Company That Internationalized Too Fast and Alternative for the Management - Case Study Example

Running header: A company that internationalized too rapidly A company that internationalized too rapidly Course Name Professor’s Name Institutional Affiliation City and State Where Institution is Located Date Case study on a company that internationalized too fast and the alternative strategy that would have been advisable for the management Introduction With the recent advents in globalization, internationalization is viewed by many as the best hope for world stability and as a way of enhancing the companies’ profitability. In fact, the number of multinationals continue to rise everyday as companies look for greener pastures in the emerging markets. This has largely been driven by advocacy by financial markets, investment bankers and consultants, the media and moves by rivals thus necessitating the strategic imperative to internationalize in one form or the other. Thus, companies are likely to continue internationalizing as long as the world continues to transform into a global village. However, owing to the importance that many companies hold internationalization with, it easy for them when making internationalization decisions to forget the serious mistakes some of their predecessors have made owing to poor choice of internationalization strategies (Miguel, 2011). Though the benefits of international growth are often taken to be self-evident, there may be instances where firms have entered international markets too quickly that at times the companies involved have been hurt financially or in similar ways. An example of such companies is the Dutch financial services firm ABN Amro that rapidly acquired banks in numerous countries but was unable to achieve the integration that was necessary to generate value for its international network. On the other hand, AES rapidly internationalized into 29 countries in five continents but has been unable to show that it is worth more than the sum of its individual geographic units. This essay is a case study of Best Buy that rapidly internationalized into Europe and China but followed the wrong strategy such that it failed and has closed most of its operations in these countries. The paper will also look at the alternative internationalization strategies that the company should have followed to ensure success thus showing that internationalizing too fast may not be good for any companies but a lot of factors need to be considered before the actual internationalization move is made. Best Buy Efforts at Internationalization Best Buy is an American big box store chain dealing with electronics and entertainment that has always appealed to the Americans at home hence its success in America. But its efforts to go international were too fast that it forgot to change its American strategy in the international markets leading to its failure in all the markets it was so eager to conquer. This has resulted in the company struggling so much to make headway in the foreign markets but with no success. However, it is to be noted that the reason for its failure especially in the European market was that the internationalization efforts were too fast that it adopted a poor marketing strategy and also failed to notice that Europeans preferred smaller shops to large box stores among other related factors. In other words, Best Buy was in a hurry to conquer the European market that it forgot to first conduct research regarding the strategy that would lead to success in this market (Groth, 2011). Instead, it carried its American strategy to the European market despite the fact that the two markets were completely different with differing needs and hence needed different strategies. This was to see the company close all its stores in Europe as rapidly as it had ventured into the European market. The same can be said of its efforts to venture into China and Turkey markets where it also closed branches. In china and Turkey, the company’s failure is attributed to its being too fast to conquer the markets that it failed to differentiate its product lines from those of the local retailers and the fact that it had no time to adopt to the local shopping preferences. While its strategy was the American big box store chain model that appealed to American, the local consumers preferred smaller and more conveniently located retailers. Market research could have helped Best Buy realize this and hence react accordingly but it seems it was in a hurry to go international. Best Buy’s failure attributed to its late mover strategy As stated above, the failure by Best Buy in the above markets yet it is considered a giant at home can be attributed to internationalizing too rapidly hence failing to see the needs of the new market and hence adapt accordingly. The company was venturing into an already established market too late with nothing new to offer thus leading to its failure. There were other established companies in the market but Best Buy didn’t care to research on how they operate in the market. Best Buy for instance was not offering anything new while it did not have established brand association in the new market and hence it offered what others were offering but without differentiating itself. The company also failed to adequately study its industry concentration in both Europe and China (Rein, 2016). This is because electronics market especially in China is very concentrated and has historically been dominated by two players. Thus, a late entrant like Best Buy that was entering a highly concentrated electronics retailing segment was faced with almost insurmountable challenge especially given the fact that as a late mover, it had no advantage to offer. The established players in the industry already had massive scale advantage