PAIS

Kelly
16CR84770

Managing MNC in LATAM

Home Depot in Chile: Case study

After being successful in Canada, Home Depot’s objective was to implement the same “three
legend stool” format in other markets. Their first Home Depot store in Chile opened in
August 1998 with 400 Chilean associates and a partnership with the local retailer Falabella.
Even if they opened 5 stores by 2001, Home Depot’s operation has resulted in enormous
losses.

In the following, we will figure out why Home Depot did not work in Chile.

In order to have a good internationalization, companies should understand international

environment, culture in international markets and customers.

In this case, there are different elements from the host environment that affected the
performance of Home Depot: rivalry, consumers, suppliers and substitute.

This industry was fragmented with only 25% are large retailers and 75% are “ferreterias”.
Home depot encountered strong competitors such as Sodimac and Easy from Cencosud.
Competitors had an advantage due to the fact that they knew the market and how it works.
Home depot overlooked its competition in the Chilean market. Indeed, competitors were
prepared for Home Depot’s arrival by developing an aggressive strategy of hiring, new CEO,
employees training, opening stores and improving logistics and service.
They had specific target market focus such as Sodimac’s two retail formats which are Home
Center focusing more in families and Constructor which supplied to independent stores.
Also, Cencosud which participated in different retail business such as groceries and home
improvement.

Consumers had a huge impact for Home Depot performance. Indeed, Home Depot catered
towards DIY which was not in high demand in Chile due to low labor cost of hiring a house
worker and long working hours in Chile causing lack of time to do home improvements but
also because there is a lack of information and tools. Although there is no real substitute for
home improvement products, we can consider that due to the low cost of labor it is common
to hire a “maestro” to do the work.
Men enjoyed shopping at Home Depot because it is cheap, but women are the main decision
makers and look after general home products and home decorations what Home Depot
didn’t offer, so they preferred to buy in small business outlets which represented 75% of the
market share. They considered the store ugly and not attractive due to their floors which
were covered only with cement and the ceiling was too high with not enough light. Women
preferred to shop at stores which looks nice and family oriented. Home Depot’s target was a
mistake.

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Home Depot wasn’t able to offer a good shopping atmosphere attractive for families and
ignored Chilean consumer behavior.

Relationship with suppliers is really important within the industry and with Home Depot it
wasn’t good comparing to their competitors. Also, Home Depot had a low volume of
purchases, so they couldn’t obtain lower prices for their products and offer better
conditions. They weren’t able to have an economy of scale.
Furthermore, they did not take advantage of their partnership with Falabella. Indeed, Home
Depot excluded them from the decision-making process. They could have helped a lot in
Home Depot’s development because they know how to work in Chile as they have a lot of
experience in the market.

Home Depot made the mistake of not taking into consideration cultural differences in Chile.
In order to be successful in other countries, companies have to accept that they will
probably have to modify their philosophy and systems.

Home Depot sent managers from the US to Chile to make business however because they
did not have a strong network it was hard for them to integrate themselves culturally and
socially to the Chilean society while competitor’s managers have already existing bounds.
Although it is common in Chile to share information and maintain a good relationship due to
their unfriendly policies, Home Depot prohibited employees to talk with competitors causing
bad relationships.

In order to succeed in Chile, Home Depot should have tried to understand and integrate the
Chilean corporate culture (for example, sharing information) considering hiring Chilean
managers.
Also, as 75% of the market share is from small businesses, they should have tried to partner
with them.
Furthermore, they could have taken advantage of their existing partnership with Falabella
because they already have a good network, relationships, knowledges and a good reputation
amongst Chilean consumers letting them participate of decision making.
It will have enabled Home Depot to have a good relationship with suppliers, so they could
have increase profitability by lowering costs globally making economies of scales.