Maintaining Impartiality: A Case Study of Best Buy's Failure in China

Best Buy, an American international brand, entered the Chinese market with a non-commission-based sales model, unlike its Chinese competitors who relied on commission payments to boost sales. Despite this unique approach, Best Buy's business strategy in China proved unprofitable, with a decrease in gross profit margin. The company attempted to restructure and expand its operations in China, but ultimately closed all eight of its stores in the country due to losses.

Best buy company
International Business

Table of Contents
Introduction......................................................................................................................................2
Best buy growth internationally.......................................................................................................2
Entering the Chinese Market........................................................................................................2
From five star to best buy................................................................................................................3
Company Analysis...........................................................................................................................4
Price strategy................................................................................................................................4
Consumer Concentric Strategy....................................................................................................4
Business strategy in China...........................................................................................................4
Unprofitable Expansion...............................................................................................................5
An oligopolistic Market...............................................................................................................5
Best buy reason of failure................................................................................................................6
Alternative strategy..........................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

Introduction
In this present paper, we will discuss the company which rapidly grew internationally, namely,
Best Buy. The paper also describes the analysis of the company, reason for failures, and
alternative strategy for managing the company.
Best buy is an American multinational consumer corporation which was established in 1996. The
company lies in retail industry and it's headquartered is in Richfield, Minnesota. The company
operates in Mexico and Canada. The founder of the company is Richard M. Schulze. The
company operates under pacific sales brand; best buy mobile, Magnolia Audio video, Geek
squad, and insignia in the United States. The first store of the company was opened by the
personal savings of founder, and then in 1967 the Bergo and Kencraft Company were acquired
by the sound of music. The profit of the first year was $58,000. The company ranked in the top
ten of “Americas Most Generous Corporations” in 2005 by Forbes. The total assets of the
company are $14,421 Billion, and total equity is $4.977 Billion (Best Buy: Expert Service et al.,
2016). The total market share of the company in consumer electronic market is 22% in the
United States. The company is having the higher opportunity of expansion in the international
market. The company is focusing on expanding in the United Kingdom. The level of service of
the company is much better among its competitors. The company has traditionally expanded
through acquisition outside and within the country. The company is rapidly grown in the market
through its dual branding strategy.

Best buy growth internationally
The company had successfully placed in America, but the rapid expansion in international
market faced a massive struggle by the company. The international expansion is tempting for the
retailers for sustaining the higher returns. The company entered into the china market in 2011,
but the company faces a huge struggle with local competitors in a crowded retail market. The
company had opened the elven store in china. The company lost more than half of its initial
investment in China by not getting the profit from eleven stores in china. The company was
unable to generate sales and cover its operating expenses then the company decides to close its
stores in china.
Entering the Chinese Market
The company decides to twice its efforts in foreign market because of domestic market threats.
The potential market is represented by china which shows as an opportunity for the company.
The company decides to enter in 2006 by the five-star acquisitions which are the third largest
retailers in electronics. The economic and social factors show the great opportunity to the
company. The annual gross domestic product of china is 10.7%, and emerging of the middle
class is strong which increases from 6.5 Million to 80 Million. For example, the profit of Gome
is increased to 189%, and it is the largest retail chain of electrical home appliances in China. The
company operates three global offices in china which helps to buy from the Asian manufacturers
directly. The private label products are improved through offices in china which helps to increase
the sales of the company that directly impacts on the profitability of the company in an
accounting year.

The first step in china has made confident to start the selling activities in the country. According
to the reports the company is having six priorities for the fiscal year 2007. The sixth strategy is to
implement the international growth strategy which embarks on the control growth strategy at the
time of opening first store in Shanghai in China. The seventy-five percent of china's third largest
retailer is acquired by the company, namely, Jiangsu Five Star Appliances. The acquisition helps
the company to get the strong management team which is familiar with the business models and
local consumers. It helps the company to understand the behavior of chines consumers. The
company has rapidly occupied the presence in china, and it enhances its expansion opening its
first branch in Shanghai in december28, 2006.
The company has occupied 4.3 Million retail square feet in china which is equal to the ten
percent of the total retail square. The company has operated one sixty stores of five star and one
company's store in china in 2008. In 2009 the company converted the twenty-five percent shares
of five stars as a wholly owned foreign enterprise. The company has opened its own five stores
in china till 2011.
From five star to best buy
The company has similar operations and management as in the United States and Canada.
According to the annual report 2007, the company has applied the similar strategy in china as in
the United States. The company has employed the general manager, merchandiser, assistant
manager, and the sales associate who have managed the stores successfully. The corporate
management of the company has managed advertising, pricing, merchandise, and inventory
policies of the company's stores in china. The meetings of the company occur on regular basis