as first movers that a foreign player like Best Buy could not easily counter. As stated above, companies that internationalize too fast risk failing to differentiate themselves and hence their visibility is limited. For Best Buy, it failed to differentiate itself in the new international markets such that there was little difference between the product mix it sold and those sold by its Chinese competitors. Best Buy was having to compete with local competitors on non-product factors including location, price and similar value added services (Gupta, 2015). Thus, its products were not viewed as unique or superior in any way in these markets when compared to those of the already established competitors and hence consumers in these new markets had very few reasons of abandoning the traditional sellers for this new entrant. Thus, Best Buy failed to have the early mover advantage considering it was a foreign retailer with no product differentiation or branding advantage and hence the rough time it underwent. In other words, the local competitors already had had time to build local scale before the new competitors like Best Buy could do so. Best Buy was too late when it started eyeing the new markets. Best Buy also failed to adapt to the local needs as a result of not having done enough research on the local markets. This too contributed to the company’s failure. For instance in China, Best Buy was perceived as being too expensive selling its products at higher than in local markets. Customers thus didn’t see the need of buying a sonny DVD player or a Nokia phone at Best buy when one can pay less for the same at a local store (Gurumurthy and Gurumurthy, 2016). This would only be possible if they were to buy something they cannot get elsewhere. A thorough research before internationalizing would have enabled the company to act accordingly. The research could also have indicated that though economies of scale allowed the big stores in America to offer cheaper prices than niche players, this could not have been possible in China since local retailers in China are able to cut prices owing to less salaries, benefits, electricity and rent. In addition, rampant piracy means that local computer shops are able to install counterfeit Microsoft software in products that makes it more appealing for customers. Best Buy had not foreseen this before internationalizing. Another mistake that Best Buy made was to focus on building large flagship stores just like in US as opposed to smaller conveniently located retail outlets. This is because the market in the international markets preferred shop closer to their homes. Still, a government ban on free shopping bags also resulted in Chinese consumers shopping more often but in smaller quantities every time and this made neighborhood stores more popular despite the fact that this was not the policy adopted by Best Buy in China (Cheng, 2010). Thus, it seems that Best Buy did not have adequate information on the new markets it was venturing into. Availability of information would have enabled the company to overhaul its business strategy and better understand the international markets it was venturing into including the local consumer preferences. This would have enabled the company localize its product selection, sales formats while being smarter in choosing location so as to compete with the local brand savvy local players. As thus, it can be argued that the failure by Best Buy in the various markets it ventured into resulted from internationalizing too quickly which resulted in lack of enough information on the market. It also resulted from entering the market too late thus having the late mover disadvantages rather than advantage (Sanjeev and Sridhar, 2016). This is a clear indication that companies that internationalize too rapidly at times do it to their detriment and often make a lot of losses and end up closing their foreign operations. The alternative strategy that Best Buy should have followed to succeed internationally Companies succeed in international markets by employing a number of strategies. Some enter the markets as pioneers and hence use the first movers advantages to enable them succeed in the new markets before competitors can enter the market as late movers. First movers derive a lot of competitive advantage by virtue of being the first to bring a specific product to the market. For instance, being a first mover enables a company to establish a strong brand recognition and customer loyalty before other entrants to the market arise (Katarzyna, 2013). A first mover also has additional time for perfecting or improving its product or service before competitors can enter the market. Best Buy has successfully been a first mover for a number of times and has succeeded in the market making it the giant it is at home. An example is the recent deal with Panasonic for Best Buy to exclusively sell the Japanese electronics giant’s first three dimensional TV home entertainment system bundle in the US market. Though the deal is in its initial stages, Best Buy should have used the same strategy to conquer the new international markets by seeking to introduce completely new products to the market that local suppliers do not offer as well as introducing things currently in offer in the market but of completely superior quality (Korine and Alexander, 2008). This way, Best Buy would have sold itself as a completely different brand in the market giving the local consumers a reason to want to buy from Best Buy despite its high prices and its being new in the market. This is completely different from the strategy it adopted of selling nothing different from what its local competitors were offering but at higher prices. As stated above, Best Buy ventured into the European, Turkey and Chinese markets as