportunity exists, but there is much more research and planning that needed to be done before expansion began. Instead of adapting business operations to the Japanese culture, the company essentially assumed the Japanese would readily adapt to Wal-Mart’s. This was not the case. For example, in Japan there is a much larger need for local store customization. Consumer buyer behavior is much different than in the United States, with purchasing patterns and product selection varying greatly between regions. They have a tendency to buy smaller quantities in regular intervals rather than the more American idea of “stocking up.” Similarly, the concept of large retail stores is foreign. Retailers with the highest growth rate are small specialty stores; quite the opposite of Wal-Mart. The culture tends to buy more fresh produce than pre-packaged goods as well (something Wal-Mart does not usually specialize in). Lastly, the Japanese view high price as equaling high quality. This mentality causes them to purchase 40% of the world’s luxury goods annually. Packaging and appearance of goods play a huge role in their purchasing decisions. When looking at Wal-Marts product selection, it is obvious they do not usually cater to luxury-brand customers. All of these cultural misunderstandings lead Wal-Mart away from success in Japan. Perhaps more research into their cultural values and patterns could have helped avoid some of these mishaps.
Inability to carry out a low cost strategyGiven the above facts, it is obvious that the idea of “Every Day Low Prices” does not appeal to the Japanese market in the same way it does in the American, Mexican and Canadian markets. This is a very different culture and population to cater to. Wal-Mart’s low cost marketing strategy may not be as effective globally as it is domestically. They earn their profits through high volume sales over differentiation, and this approach is just not as successful in Japan.Supply chain inefficiencies
In Japan there are strong and close-knit supplier webs that provide retailers with their goods. This country puts a higher value on close, local relationships, making it very difficult for foreign firms to enter the industry. With so many changes in products due to local store specifications, it forces firms to deal with many different suppliers. This is not favorable to large retailers, as they don’t have the time or national presence to make the necessary relationships to do business. Wal-Mart is not used to this high level of supplier power. Their value usually comes from cutting costs with suppliers enough to pass onto their customers while using synergy to increase efficiencies. Difficulties managing their supply chain are another substantial reason Wal-Mart is struggling in Japan.Pressure from competition:The types of competition in Japan include both domestic and international players. It’s biggest Japanese competitors are 7-Eleven Japan Co. Ltd., Aeon Co. Ltd., and Ito-Yokado Co. Ltd. As of 2008, all of these companies drastically outperformed Seiyu Ltd. (Wal-Mart). Although all of these companies have different strategies, much of their success can be credited to their experience in understanding how their country buyers and sellers interact. Two main international competitors are Carrefour from France and Tesco from the United Kingdom. These firms had similar challenges to Wal-Mart with their international expansions, but each faced them differently. While Carrefour had complications so complex that it exited the market in 2004, Tesco was able to gradually expand and prosper. Tesco made large investments in market research that allowed them to build stores that better met the Japanese consumer’s needs. Their cautious expansion and well thought out plans have helped them succeed in the Japanese retail industry. It is imperative for Seiyu and Wal-Mart to recognize their competition’s advantages and formulate better ways to respond.Seiyu’s pre-Wal-Mart conditions:Lastly, it is necessary to examine Seiyu’s business situation before Wal-Mart took over the company. Formed in 1956, Seiyu was successful until the 1990’s when Japan experienced an economic recession. During this time the company acquired a large amount of debt that totaled $7.46 billion at the start of the millennium. Although the company was in trouble, they did not receive assistance from its larger owner, Saison Group, because they too were experiencing the financial crisis. This situation is important to consider when evaluating Wal-Mart’s performance. Although it was predicted that Wal-Mart could save the Japanese retailer, their debt and economic troubles may have been too much to reverse. Looking back, Seiyu may not have been the best company for Wal-Mart to begin their expansion with.
Summary/What next?: As of 2008, Wal-Mart had invested over $3 billion dollars in its expansion into Japan. The question is, will it be worth it in the long run? They
have made many mistakes in the past, but as of 2011, Wal-Mart is still operating in Japan under the same brand name, Seiyu. According to their most recent annual financial report, they claim profits are growing as the Japanese become more favorable towards the Every Day Low Price strategy and as their operational efficiencies increase. Despite these claims, the firm closed 23 additional stores by the end of their 2009 fiscal year, and net investment now totals $5.7 billion. I believe the root cause Seiyu and Wal-Mart’s failure can be traced back to their initial global marketing strategy. A better understanding of Japan’s culture and how it affects supplier-relations and the competitive landscape could have prevented many of the companies problems. Will their low-cost strategy ever actually turn a profit for the company? My guess is not any time soon, but only time will tell.