which includes store management and corporate management of the store in china. The stores are
managed in a similar manner as it is managed in the United States.
The biggest challenge for the company occurred when the company had opened its stores in
china without brand equity whereas the five stars is the third largest retailer in electronics in
china. The consumers in china were unaware about the brand whereas the Gome and Sunning
China's are the top two retailers who were known by the consumers. The company is an
American brand which is not popular in china before an acquisition of the company with Jiangsu
Five Star whereas the two top Chinese retail brands were known by the consumers in china. So
the company needs to invest in the marketing and promotional activities of the company. Then
the company changes its name in chines as a part of brand strategy. The consumer has
commented that it is the bad one for marketing which impacts on the brand image in the eyes of
the consumers.
Company Analysis
Price strategy
The company is successful in developing the competitive price strategy. The online retailers of
the company have significantly threatened the strategy of America's largest electronics. The
competitive advantage of the company is a price. In the 1980s the competitors of the company
have reduced their prices which hit on the profit margin of their respective companies. The
company is survived in price wars among the various competitors such as Dixons group and
highland superstores. The rapid expansion of the company has emerged the intense competition
which impacts on the stock of the company. The company is facing a problem of competing

among the online competitors due to which the sales volume of the company decreases by 11%.
The stock price of the company diminishes from fifty-two weeks in 2011 due to which company
decides to reduce the location and sizes of the stores. Moreover, the company is a retailer of
brick and mortar due to which the company faces the problem of excess overhead cost. The
company faces other expenses such as insurance, the tax of real estate, and maintenance fees
(Huang et al., 2014). Another disadvantage faced by the company is of tax regulations which are
not paid by the consumers for online shopping. This disadvantage forces the company to
reevaluate its competitive advantage in the United States.
Consumer Concentric Strategy
The company has implemented concentric consumer strategy which helps to compete among the
online competitors in the same industry. The strategy includes superior service which helps to
differentiate the products from the competitors in the same industry. In 2006, the company
decided to transform the investment into consumers which enable to boost the returns. The
company decides to save the money by cutting the discounts of employees (Maital et al., 2012).
Business strategy in China
The company has used concentric consumer strategy which helps to differentiate the products
from the competitors in the same industry. The strategy is not biased by the incentives which are
done by the Chinese retailers. The company has opened its eight stores in the urban environment
of shanghai, but the business does not go well because most of the retailers are settled in this
area. The company has offered three products groups in china, namely, home office, consumer
electronics, and appliances. The differentiation strategy of the company does not depend on the
product but on its services. The company has decided to develop the large flagship stores rather

than smaller as it is in the United States. The consumers in china prefer shops which are near to
their homes regardless of the fact that the country is having the highest rate of car adoption in the
world (Young et al., 2014).
The company has adopted service based business model which is an alternative model in the
Chinese market. The company has employed knowledgeable staffs who do not push for sales,
and the company was provided same services of installation, guarantee, and repair works to its
consumers. The company has chosen one consumer base representative from china and trained
them in headquarter of Minnesota for giving the higher level of services to its consumers in
china.
The company provides to its consumers in china according to the need determine by them in the
Chinese market that is service with the smile. The company does not provide commission on
sales to the employees because they want the employees to work in impartiality. The company
was banking on the strategy adopted by the North American operations under which the sales
workers will work on a non-commission basis. The chief of the company in china stated that the
advantage of a model in china would be taken which is based on the understanding if the top
level management of the company. The chairman of the company states that the biggest
challenge for the company is to understand the consumers of china and electronic retail market
(Capron et al., 2013). The company has adopted more ethical environment by non-commission
pays to the sales person, unlike the Chinese competitors who force the sales person in order to
boost their sales volume.

