Why did Best Buy Fail in China?
Best Buy has officially closed its China operations, leaving employees and customers out in the cold. Could this have been prevented? Did anyone see it coming? You betcha! Agenda gives you the scoop on why Best Buy failed in China, and the Chinese home electronics providers that were probably responsible for crushing it.
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This was some research originally done for the Albright-Stonebridge Group. They never used it, so instead of sitting in my archived files I decided to post it here. Part of the assignment included making recommendations for a government outreach strategy, which I’m posting here:
Government Outreach Strategy and Key Local Contacts
In order to continue growth and expansion, Best Buy and Five Star Appliance will not only need to maintain positive relations with the Ministry of Commerce, but also extend its reach into China’s flourishing southwestern regions, the current nexus of Chinese growth. This idea is underscored by recent American Chamber of Commerce research (Second-Tier Cities Soar) and Bloomberg Businessweek (The Rise of China’s Southwest).
Anhui, Sichuan, and Guizhou, are the three top provinces recommended for further expansion. Guizou alone grew 15.9% in the first quarter of 2009, nearly 10% more than the national growth rate. In the past few years, several foreign companies have moved production into these regions increasing per capita income, purchase power, and potential market shares. While moving into these key areas, Best Buy and Five Star Appliance might benefit by following with the example of other companies and investing in commonwealth contributions, such as the popular Project Hope, which helps underprivileged students receive an education.
Best Buy also stands to benefit from collaborating with local government officials on green projects, a popular topic that signifies a long-term investment in China. There are some politicians in the environmental arena are affiliated with the National Development and Reform Commission and other economic and trade development offices, and who could provide ongoing support in Best Buy’s expansion in exchange for positive news media on environmental issues.
Furthermore, the topic of environmental conservation has become an increasingly popular celebrity cause in China and could be used to increase sales in younger generations. Following in the same trend, Best Buy should strive to support the local government’s performance indexes by investing and creating jobs in the localities in which they open stores. Large-scale stores provide an often-needed boost to these locales, and in order to attract or foster local big enterprises, or prevent these kinds of enterprises from relocating, local government policies are favorably geared towards their development. These types of long-range investments signal a commitment to counterparts in the Chinese government, and will ensure their consideration of Best Buy’s business in future policy changes.
Another method Best Buy can employ to utilize already existing assets to increase influence within the government sector is to invite government/official5 nominated participants for Best Buy’s unique Chinese management program that is used to train its managerial employees and involves trips to the American headquarters. This method not only allows for continued expansion of trust, and could also be extended to members of the All-China Federation of Industry and Commerce, an organization that seeks to promote private enterprise and growth and whose members include influential government employees.
At the Ministry of Commerce:
Vice Minister of Commerce Ms. Ma Xiuhong
In Anhui Province:
Lu Jiyan Deputy Chairman of Anhui International Trust and Investment
Corporation, Chairman of Hong Kong Huangshan Co., Ltd
In Sichuan Province:
Liu Yonghao Chairman of the New Hope Group, Standing Committee member of
the 9th CPPCC National Committee, Vice-Chairman of the Subcommittee of
Economy of the CPPCC National Committee
All-China Federation of Industry and Commerce:
Niu Shouzhang, Chairman of Zhejiang Provincial Federation of Industry and Commerce
National Development and Reform Commission
Pan Yue, Vice-Minister of the Ministry of Environmental Protection, former member of
Economic Restructuring Office of the State Council
Why didn’t you just put the links in the original post?
I didn’t have the original file with me when the news broke, so I figured I’d add if someone asked. Will do so now!
I didn’t have the original file with me when the news broke, so I figured I’d add if someone asked. They are in there now!
Three simple reasons why Best Buy didn’t stand a chance to compete from the very beginning.
1. Best Buy did not offer something that cannot be easily duplicated by a competitor or offered online. Also, the inside design of the stores were originally set up in western fashion, which isn’t necessarily easy to navigate as a Chinese consumer.
Look at the international brands/companies that are successful in China. Who wants to order fast food burgers and chicken sandwiches from a locally owned chain?
2. Companies like IBM, Mercedes, etc offer highly skilled services and products not easily replicated.
3. World famous brands like LV, Gucci, Armani are extremely sought after and duplicates are looked down upon by their target market.
When an international company comes to China and a Chinese company can easily do it, that’s where the backing by the government and public is.
You’re absolutely right! Nobody is going to pay extra for a shop that doesn’t make sense to them. I never visited Best Buy here, but I wonder how much people could interact with the products? I find that this is always immensely successful, which is why Sundan is so popular.
Best Buy want another go at it, apparently – they are reopening a “flagship store” in Shanghai this December:
http://www.chinatechnews.com/2011/09/26/15654-best-buy-to-return-to-chinese-market-this-year