Best Buy's Misadventure in the Middle Kingdom
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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 |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Best Buy's International Ventures
One of the main reasons for Best Buy's foray into international markets was to maintain its growth and momentum. According to former CEO of Best Buy International, Bob Willett (Willett), "Our shareholders expect growth, so the international strategy is designed to bring it to them." Best Buy went international in 2001, after it entered Canada by acquiring Future Shop, a leading electronics retailer in the country. While continuing to operate Future Shop, Best Buy also opened its own brand stores in Canada in 2003. Best Buy and Future Shop targeted different customer segments. Best Buy stores in Canada had an average floor space of around 33,000 sq. feet while Future Shop stores occupied an area of 26,000 sq. feet...
Entry into China
In 2003, Best Buy opened a sourcing office in China to procure televisions and DVD players for the US market. One of the main aims of opening the sourcing office was to remain close to the manufacturers and thereby reduce costs. By staying close to the manufacturers, the company planned to introduce innovative products, provide competitive prices, and give feedback obtained from the customers to the manufacturers. In the long term, Best Buy planned to open stores in the country...
Expansion
Best Buy opened its first store in Shanghai in December 2006. The store, occupying an area of 87,000 square feet and spread across four floors, was located in one of the premium shopping localities of the city, Xu Jia Hui, popularly called 'Times Square of Shanghai'. The store was Best Buy's largest store in the world. It was modeled after the Best Buy stores in the US, and was markedly different from the Five Star stores. The store was brightly lit and the aisles were carpeted...
Challenges
Best Buy had to face several challenges in China. Its model aimed at creating a friendly shopping atmosphere and providing better service to consumers. These included allowing the consumers to try the products, avoiding competition between suppliers, and providing consumers with unbiased views. This model required Best Buy to purchase all the products from the suppliers. This resulted in higher costs, leading to a price disadvantage. The suppliers were not forthcoming in reducing prices for Best Buy as they did not get too many orders...
Best Buy Exits China
In February 2011, Best Buy announced closure of its stores in China. It also announced that it would continue to operate in the market through Five Star and would open 40-50 Five Star stores in 2012, mostly in inland cities like Wuhan and Chengdu. Best Buy also revealed its plans to explore other profitable growth options and reopen two of the stores later. While announcing the closure of its stores in China, Best Buy also admitted that its business model was not suitable for the Chinese market...
What Went Wrong?
Best Buy's customer-centric strategy was not useful in differentiating the company from its competitors. This strategy was not appreciated by either the suppliers or the customers nor did it help to expand the operations of the company. The suppliers did not receive many orders from Best Buy and they were also asked to customize the products, which increased their costs. According to Chen Can, a senior Consultant from Analysys International, "The purchasing volume was not attractive to suppliers and the price offered was not low enough to attract customers. Best Buy brought in a Western business model but it failed to sufficiently attract Chinese clients and customers to it"...
Exhibits
Exhibit I: Retail in China
Exhibit II: Top Electronic Retailers in China - Gome and Suning
Exhibit III: Naming a Brand in China
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