Wal-Mart's Painful LessonsIt's rare that a $100 billion business can be marginalized, but such is the case with the international arm of Wal-Mart Stores (WMT). As a stand-alone company, it would rank among the top five global retailers. Inside the $401 billion retail giant, though, the business has traditionally received short shrift. Its Bentonville (Ark.) headquarters is underwhelming—a drab, largely windowless, one-story structure named after Bill Mitchell, a former Walmart executive whom nobody seems to remember.
Since venturing into Mexico in 1991, Walmart International has grown haphazardly. During the 1990s the retailer exported its big-box, low-price model. While that strategy worked in North America, the results were so bad in Germany and Korea that Walmart withdrew from those countries in 2006. In response, Michael T. Duke, the former international chief and current CEO, gave local managers more autonomy while instituting more stringent financial goals for each region.
The results are mixed: International sales rose 11.5% in the second quarter (before the impact of exchange rate fluctuations), while U.S. sales barely budged. But over the past few years, operating profit margins have declined on the international side, which now has 3,805 stores operating under 53 distinct banners in 15 markets. As international chief C. Douglas McMillon says, Walmart is "progressing from being a domestic company with an international division to being a global company."
A Tale of Four Countries The trick is how to get there. Four countries illustrate the challenges the world's largest retailer will face in the coming years as it seeks new sources of global growth. In Japan, managers are trying to revitalize a business that has hemorrhaged money for years—weighed down by a ho-hum brand, the country's byzantine distribution system, and cultural resistance to the discount model. In India, restrictions on foreign ownership have forced the company to team up with conglomerate Bharti, an odd coupling that has so far resulted in one store. Walmart has spent more than five years in Russia, maintaining a team of 30 executives who are still trying to plot an entry strategy at a time when other foreign retailers, like Carrefour, are bulking up their presence. And in Chile, a decade-long courtship finally led to the acquisition of the country's leading supermarket chain earlier this year, bringing with it a different business model, based in part on financial services.
All four demonstrate the perilous but potentially lucrative terrain that lies outside the saturated retail markets of Europe and North America. And Walmart's success will ultimately hinge on its ability to learn from past mistakes and adapt quickly to the shifting realities of these markets. Ahead, a look at the company's strategies.
JAPAN
It's lunchtime at a newly remodeled Seiyu supermarket in Tokyo, and shoppers are swarming around bento boxes that sell for 289 yen, or about $3. In the back, peaches, bananas, and pears are stacked neatly in the bins they were shipped in while the front of the store houses bottles of Chianti and Burgundy from Asda, Walmart's British chain. Nami Misawa, 26, is looking through near-empty discount bins. The recession prompted her to come back to Seiyu, and she's glad she did. "This store used to be a mess," she says, "but now it looks great."
Misawa's newfound enthusiasm is welcome news for Walmart, which has taken a beating in Japan. It entered the country seven years ago with the purchase of a 6% stake in the 371-store Seiyu chain. Despite continued losses, Walmart gradually raised its stake, making Seiyu a wholly-owned subsidiary in June 2008.
Walmart has had to confront numerous issues in Japan, from longtime Seiyu managers resisting its initiatives to a tendency among Japanese shoppers to equate low prices with inferior products. Bulk deals don't play well in a country where many live in small urban apartments, and the country's grocery distribution system is populated with wholesalers who broker deals between suppliers and retailers, skimming profits. Rival Carrefour abandoned the market years ago. "I have no idea why [Walmart is] still there," says Neil Z. Stern, a senior partner at consultancy McMillan/Doolittle.
Tapped for a Turnaround Edward J. Kolodzieski is the man in charge of turning Seiyu around. As CEO of Walmart Japan, Kolodzieski has slashed expenses, closed 20 stores, and cut 29% of corporate staff. In-store butchers were removed, with most meat now processed in a central facility. With the freed-up floor space, Seiyu bulked up meals-to-go offerings. To bypass the middlemen, Seiyu has also boosted the number of products it imports directly from manufacturers by 25% over the past year, and is also focusing on increasing sales of its own private-label brands.
