Under The Influence
This post is inspired by the CBC Radio show turned podcast called Under The Influence. The episode titled Passport Revoked examines how brands can be dominant in one region but fail when expanding abroad.
Large corporations have plenty of reasons to expand abroad. Often their executives are rewarded for growth and the company may have saturated its home market. What could be so different across the border, or across the sea?
The examples from this podcast demonstrate that expanding abroad is a tricky business. My contention is that a little design thinking would have gone a long way to prevent these fiascos.
Home Depot – you can’t do it
The story began when Home Depot bought a twelve store operation in China in 2006. Problems cropped up quickly. The supply chain they had in North America included a lot of Chinese companies, but few of them were licensed to sell in their home country. The low labour costs in China meant that there was little interest in the DIY customer that Home Depot thrived on at home. Finally, the often cramped accommodations of the typical Chinese citizen meant they had little room to store all the tools and supplies that North Americans would keep in their garages and basements.
Finally in 2012 Home Depot ceased operations in China.
Experimentation is part of business, and I applaud Home Depot for attempting this expansion. Yes, they could have tried something on a smaller scale, but to put things in perspective, Home Depot opened 113 stores in North America in 2006, the year it bought twelve stores in China.
Similar fates befell eBay in China, Walmart in Germany and Starbucks in Australia. Entrenched competition and a preference for local customs meant that the proven business model on home turf didn’t fare well in the away game.
Beginning in 2013, Target plans to open 125 to 135 stores in Canada. Over time, we believe we can profitably operate 200 or more Canadian Target stores.Target 2011 Annual Report
In 2011, Target opened 21 new stores in the United States. Its expansion plans in Canada dwarfed its plans for its home market. This is the very opposite of design thinking. It assumed that all would go well and committed enormous resources in one big swing, without doing any market fit testing at all. The end result was a loss of 2 billion USD.
We must learn what customers really want, not what they say they want or what we think they should want.Eric Ries in his book Lean Startup
The lessons contained in the book Lean Startup by Eric Ries apply here. “The only way to win is to learn faster than anyone else.” It’s a big world and any one of these companies could have used the same resources to open single stores in several jurisdictions instead of making enormous commitments to single markets.