a late mover though with nothing unique to offer the market. As such, consumers had no reason to shift to Best Buy from the already established local companies. To succeed, the company should have employed a different internationalization strategy as a late mover from the ones they employed in venturing into the above markets (Ian, 2005). For instance, the company should not have used its American strategy in the new markets since this was bound to fail as the local customers would view the company as American. The company should have used a multidomestic strategy where it would adopt a domestic strategy for each individual market it ventured in. This would mean the company sacrificing efficiency in favor of emphasizing responsiveness to local requirements within each of the markets. For instance, it should have adopted the smaller sized retail shops in both Europe and China and adopted lower prices in China by adopting policies similar to those adopted by the local companies in the market. This is similar to the policy adopted by MTV. Instead of trying to force all its American made shows on viewers around the globe, MTV uses customized programs that it shows in its channels within many countries. On the other hand, H.J Heinz adapts its food products to match local preferences since different customers in different markets have different tastes and preferences (Gerard and Golder, 2001). In other words, the company should have adopted a more European or Chinese strategy respectively for the different markets as opposed to continuing with their home strategy that was too American. The company should also have adopted a more visible strategy. For instance, given that the company had only 11 stores as opposed to its rivals who had more than 250 stores each, the company should not have attempted to go against the major retailers with such little experience of the Chinese or European market but should instead have chosen to invest in an international market with no major competitors which would make the company’s more visible (Sapling.com, 2011). For UK for instance, the market for electricals is too small for three major retailers. Thus, choosing to venture into UK which is hard enough for Comet and Dixons to thrive was a wrong move in the first place. Investing in a less congested place would have been better. Another alternative strategy that the company could have adopted is that of investing in a continuing business as opposed to opening stores from scratch (Lieberman and Montgomery, 2008). This can take many forms such as resourcing or appointing local dealers to deal with the company’s products, the company could also have invested in existing local businesses by buying shares in the companies meaning that it would ride on such companies ‘market experience, buying an entire continuing business or establishing joint ventures with local companies. Such a move would have been an appropriate entry strategy for the company given that the company would have a chance to get the necessary market experience before expanding its operations in the new markets (Zhang and Baynard, 2013). A good example is the company’s experience in China with Five Star stores operations. These stores had been acquired before the company started rolling out its Best Buy stores. Since the Five Star stores had originally adopted a Chinese domestic strategy, they offered electronics that were in line with the Chinese customers’ tastes and preferences including their offerings being cheaper. As a result, the company did not close these stores down as it did with its Best Buy brand but it continued operating them. Had the company adopted such a strategy when entering the foreign markets, it would have succeeded. Opening Best Buy stores in the new Markets when it was too late when the market had already been established was a great mistake for the company (Buckley, 2008). As such, the company’s management should not have been in a hurry to internationalize but should have undertaken adequate research that would have enabled it to adapt to the conditions of the market a move which would have made its quest to internationalize successful. Conclusion The benefits of international growth are taken to be self-evident with many companies seeking to expand their profitability by investing in emerging and growing markets. However, there may be instances where firms have entered international markets too quickly and this has resulted in the firms incurring huge losses as opposed to the profits they might have sought in internationalizing. This often happens when companies adopt the wrong internationalization strategy owing to failure to undertake adequate research before making the internationalization move due to too rapid internationalization. This essay has studied a case of Best Buy limited that internationalized too rapidly in its quest to cut a share of the large Chinese market as well as the lucrative European and Turkey markets only for it to close its operations in these markets barely five years down the line. The mistakes that the company made in these markets included entering the markets as a late mover while it failed to adopt the right late mover strategy which led to its failure. The company should have studied the local markets needs adequately before venturing the market. However, owing to its too rapid internationalization, the company has ended up closing its operations. The essay thus concludes that internationalizing too rapidly may be detrimental at times. Any move by a firm into the international market should be very well planned backed by adequate research and should always be strategic. This way, firms will always assure themselves of success as they venture into the international waters. 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