The biggest change, however, is a shift away from weekly specials to "everyday low prices" in areas like baby care and pet products, and, eventually, throughout the store. Taking a page from Britain's Asda, Seiyu instead uses its marketing dollars to compare prices against competitors. With the depth of the current recession, argues Tokyo-based business consultant Ken Hasebe, Japanese consumers "have finally accepted that you can buy quality merchandise for a lower price."
One positive sign: Seiyu has been posting positive comparable store sales since last November, including a 1.3% gain in same-store sales in the second quarter. (Comparable or same-store sales is a key retail metric that tracks the results of stores open a year or more.) Still, profit margins declined in the same period, proving that progress is slow: "It's taking a little longer than any of us would have liked," says CFO Thomas M. Schoewe.
INDIA AND RUSSIA
India and Russia are widely regarded as two of the world's fastest-growing retail markets—and two of the most frustrating for foreign retailers. Walmart boasts one wholesale
outlet so far in India, and it has only a 30-person development office in Moscow to show after more than five years of scouting in Russia. But through a combination of joint ventures, acquisitions, and expansion, the retailer is hoping to become a major player in both.
India's $350 billion retail sector is composed of small family-run ventures, with organized chains accounting for less than 5% of sales. To get around government restrictions on foreign retailers selling to consumers, Walmart recently teamed up with Bharti Enterprises to open a cash-and-carry operation in the northern city of Amritsar. Best Price Modern Wholesale, as it's called, technically caters to merchants and small businesses. But with few restrictions, more than 30,000 members have signed up for the first store.
As in the U.S., the emphasis is on a wide selection of goods in one location at a low cost—everything from Castrol motor oil and sneakers to milk in large canisters that can be tied to the side of bicycles. Best Price employs 25 people to go around the region each week and check prices at mom-and-pop shops, to ensure that they're consistently offering the best value. Raj Jain, a former Whirlpool executive who now heads Walmart's Indian operations, also opened a training institute in Amritsar last December in partnership with Bharti and the Punjab government.
Have Tractor, Will Shop With so few retail chains, employees have no background in the kind of merchandising and customer service skills needed to work at a large store. They also need to learn how to help customers with goods they have not seen before, such as the Japanese guava that some restaurant owners sampled on a recent visit.
Jain is also tapping Walmart's expertise to buy from farmers directly, cutting out local distributors. About 10% to 15% of Best Price's produce currently goes right from the field to the shelves, and Jain says he wants to increase that to 40% by next year.
Though small, the venture shows promise. Jaideep Singh and his sister, Shalini, now drive a tractor 25 miles to pick up goods for their father's store. Jaideep says profits are up about 20% because of the low-priced goods that Best Price stocks. "We come two or three times a week," he says.
Confronting Russian Corruption Walmart plans to open 10 to 15 outlets through the partnership over the next three years, eventually employing about 5,000 people. But McMillon wants to see Walmart running its own retail stores there, too. He pressed his case with commerce and agriculture ministers in New Delhi in July. "What I tried to convey is that we would invest more, and faster, if we had the opportunity to do so," he says. A representative from the Indian government declined to comment.
In Russia, the impediments to retail development are less visible but no less worrisome. Corruption is rampant with various administrative authorities capable of gumming up operations if payments are not made. Anticorruption group Transparency International ranked Russia 147th out of 180 countries on its most recent corruption perception index. In June, Swedish furniture retailer IKEA said it would halt further investment in Russia, citing the "unpredictability of administrative processes." The retailer's stores have been temporarily shut down in the past due to various questionable violations, and IKEA founder Ingvar Kamprad went on Swedish radio earlier this year to link those problems to IKEA's refusal to pay bribes in Russia. (A Russian government representative declined to comment.)
While Walmart is looking at opening its own stores in Russia, it's far more likely it will start by acquiring a local retailer. Analysts say the prime candidate is Lenta, a fast-growing, privately held chain of 34 hypermarkets and the nation's fifth-largest retailer. Lenta founder Oleg Zherebtsov is saddled with debts and sold his 35% stake to the investment group of private equity firm TPG and the private equity arm of Russian state bank VTB in early September. "There was a time when we felt that market was overpriced, and that has changed somewhat," says McMillon. With rivals such as Metro expanding their presence through new stores, and Carrefour opening its second outlet in September, "they cannot wait," says Planet Retail analyst Milos Ryba.
