Media Markt's Exit from China
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Case Code: BSTR434 Case Length: 11 Pages Period: 2010-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.300 Organization: Media Market Industry: Electronic Retailer Countries: Germany, China Themes: International Business, Globalization |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Entry into China
Metro AG had been present in China since 1996, when Metro Cash and Carry's first wholesale center was opened in Shanghai. It was the first foreign company to receive permission to set up operations in all the major cities in China. With its success in retail, Metro was keen on entering the electronics retail in China through Media Markt. Metro conducted its own research on the Chinese electronics market. The research found that by 2013, China's electronic retail market would be worth €150 billion. Shanghai, one of the most popular states of China, would alone account for €5.5 billion in electronics retail sales....
But Plans Go Haywire
Media Markt encountered many challenges in China, right from the time it entered the country. But by the time Media Markt entered China the sales of home appliances had started to fall after several years of growth. The sales growth in the home appliance sector was only 7% in 2012 as against 20% during 2009.
It implemented the business model which had made it hugely successful in Europe in China. But even after operating in the country for two years, Media Markt could not expand beyond Shanghai. Its revenues were also not up to expectations. The revenues during the first three quarters of 2012 were US $133 million, with a loss of US $53 million. The losses were attributed to high operating costs and the huge rents that the company had to incur. The company chose to operate in the country independently and did not allow the manufacturers to operate from its stores. This meant that it had to bear all the manpower costs. Analysts also pointed out that Media Markt had failed to understand the Chinese consumers and their price sensitive nature...
The Exit
In March 2013, Media Markt closed all its stores in China. It announced, “The decision to close the stores was made in response to the highly competitive market environment and associated high investments of building and operating the necessary scale." The decision to close down the operations was taken by both the partners Media-Saturn and Foxconn. According to Bussalb, "The decision represents the best interests of the two shareholders, and reflects the staggering amount of investments required to stay competitive in the market."
The company announced that all its operations would be stopped by April 30, 2013, and the service for the products purchased from Media Markt would be carried out by Tianjin-based company, Xinkean Electronic Technology Co. Ltd. Due to the closure, about 750 employees were laid off. The officials of Media Markt said that they were in discussions with Foxconn for handling the obligations made during the JV to its stakeholders, vendors, employees, and customers...
Exhibits
Exhibit I: Media Markt - Global Presence
Exhibit II: Electronics Retail in China
Exhibit III: Multi-channel Strategy and Its Guiding Principles
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