Introduction
Recently, Wal-Mart and Best Buy started to sell their retail outlets in China and South Korea as a move to withdraw from the Chinese and South Korean markets. The two companies did not manage to capture the Chinese and South Korean markets despite them being among the global giants.
Wal-Mart announced that it would sell all its South Korean outlets to Shinsegae. Both the Wal-Mart and Best Buy were unable to open new outlets in China and South Korea, which made it hard for them to fortify their customer base. Operations costs for the two companies were too high relative to their profit margins.
Hence, they could not sell their products at discounted prices, an issue that sent many customers away. Numerous factors contributed to failure of the two companies in the Chinese and South Korean Markets. Besides, the two companies can learn a lot from their failure. This paper will discuss some of the barriers the companies encountered in Chinese and South Korean markets. Moreover, the paper will discuss the lessons that the two companies can learn from their failure.
Obstacles in Chinese and South Korean market
Skariachan alleges, “Best Buy’s brand stores never adapted to the local market or succeeded in wooing the Chinese customers, who often shop on e-commerce sites like 360buy.com” (par. 13). Besides, Best Buy was unable to customize its outlets to align them with the local market. For instance, the company had numerous dryers and washers on display. The majority of the Chinese view dryers as “harmful to clothing and they do not use them” (Skariachan par. 15).
Therefore, the company filled a greater part of its floor space with unwanted products. Rather than analyzing the market to determine the unsatisfied needs, Best Buy treated the Chinese market as the American. Hence, it stocked its stores with unwanted products making it hard for it to make substantial sales. In addition, the company was unable to safeguard its products against the black market. Consequently, it encountered stiff competition from counterfeit products.
Best Buy was unable to target and exploit the middle and lower class income earners in South Korea. The company had outlets in major cities only. Hence, it targeted the upper class population and created a prospect gap amid its target customers.
The company was unable to come up with viable marketing strategies, which made it hard for Best Buy to benefit from middle and low income earners (Skariachan par. 16). Many customers that visit Best Buy outlets are interested in knowing the latest electronics and their prices. The customers then use this information to purchase the electronics online. Hence, Best Buy lost most of its customers to online sellers in South Korea leading to its revenue declining.
Wal-Mart uses ‘Every Day Low Price’ strategy to increase its competitiveness in foreign markets. However, in China, the company was unable to convince local consumers to purchase its products. Majority of the local competitors sold their products at low prices (Gereffi and Ong 47). Therefore, many consumers did not see the need for buying their products from Wal-Mart while they could get similar products in other stores and at fair cost.
In South Korea, Wal-Mart was unable to establish strong logistic and supplier management strategies. The company operated on a small market; hence, it was hard to enhance its purchasing power and logistics system. Consequently, Wal-Mart could not sell its brand at low prices.
Thus, it faced stiff competition from local companies. Since Wal-Mart opened few stores in South Korean market, it was hard for the company to control suppliers on pricing (Sang-Hun 5). Hence, it obtained its products at high prices leading to it selling them at high prices too.
Lessons learnt
Wal-Mart and Best Buy can learn a number of lesions from their failure in the Chinese and South Korean markets. One of the lessons that the companies can learn from their failure is that in spite of an organization thinking global, it has to act local to capitalize on the local market. Considering all the factors that affect the buying behavior in the local market goes a long way towards helping an organization to guarantee that it considers these factors when laying down its strategies (Ji-Hyun 6).
Both Wal-Mart and Best Buy failed to modify their stores to resemble those in the local markets. Hence, many customers attributed Wal-Mart and Best Buy’s outlets with sophistication, which discouraged them from buying products from the stores. Moreover, the stores focused on improving their services and forgot to come up with attractive prices.
Wal-Mart and Best Buy can learn that price, brand, and product positioning sway customers when they are making decisions about whether to purchase a product. The ‘Every Day Low Price’ strategy used by Wal-Mart acted as one of its competitive disadvantage in China and South Korea.
Many local competitors sold their products at low prices. Hence, Wal-Mart did not benefit from its pricing strategy as customers could purchase same products from competitors at the same or even low prices (Ji-Hyun 6). The Companies can learn that to be competitive in foreign markets, they ought to consider other factors like branding and product positioning.
The failure of Wal-Mart and Best Buy in China and South Korea also signifies the impact of local competition in foreign markets. In many cases, global giants overlook local competition when venturing into foreign markets.
In China, Best Buy underestimated domestic competition since the majority of local electronic stores sold their products in small scale. Nevertheless, Best Buy forgot that the domestic stores knew how to overcome majority of their operations costs. Besides, the stores had knowledge in customer behavior and were able to align their products and services with customer needs (Skariachan par. 18).
While the majority of the local stores rent out their spaces to manufacturers and pay their employees on commission, Best Buy and Wal-Mart hire their employees on wages and monthly salary and this add to their operations cost. Besides, the companies incur the cost of renting a warehouse or store from which to sell their products.
Conclusion
Wal-Mart and Best Buy have started leaving the Chinese and South Korean markets gradually. The companies were unable to customize their outlets to attract local customers. Besides, the companies underestimated local competition. They did not focus on learning the buying behavior and factors that influence buying behavior in china and South Korea. This gave the local stores an upper hand since they had experience in the domestic market.
Wal-Mart and Best Buy can learn the importance of thinking global and acting local when operating in foreign markets from their failure. Besides, the companies can learn the importance of domestic competition. Wal-Mart and Best Buy failed in China and South Korea because they overlooked domestic competition. Another lesson that the two companies can learn from their failure is that price, brand and product positioning influence the buying behavior of consumers.
Works Cited
Gereffi, Gary and Ryan Ong 2007, Wal-Mart in China: Can the world’s largest retailer succeed in the world’s most populous market? PDF file. 2013.
Ji-Hyun, Kim. “Wal-Mart to close last S. Korean branch by end-January: Sources.” The China Post. 2013: 6. Print.
Sang-Hun, Choe. “Wal-Mart Selling Stores and Leaving South Korea.” The New York Times. 2006: 5. Print.
Skariachan, Dhanya. Best Buy’s move to exit Europe has many on Wall Street hoping the big box retail does the same in China. 2013. Web.