CHILE
Chilean shoppers strolling through the aisles of their local D&S supermarket recently came across something not usually offered by the discounter: Apple (AAPL) iPods. That's not the only change coming for the 224-store chain, which sold a majority stake to Walmart earlier this year for $1.6 billion. (It
now owns about 75% of D&S.)
In acquiring D&S (short for Distribución y Servicio), the nation's leading grocer and third-largest retailer, Walmart hopes to cement its dominance in Latin America, where it is by far the biggest retailer with $38 billion in sales, estimates research firm Planet Retail, double that of its closest rival, Carrefour. In Chile, Walmart enters a market that has long been inhospitable to foreign retailers. Home Depot (HD), Carrefour, and J.C. Penney are among the companies that have tried, and failed, to make it in Chile, a nation of 17 million with the sixth-largest retail market in Latin America.
Rather than go it alone, as others have attempted, Walmart cultivated close ties with D&S for more than a decade: Bob L. Martin, who ran the international division in the 1990s, says he first visited Chile in 1997. D&S, in turn, modeled much of its business practices on Walmart, looking to Bentonville "as an icon," says Claudio Pizarro, a professor at the University of Chile. (Walmart also imports products like salmon from Chile.)
Financial Services a Draw Walmart has increased D&S's expansion budget from $150 million to $250 million, which will go toward opening nearly 70 stores this year, many of them small stores that cater to lower-income shoppers, according to Vicente Trius, Walmart Latin America's president and CEO.
The appeal of D&S goes well beyond its stores. About 1.7 million Chileans carry a Presto card issued by its financial services unit, up from 1.2 million in 2004. "There is a saying here that large retailers generate sales with [stores] and earnings with their credit cards," says Rodrigo Rivera, a partner with the Boston Consulting Group in Santiago.
Indeed, some South American retail chains generate upwards of 70% of their profits from financial services, analysts estimate. (At D&S that figure is just 17%.) Walmart already offers financial services in Mexico and Brazil, though its attempts to launch a bank in the U.S. have failed. The retailer is keen to grow the Presto business by adding more low-risk services such as selling life insurance for outside vendors.
Achieving the right balance between local knowledge and global scale is not easy. "We're in the early stages," says
McMillon. "But we know you can't run the world from one place."
Best Buy’s Withdrawal: American Morals Fail to Transcend Chinese Consumer MarketPosted on March 2, 2011 by China BriefingBy Vivian Ni
Mar. 2 – The famous United States-based consumer electronics retailer Best Buy announced on
February 22, 2011 that it had decided to stop running its nine stores in China. The surprise
announcement effectively signaled the end of Best Buy’s eight-year China story in which it spent three
years preparing for its market entry and five years expanding itself to nine stores located in Shanghai,
Beijing, Suzhou and Hangzhou.
Best Buy disclosed its decision to close three of its stores in Shanghai at an upper management
meeting on the afternoon of February 21. Just one day later it officially announced its plan to shut down
all of its nine stores in China. Although the withdrawal seems a little too speedy, there were already
signs earlier that Best Buy’s business was not running very well in China. According to related reports,
in Shanghai alone last year, there were already three contracted Best Buy projects that failed to finally
settle themselves. The first-to-third quarter financial report Best Buy released last November also
showed a meager 4 percent sales increase in the Chinese market, among its total US$38.5 billion global
sales during the same period, an over 100 percent increase from a year earlier. The other part of Best
Buy’s business, the Chinese electronics brand Five Star acquired in 2006, also only opened around 30
new stores between 2006 and 2010, a very small number compared to other Chinese electronics
retailers that are seeing rapid expansion.
Unsuccessful business model?Opinions on reasons for Best Buy’s failure in the Chinese market do not differ much. Many people
believe it expanded way too slow to survive in the face of severe competition from other Chinese
electronics giants such as Gome and Suning, both of whom currently boast over 1,000 stores
nationwide.
Experts say that Best Buy’s decision to stick to its American business model brought about its failure in
the Chinese market, although the model has been working very successfully in Western markets.
