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Home Depot in Chile

MGMT3101 Group Presentation

Candice Kim

on 27 September 2012

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Transcript of Home Depot in Chile

1. What strategy was pursued in Chile?

2. What elements of the host environment
affected performance in Chile?

3. Why did Home Depot's strategy fail?

4. How could've they succeeded in Chile? Home Depot
in Chile How did Home Depot become the largest home improvement chain in Mexico within just a few years? Home Depot in Mexico How is Home Depot doing
in China, and why? Home Depot in China Structure Conduct Performance (SCP) So why do retailers fail in international markets? Resource Based View (RBV) Why did Home Depot's strategy fail in Chile? How could have they succeeded in Chile? How did Home Depot become the largest home improvement chain in Mexico within just a few years? How is Home Depot doing in China, and why? What should Home Depot
consider for future expansions? Agenda 1. About Home Depot
2. Chile
3. Mexico
4. China
5. Discussion Q's Thank you! 1978 1994 1998 2001 2006 What elements of the host environment affected performance in Chile? What strategy was pursued in Chile? New Entrants Buyers Suppliers Substitutes What strategy was pursued in Chile? Fragmented home improvement industry Local competitors prepared for Home Depot's arrival 25% 75% Large
Retailers Ferreterias Retaliation by established producers Difficult to achieve scales of economy High capital requirements Product differentiation needs Strong distribution channels required Geographic factor limits LOW No true substitute for products Substitution for labour: Maestro DIY / BIY / Professional Contractors & Builders Women are main decision makers HIGH DIY market underdeveloped in Chile Lack of time to do home improvements Lack of info & tools HIGH Home Depot’s ignorance of competitors Factors which contributed to Home Depot’s failure (1) Home Depot’s consumer target market
In Chile the main consumers are women and they preferred to shop at stores with aesthetic appeal
Home Depot’s stores by contrast were dull and unwelcoming
75% of market share was concentrated amongst small business outlets which was where female consumers preferred to shop Factors which contributed to Home Depot’s failure (2) Home Depot’s relationship with suppliers and competitors
Home depot’s relationship with competitors and suppliers was not agreeable for example they prohibited employees talking to competitors even though it was common practice in Chile Factors which contributed to Home Depot’s failure (3) Transnational strategy is defined as the business structure where a company's operations are coordinated via cooperation and interdependence between its head office, operational divisions and internationally located subsidiaries. Transition from a international strategy towards a Transnational strategy

Strategies which could have enabled Home Depot to Succeed (1) Tapered integration of Home Depot Equal decision making by partner firm Falbella Build “character based” trust into the Home Depot
company culture Competency transfer from home to foreign market

Centralisation of key decisions at home

Limited local responsiveness Manufacturing in major markets International Strategy Home Depot's Transfers (from US to Chile) 'Three-legged stool' format

Focus on renovation products

Store appearance

Skills: US store managers = Chilean executives

Business policies Sourcing products locally Global Strategy Home Depot's
Global Strategy aim: increase profitability by lowering costs globally

Competition =
strong cost pressures

Economies of scale =
low cost products Economies of scale
- buying power
- local product sourcing

Provide low priced products & compete with Chilean firms

Failed scale economies due to poor sales Conclusion Home Depot in Australia?? In your groups, assess your given factor for the home improvement industry in Australia. Consumer
Behaviour Consumer
Market Ignorance of
Competitors Relationship with Suppliers & Competitors Relationship with partner (Falabella) Managerial
Style Factors which contributed to Home Depot's failure Sodmiac, Construmart, Cencosud had all prepared for Home Depot’s arrival by investing in training employees, opening new stores and improving their logistics and service.
Each of Home Depot’s competitors had specific target market focus
- Sodimac had two retail formats – Home Center catered towards families and Constructor which supplied to independent stores
- Cencosud had a diversified business portfolio consisting of home improvement, groceries
Chilean Consumer behaviour
Home Depot catered towards DIY which was not in high demand in Chile for two reasons:
- Low labour cost of hiring a house worker
- Long working hours in Chile. Relationship their partner Falabella
Home depot excluded Falabella business managers from the decision making process Managerial style
Home depot sent managers from the US to Chile to run operations however due to language barriers they found it difficult to communicate, establish a network in Chile International Transnational
In the case of Home Depot this strategy - where effort is placed to understand and integrate the Chilean corporate culture (e.g Sharing information with competitors) with the existing policies of the American Based Home Depot Strategies which could have enabled Home Depot to Succeed (2) Tapered integration represents a mixture of vertical integration and market exchange Since the majority (75%) of the Home improvement in the Chilean market is sold via small businesses. Home depot could potentially of tapped into this market by selling some of their products via their retail operations and selling the rest to the small businesses Strategies which could have enabled Home Depot to Succeed (3) Equal decision making process would have ensured that managers could have access to an expansive network in Chile and back in the States

Utilised Falbella’s pre existing connections with industries

Take advantage of the strong reputation of Falbella amongst Chilean consumers

Thus overall building stronger customer relationships with suppliers and customers Strategies which could have enabled Home Depot to Succeed (4) One of the key reasons for Home Depot’s failure in the Chilean market was the sour relationship between the company with their partner, local suppliers, competitors and employees

A corporate culture which builds character based trust is built upon identifying diversity within the workplace. Good relationships important within the industry Low volume purchases
= high prices & unfavourable conditions Home Depot’s international operations represent 12.3% of its worldwide presence
Entered the market in 2001
Now operates over 92 stores country wide
Acquisition of Total Home, a local home improvement chain
2002 acquired Del Norte
May 2004 acquired Home-Mart, the second largest home improvement retailer
Employs over 9,000 locals
Now it is the #1 home improvement retailer in Mexico The Home Depot: Mexico In Mexico Home Depot took an acquisitions approach when looking to entering the market.

Acquisitions allow for:
Quick and already established market presence
Lower risk

The risk is that:
High up front cost
Post acquisition problems Greenfield v’s Acquisitions Home Depot moved away from its global strategy when entering the Mexican market.

The Mexican subsidiaries took a local entrepreneur role within the company structure.

Local employees and knowledge was utilised to maximise market presence and opportunities. A Localisation Strategy A musical chairs strategy game…. Strategy failure. ‘Three-legged stool’ format

Focus on renovation products

Store appearance

Skills: US store managers= Chilean executives

Business policies 1. The Chinese economy is slowing down 2. The Chinese housing boom was a bust 3. Home Depot didn't get Chinese culture 4. Demand for Western Culture Problems Home Depot faced in China Acquired local home improvement chain - Home Way (12 stores)
Housing market boom = opportunity! 2011 - shut down 5 Beijing stores 2012 - shut down all stores
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