Factors Behind Home Depot's Unsuccessful Entry into Chile

Home Depot's failure in Chile can be attributed to several factors that contrast sharply with its successful expansion strategy in Mexico. The company underestimated the importance of understanding local consumer mentality and business culture. In Chile, Home Depot faced challenges due to its strategic missteps, such as failing to engage deeply with local partners like Falabella and ignoring the prevalent market structure dominated by small businesses ('ferraterias'). Unlike their approach in Mexico, where acquisitions played a crucial role, Home Depot did not adapt its strategy to fit Chile's unique retail environment. Additionally, the company’s management style hindered integration into Chilean corporate culture, leading to alienation from local competitors and suppliers. This analysis underscores the necessity for companies to tailor their strategies to align with local market demands and cultural nuances when entering new international markets.

- Thanks’ Odi, Afternoon everyone, so I will be talking about why Home Depot’s strategy failed
in Chile? And what could have been done to rectify where they went wrong.
- So, to recap, Home depot’s dominance in the American and Canadian market, urged the
company to believed that this source of competitive advantage would lead to the success in
Chile. However, as mentioned this expansion ultimately proved unprofitable.
- So, with favourable conditions in the Chilean market like a stable economy, high education
levels and the government support for FDI, it seemed like an easy success for Home Depot,
then why did the aspiring Chilean company collapse after just 3 years of internationalising?
- Well the short story of Home Depot’s failure is everything that worked for American
consumers, did not work for its Chilean counterparts.
- Home Depot didn’t understand Chilean culture, Chilean business environment, Chilean
people’s lifestyles and more importantly Chilean people’s mentality towards manual labour.
(change slides)
- So first off, the target market in Chile is completely opposite to the US market.
- Over in the US, I think the doing it yourself mentality is considered to be honourable as it
shows you’re quite capable you can do it yourself.
- In Chile however, they have quite a different mentality, purely because it is a lot cheaper to
get a “maestro” (or a builder) to do it for them.
- Overall in Chile, it is a strong held idea that upward mobility is more towards education and
away from manual labour and therefore, Chileans don’t have either the time nor resources
to complete DIY acitivites.
- Combine that with the lack of knowledge on how to build and construct things, and it is clear
why Chilean consumers shunned Home Depot’s DIY method and instead embraced the DIMF
(do it for me) method.
- Consequently, the DIY market in Chile is highly undeveloped and this is evident in this
statistic that the top three retailers share only 25% of the market, meaning the rest of the
market is dispersed amongst smaller retailers or “ferreterias”
- So Going off that note, Home Depot’s America based business-model was tailored for the
male market, however the traditional gender roles in Chile meant that the cold, uninviting
store did little to entice the potential female market, who were the primary shoppers.
Woman preferred novel products over new idea’s and this differs from the US market where
70% of home Depot’s sales came from DIY consumers. In addition to this, Latin American
culture is very family oriented and therefore the Store layout is expected to have a
welcoming family friendly environment, which clearly Home depot is lacking.
- (change slides)
- Another major factor which contributed to the failure of Home Depot was the relationship
between both their competitors and suppliers.
- Home depot overlooked its competition and suppliers due to no1. Arrogancy and no2. The
lack of knowledge of the Chilean market.
- Home depot followed their American based retail format, without considering if it needed
any kind of adjustment to compete with its local counterparts.
- They had this superficial attitude of having the biggest market share globally, and that
blinded Home Depot from the other retail giants and “ferreterias” in the market who
prepared for their arrival.
- Moreover, this arrogance lead to the expectations that they were going to sell large
volumes, however, were never able to sell enough to make good use of their supplier chain
network. This was at a huge loss for home depot as the products obtained by Solimac (there
main competitor) were 4% lower than home Depots, not only because of the volume
produced but because Soliman had the know-how competencies of negotiating in Chile.
- Furthermore, the lack of “character-based trust” amongst its competitors and partnering
firm Faralbella, tarnished both relationships.

