Best Buy's Misadventure in the Middle Kingdom

Best Buy's Misadventure in the Middle Kingdom
Case Code: BSTR402
Case Length: 15 Pages
Period: 2010-2011
Pub Date: 2012
Teaching Note: Not Available		 Price: Rs.300
Organization: Best Buy Inc.
Industry: Electronics Retail
Countries: China
Themes: Globalization, International Business
Best Buy's Misadventure in the Middle Kingdom
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses the entry and the subsequent exit of the US-based electronics retailer Best Buy in China. Best Buy entered China by opening a procurement office in 2003. After studying the market for quite some time, it decided to acquire Jinangsu Five Star Appliance Co, (Five Star), the fourth largest electronics retailer in the country, in order to have a wide presence in the market. In China, Best Buy followed the dual brand strategy that it followed in the Canadian market. As per this strategy, the company operated Five Star as a separate brand, different from the Best Buy stores, the first of which was opened in 2006 in Shanghai. In China, electronic retail stores usually consisted of vendor representatives who promoted their own products.

Customers could bargain and get the product at a lower price. This led to a highly chaotic environment in the stores. Best Buy refrained from using this model and positioned itself differently from the local vendors. It did away with the vendor representatives and had its own salespeople manning the stores. The salespeople in the Best Buy stores did not interfere with the customers and provided assistance only when asked for. In the Chinese stores, the products were displayed in glass cases. Best Buy, in contrast, displayed products in such a way as to enable the customers to touch and feel the product. Though Best Buy's first store was highly successful and went on to become one of the top 10 Best Buy stores in the world, it could not sustain the momentum. It could not open stores as rapidly as it had planned to and the opening of the second store was delayed. Also, though customers appreciated the modern shopping experience at Best Buy they still preferred to shop at local stores as they offered lower prices. Though Best Buy opened nine stores by 2010, the local competitors ended up opening hundreds of stores. Due to high competition and the high costs of operations, Best Buy decided to exit the market in February 2011. The case discusses in detail Best Buy's pre-entry strategies, its entry into the market, the strategies it adopted in the Chinese market, and its subsequent decision to exit the market, while examining the strategies adopted by the competitors in the market.

Issues

The case is structured to achieve the following teaching objectives:

  • Understand the nature of problems faced by retailers like Best Buy in emerging markets like China
  • Study and analyze Best Buy's pre-entry and entry strategies
  • Examine the reasons that prompted Best Buy to exit the market
  • Analyze the retail industry in China

Contents

Keywords

Globalization, Retail in China, Business Environment, Dual Brand Strategy, Best Buy, Electronics Retail, Gome , Suning, Jiangsu Five Star Appliance, Foreign Retailers in China, Entry Strategy, Expansion Strategy, Pre-entry Strategies, Chinese Economy, Store Management, Suppliers

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