Why Foreign Retailers Stumble in China: Lack of Empathy
Why did the might Home Depot and other retailers, very successful in the US and Canada, fail in China.
Anil Gupta and Haiyan Wang explain in the Business Week. They suggest four strategic idea. I want to focus in number 3.
Third, go heavy on local adaptation, including in such key areas as store size and format, product mix, and even store branding. The typical Chinese city has far greater population density than the typical American or European city. Also, the typical customer lives in a smaller apartment with a smaller refrigerator and is less likely to own a car. Thus, trying to clone the size and style of the company’s U.S. or European store is unnecessary baggage and would do little to build competitive advantage in China. Home Depot made this mistake in China. A key element of Home Depot’s success in the U.S. and Canada has been designing its stores around the do-it-yourself concept. It took this concept to China. Given the very low labor costs in China, however, Home Depot needed to think in terms of do-it-for-me rather than do-it-yourself.
When I have talked about empathy with customers, and understanding what is value to customers, this is great example. You cannot take even one of the most successful business models and transplant it into new contexts. You need to have the humbleness to build empathy and understand the “job to be done” for the customers in their context. A neuroscience researcher once told me that when we build empathy we “break our pattern of thinking”. This is the starting point of innovation. This kind of stuff, as the above graphic tries to suggest, cannot come from data driven analysis. It has to come from getting out of the office and understanding people.
If Home Depot has done that possibly there will be need to have a host of handymen, plumbers, electricians and others on call to support the buying process and adapt to the needs of the customers in China.
What is the learning: Whether you are starting off new or have one of the most successful business models in the world, when your context changes and customers change you need to go back to understanding the whole thing from the start. Get some insight into customers as a first step.