Unprofitable Expansion
The business strategy of the company has proven to be unprofitable in china. The gross profit of
the company is decreased by 0.9%. Therefore the company has decreased its strategy in 2008
which includes decreases in general and administrative expenses. The company has reduced its
costs of operations in china and rate of the international segment is reduces by approximately
0.5% of revenue in the year 2008.
The company has reduced the expenses in 20078 which results in dissatisfaction in the
operations in china. The gross profit from the international segment is reduced by 0.7% in 2008.
The decrease in the international segment is due to the increment in the sales of low margin
products. The operation in china is primarily offset by the improvement in product categories as
well as less financial cost.
The operating income of international segment in 2010 is primarily higher from the operating
income in china and Europe. However, the company has reduced their costs such as overhead,
marketing expenses, payroll and others. Regardless of the losses faced by the company in 2010
the company has to expand its business in china and by 2011 the company has eight stores in
china.
In the year 2011, the company plans to restructure the stores in china in the year 2012. The
intention of the company is to explore more profits through reopening the closed stores in china.
Then at the end of 2011 the company closed its all eight stores in china (Christensen et al.,
2013).

An oligopolistic Market
The electronic market and household appliances are largely dominated by the two major
retailers, namely, Gome Electrical Appliances and Suning who are competing with each other
within the same industry. The Gome Electrical Appliances is having approximately $10 Million
in the year 2006 (Gao et al., 2013). The company has four hundred and twenty stores with three
lakh employees and Suning is just behind the Gome Electrical Appliances. The
Best buy reason of failure
Following are the reason of failures in Chinese market:
1. The main reason is that the consumers did not like to go large shops and they prefer to go
small shops at nearby their homes.
2. Another reason of failure is to enter into the foreign market without brand equity which
directly impacts on the sales volume of the company because consumers were unaware of the
American brand which enters into the market.
3. The company does not completely understand the taste and preference of Chinese consumers
and behaviors of the electronic retail market in china due to which the company was unable
to satisfy the demand of consumers in china.
4. The company applies the same strategy in the Chinese market by opening the large stores
whereas the consumers in china prefer small stores.
5. The company does not complete understand the market and consumer needs due to which the
company was unable to survive among the local competitors in the retail industry of china.
6. The company has applied the incorrect marketing strategy by change the name of the
company in Chinese which badly impacts on the brand image in the eyes of the consumers.

Alternative strategy
The company should improve various fields which help to compete with the competitors in the
Chinese market. Following are the areas that need to be improved:
1. Enhance relationship with suppliers
The company must improve the relationship with the suppliers which help to build the strong
supply chain by smooth running of supply cycle.
2. Cost reduction
The company must reduce its additional expenses in order to generate more profits in the
Chinese market.
3. Promotional activities
The company must use various marketing tools which help to promote the brand in the eyes
of the consumers, and it enhances the sales volume of the company in a Chinese market.
4. Brand equity
The company has entered into the Chinese market without brand equity which majorly
impacts on the profitability of the company because the consumers are unaware of the brand
in China.
Marketing strategy
The marketing strategy of the company must be based on the consumer analysis which helps to
understand the taste and preference of the consumer. The consumer of china does not prefer large
stores if the company analyze the consumer behavior before entering into the market than it
helps to make them understand that the buyers are not ready for large stores and they prefer
small shops at the nearby house (Vandergrift et al., 2013). Secondly, if the company enters into

the market with the large stores than the branding must be done which helps to promote the
brand image in the eyes of the consumers. The various promotional activities can be adopted by
the company such as an advertisement, free sampling, discounts and others.
Conclusion
The best buy is an American international brand which successfully done its business in America
and rapidly enters the Chinese market with the same marketing strategy and without brand
equity. The company does not analyze the whether the consumers are ready for the products and
services and the analysis of the retail industry in china which became the reason of failure in the
Chinese market. The company also uses wrong marketing strategy by changing the brand name
into Chinese which adversely impacts on the brand image in the eyes of the consumers. The
company enters through the acquisition of third largest retailer in China but due to lack of market
analysis and wrong time enter into the market leads to the failure of the company in china. The
alternative strategy is to understand the under the retail industry and consumers behavior which
helps to promote the brand through using appropriate marketing tool. The marketing can help to
change the consumer preference from small stores to large stores which helps to increase the
revenue of the company. The company enters into the Chinese market in 2006 and till 2009 the
company had opened eleven stores in china despite a decrease in profit margin. Then the
company decides to close its all eleven store in 2011. The economic and social factors of china
viewed as the great opportunity by the company due to which the company decides to enter in
china market. The company has applied the same strategy as it is applied in America which is
another reason of failure because the consumer behavior of every country is different which
needs to be analyzed before serving the product into the foreign market. The business strategy of

the company is to open eight large stores in an urban environment due to which the company
faced high competition with the local competitors in the same industry, and it does not go well
because competitors were already settled in the same area.

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