- As stated in the case study, it was common practice for competitors from all sectors to
maintain a good relationship, and this was done through sharing experiences, through
sharing information etc. However, home depot prohibited its manger’s and employees to
talk to any competitors, and that practice was not congruent with Chile’s traditional
business-culture.
- Arrogancy when dealing with partners, suppliers and competitors I believe is summed to a
lack of control of their managerial model.
- Home depot based their managers off the fact they spoke Spanish, and not based on the
manger’s know-how capabilities. Therefore, they had a hard time integrating themselves
both culturally and socially into the Chilean business society, and that strongly hindered
their acceptance by other executives.
(change slides)
- Now I am going to go into how they could have succeeded in the Chilean market.
- I believe Home Depot should have transitioned from a global strategy into a transnational
strategy.
- So, put simply, the transnational business strategy involves adapting the host country’s
business-models into foreign subsidiaries.
- Although maintaining basic similarities, it is important to adjust the model to achieve local
responsiveness, a differentiation advantage and seamless integration all in one.
- To come to this conclusion of using a transnational strategy, Home Depot should have
implored a RAT cycle test to determine what strategic business model would be best suited
for that foreign market.
- RAT stands for Relevant, Appropriable and Transferable and identifies if any of Home
Depot’s current capabilities can be copied into the new markets.
- In the case of Home Depot, they needed to adjust their business model slightly, through
implementing a more inclusive managerial style, to meet all aspects of the RAT cycle
- Therefore, further understanding of Chilean corporate culture was the key to building a
relationship amongst its competitors, suppliers and partners.
- Because they wanted to keep their management team autonomous from their competitors,
it futher jeopardised Home Depot’s seamless integration both culturally and socially, as they
didn’t immerse themselves in the “club like” culture.
- If Home depot eliminated this cultural control and outsourced managers that were
independent from their own management team (such as using local employees), the
company would have integrated into the Chilean corporate culture a lot more fluidly.
- (change slides)
- Home Depot even shunned its partnering firm Falbella by excluding them from board
meetings when making strategic decisions, and this became their Ultimate downfall.
- Home depot initially entered into the market through Falabella and went to open up 5 more
stores with the partnering company.
- Falbella has a massive competitive advantage in relation to pre-existing connections as they
had 100 years’ experience in the Chilean retail industry, so of course they would be
accustomed to their own countries market demands.
- If Home depot included Falbella with their strategic making decision, it would have mitigated
the risk of diving into unknown territory, as well as voiding the need for any further research
and development on the Chilean market.
- Of course, it is inevitable that partnering industries won’t see eye to eye in one way or
another, however through Home Depot scrapping this overly aggressive business model, it
would have definitely alleviated a lot of conflict for Home Depot, and more importantly,
bridged Home Depot’s cultural in-differences between not only Falabella, but their
competitors and suppliers alike.

- By integrating with Falabella, Home Depot would have gained stronger local responsiveness
through acquired a developed reputation, as well an understanding on how to adapt their
stores to be more relevant and appealing to the female market.
- Therefore, Home depot needed to build a participative relationship with the Falabella team,
to make the most of their opportunities given.
- Home depot could have also taken this one step further and included even a mission
statement for example, just maintain a collective view of both companies’ vision in striving
for market success.
- Another major factor which needed to me included is tapered integration. Tapered
integration is a mixture of vertical integration and market exchange.
- As I stated previously, 75% of DIY merchandise is sold via “ferraterias” or small businesses.
Therefore, selling home Depot’s products partially via retail operations and the remaining to
“ferraterias” gains a much wider and more relevant consumer market for Home Depot
- Therefore, in summary, any company that is considering going abroad must consider
consumer mentality, lifestyle as well as business environment and culture, Irrespective as to
whether you’re largest retail manufacturing company or not.
- Our final question is WHY DO YOU THINK HOME DEPOT IS THE LARGEST HOME
IMPROVEMENT CHAIN IN MEXICO?
- So, now I will just briefly touch on the history of Home depot entering into Mexico, and then
Odi will take it away with talking about why the acquisition strategy is better in comparison
to the greenfield strategy and finally TK will summarise how Home depot move away from
its original Global strategy and formed a more localized strategy to adjust to the Latin
American market.
- Home depot entered the Mexican market in 2001 with four stores and has enjoyed steady
growth. It now utilises 92 outlets country-wide, with at least 9 new stores set to open this
year.
- So how did they enter into the Mexican market?
- Home depot first entered the Mexican market through the acquisition of “Total Home”, a
local home improvement chain.
- Then, in 2002 it acquired Del Norte, a four-store home improvement chain and finally
- In May 2004, they again acquired another home improvement store “Home Mart”, which at
the time, was the second largest home improvement retailer in Mexico.
- With these acquisitions, Home Depot became Mexico's largest home improvement retailer
and currently employs approximately 9000 associates in Mexico.
- I will now pass on to Odi who will elaborate on the acquisition of these Home Improvement
companies which enable Home Depot to become successful in the Mexican market.