Home Depot's Retreat from China

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Case Details:

Case Code : BSTR429
Case Length : 15 Pages
Period : 2006-2012
Pub Date : 2013
Teaching Note :Not Available
Organization : The Home Depot.
Industry : Retail
Countries : USA, China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Entry into China

Home Depot entered China in 2002 by opening sourcing offices at Shanghai and Shenzhen. Each of these sourcing offices had experts in quality control and sourcing. From these locations, Home Depot sourced lighting fixtures, fans, flooring products, bath accessories, faucets, tools, etc. In 2004, Home Depot opened a business development office in China with a view to gaining insights into the home improvement market in China, and evaluating strategies. Chuck Elias was the head of Home Depot's Chinese venture, and he researched the market, visiting several cities, markets, and studying the competitors for more than a year...

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But China is Different

It was not long before Home Depot found out that the Chinese home improvement market was vastly different from the North American market. While in the USA and other North American countries, Home Improvement largely consisted of DIY, in China the work was done by labors and contractors. The way the retailers managed the suppliers in China was vastly different from the way they were managed in the USA. The Chinese also preferred to shop for the goods at specialized stores after comparing prices in different stores, and bargaining on the prices....

So is China's Home Improvement...

The company was able to differentiate itself in the USA by providing home improvement materials at low prices through its global sourcing practices. This did not prove to be an advantage in China as the local brands were much cheaper. In China, the people's preference for these products differed from province to province, whereas all the stores of Home Depot sold similar types of products.

Soon the company realized that though the middle class in China was growing, there was only limited scope in the DIY market in China. The Chinese lived in small high rise apartments and they did not have adequate space to store the large tools and ladders required to assemble furniture. Besides, labor was available at low cost for jobs like painting, decorating, maintenance, etc. Frank Blake, chairman & CEO, The Home Depot, said, “It's a status symbol to have people do the work for you. It's not appropriate to do it yourself.”...

And the Vendors

In the USA and other western countries, big-box stores offered different brands and were centrally managed. The suppliers agreed to the terms set by the retailers to display and sell their products through them. They followed the retailers' conditions and requirements to sell the products at a price decided by the retailers. The suppliers were also required to pay a commission to the retailer. In China, apart from the employees of the company, it was common for the representatives of the vendors to be present in the store to sell their products. They competed with each other to sell their products. This was very different from the way Home Depot operated...

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