Evaluate Home Depot’s Decision to Enter China’s Market

Abstract

Evaluate Home Depot’s decision to enter China’s market and establish brand recognition in a strong growing economy. China’s home improvement market is generating 50 billion annually and Home Depot is looking to take some market share (Global Business, 2006). Home Depot’s decision to acquire The Home Way was a calculated decision based on the extreme nature of the Chinese home improvement industry. Home Depots decision to wait and learn from their competitions mistakes proved to be an important strategy and made the acquisition of The Home Way a smart decision. Home Depot core competencies were not suitable to serve the Chinese market as it currently operates and the acquisition proves their current business model needed something extra in order to survive in China.

Home Depot is facing many challenges to penetrate the Chinese home improvement market. China’s approach to home building is different from many parts of the world, this starts with their government regulations, and the amount of finish work needed to complete a home or apartment. In the 1990’s the Chinese government’s reform of the housing system started with a zero percent ownership to a nearly 70 percent private ownership in as little as 20 years. Chinese consumers must:

• Select a contractor for design, decoration and finishing service

• Design a home plan in conjunction with a contractor

• Purchase construction material, through the contractor or themselves

• Agree on schedule and pricing

• Conduct a final check (Global Business, 2006)

This is not the typical environment for Home Depot. Home Depot offers installation services for special projects such as kitchens, windows, and designs. This lack of experience for Home Depot also makes the decision to acquire the Home Way a much better option than starting new in China. The industry environment creates the same threat for Home Depot. Home Depot would need to have a well-trained staff to finish the homes or apartments of their new clients. This need for employee expertise is the fundamental difference between China and the rest of the worlds home improvement needs. Home Depot is very good at identifying and offering innovative merchandise at low prices. This philosophy complimented by the already proven current strategy of The Home Way is a plan for success.

Home Depot’s strategy to wait and learn about the Chinese market has proven to be a smart decision. The overall industry is growing at 20 percent a year and Home Depot has been able to learn from rivals B&Q (Forbes, 2007). B&Q is having great success in China however they did not start