Different from its major Chinese competitors, who lease separate parts of a store to retailers of distinct
brands and earn profits from the so-called “entrance-fee” and take a portion of every retailer’s sales
profit, Best Buy purchases all of its products directly from suppliers and prices them independently.
Also, while the majority of sales people in most Chinese stores come from the supplier side, Best Buy
hires a whole staff as its own sales team. The American company also utilizes a non-commission policy
for its sales staff in order to avoid biased promotions that will disturb customer decisions.
Although the Best Buy model aims to please both suppliers and consumers by reducing the price
competition between suppliers, creating a friendlier shopping environment, and providing better services
such as the opportunity to try products before purchase, it does not seem to suit the immature Chinese
market very well.
Chen Can, senior consultant at Analysis International, says the Best Buy model requiring self-purchased
property and commodities as well as a bigger team of sales staff will lead to a significant cost rise which
One employee of a local electronics supplier described the Best Buy model as a “wall” instead of a
“bridge” between suppliers and customers.
Both Chen and home appliance expert Chen Qingqi pointed out that Best Buy failed to please its
suppliers because they do not really receive very many orders from the company due to its small market
presence. In addition, the frequent requests for customized products from Best Buy also increased
supplier costs.
Chen added that most importantly, Best Buy did not please its customers. In an immature market like
China with a massive portion of low-end consumers, the price advantage seriously outshines any
advantages in management.
Many consumers even commented that the Chinese name of Best Buy – Baisimai – as a bad one for
marketing. Baisimai literally means “to buy after thinking 100 times.”
Ironically, its business model, just as its Chinese name, tries too hard to educate consumers about high-
end service value when lower price is typically the only value that motivates them to make quick
decisions. The electronic giant’s overconfidence in transforming the Chinese consumer philosophy
finally hurt its overall performance in the Chinese market.
“Good companies” do not survive?When Best Buy first entered the Chinese market, many people hoped it would successfully replace the
prevailing, yet widely-criticized Chinese business model that focuses on price-centered competition,
squeezing suppliers’ profit margins, and conducting promotions on questionable legal footing. However,
the more moral and advanced “good company” did not survive long, leaving the ones with the traditional
Chinese business model still prospering in the market.
A recent commentary piece by Xin Haiguang on the Financial Times refers to the current Chinese
market as a “swamp” with low-end consumer awareness, a relaxed legal environment, and a low bottom
line of business ethnics. Xin pointed out that “good companies” like Best Buy, who still insist on playing
by the rules of mature commercial markets, easily fail because they have given up a significant amount
of available business resources compared to their Chinese competitors. Xin sees Best Buy’s withdrawal
as a failure in its business value, rather than its profit model.
Best Buy’s future in ChinaAt its press conference on February 22, Best Buy said it will alter its operation strategy and integrate all
of its Chinese business under the Five Star brand it acquired five years ago. Admitting China might not
be the best marketplace to run the Best Buy business model, the company is still very optimistic
regarding the expansion of its Five Star electronics stores, which mostly copy the operation model of its
Chinese competitors.
According to Best Buy China’s new CEO Wang Jian, Five Star plans to open around 50 new stores by
2012, adding to the current 160. Wang also emphasized that Best Buy will not exclude the possibility of
opening new Best Buy stores when the timing is right.
Unfortunately, many experts do not seem to be very optimistic about Best Buy’s future in China since it
has missed the best timing for expansion in the country. Some commentators speculated that even if
Five Star can expand at its proposed rate and does not make any strategic mistakes in the next 10
years, the total number of stores will still not be big enough for it to achieve a solid nationwide impact.
Analysts even speculate that Best Buy’s high-profile announcement of its new management team and
strategies may indicate that it is looking for acquisition since both Gome and Suning are supposed be
very interested in the growing Five Star.
It is not totally clear for us to see if Best Buy will yield its American business values to the Chinese
consumer culture, totally give up on the Chinese market, or come back in the future when a better time
comes for transformation. While Best Buy’s present circumstances have become a reflection of the
current state of Chinese electronic retailers’ profit model, its future will depend on where the market
goes.
- See more at: http://www.china-briefing.com/news/2011/03/02/best-buys-withdrawal-american-morals-fail-to-transcend-chinese-consumer-market.html#sthash.31nGkv3F.dpuf
