BEST BUY CASE STUDY

A Case Analysis

Presented to the School of Business and Accountancy

National University Baliwag

Baliwag City, Bulacan

In Partial Fulfillment of the Requirements for

International Business and Trade

By

BEZA, HEATHER B.

DE LEON, NOELE JILIAN L.

ENABORE, RHINNA SOPHIA G.

FABIAN, MARIA JANIEL B.

MAÑAOL, NADINE SHYNA S.

PANCHO, KAHLIL YLMARI JOSEF

TANGOL, MARJORIE S.

ACT 221

NOVEMBER 2023
 TABLE OF CONTENTS

Part Page

I Title 3

II Executive Summary 3-5

III Time Context 5

IV Point of View 6

V Statement of the Problem 6-7

VI Objectives 7

VII Areas of Consideration 7-8

VIII Alternative Courses of Action (ACA) 9-10

IX Decision Matrix 10-11

X Recommendation 11-12

XI. Action Plan 13-14

2
I. Title: Best Buy Case Study

II. Executive Summary

Best Buy Company, Incorporated, a prominent American multinational consumer

electronics and appliance retailer, embarked on a significant international expansion in 2006

by acquiring a majority stake in Jiangsu Five Star Appliance Co., a leading Chinese

electronics retailer. This move marked Best Buy's entry into the highly competitive Chinese

market, representing a pivotal step in the company's global growth strategy.

Best Buy's foray into the Chinese market presented a series of challenges. The central

problem revolved around achieving sustainable growth in the competitive Chinese

electronics market while managing narrower profit margins compared to the US market.

The local competition was intense, with Chinese consumers exhibiting strong brand loyalty

and trust in domestic retailers. Additionally, navigating the intricacies of the Chinese

market, including regulatory and cultural differences, posed formidable hurdles.

Three alternative courses of action were considered: Expansion Strategy, E-commerce

Focus, and Strategic Partnerships. Each option was rigorously evaluated based on criteria

such as risk, cost of implementation, ease of implementation, profitability, and adaptability.

After a thorough assessment, the recommended course of action is to focus on building a

strong online and omni-channel presence (ACA 2). This strategy aligns with the rapidly

growing e-commerce market in China and offers potential advantages in terms of lower

operational costs and access to a wide customer base.

3
 The Recommended Strategy for Building a Strong Online Presence aims to achieve

the following key objectives:

Increase Online Market Share: The goal is to achieve a 20% increase in online market

share within the next two years by leveraging e-commerce platforms and digital marketing

strategies. This objective is aligned with the upward trajectory of the Chinese e-commerce

market.

Cost Efficiency: Implementing cost-effective measures will be crucial in maintaining a

competitive edge in the online space while ensuring profitability. This includes optimizing

supply chain operations and continuously monitoring and optimizing costs.

Customer Engagement: Enhancing customer engagement through personalized online

experiences, customer reviews, and efficient order fulfillment will be a cornerstone of this

strategy. This approach not only fosters loyalty but also helps in fine-tuning offerings to

meet customer preferences.

Market Expansion: Exploring opportunities to expand the omni-channel presence by

strategically integrating physical stores with the online platform will further bolster Best

Buy's market presence. This integration will offer customers a seamless experience across

both digital and physical touchpoints.

A detailed action plan has been outlined to guide the implementation of the

recommended strategy. It includes activities, responsible parties, time frames, and budget

estimates. The plan encompasses comprehensive market research, collaboration with local

partners, product and marketing adaptations, cultural training for staff, supply chain

4
optimization, legal compliance, branding initiatives, customer feedback channels, and

ongoing cost optimization measures.

The recommended course of action provides Best Buy with a clear roadmap for success

in the Chinese market. By focusing on a strong online presence, Best Buy can tap into the

immense potential of China's e-commerce market and establish a solid foothold in this

dynamic and competitive landscape. Continuous monitoring and adjustments are

emphasized, underscoring the need for agility and adaptability in response to evolving

market conditions.

This strategy represents a strategic blend of innovation, customer-centricity, and

globalization, aligning with Best Buy's historic commitment to customer service excellence.

It leverages the company's strengths while addressing the unique challenges posed by the

Chinese market, positioning Best Buy for sustainable growth and success in this crucial

expansion endeavor.

III. Time Context

The analysis commences in May 2006 when Best Buy finalized the acquisition of a

75% stake in Jiangsu Five Star Appliance Co., thereby signaling its official entry into the

Chinese market.

Moreover, this case study delves into Best Buy's journey between August 14 and

November 15, 2023, focusing on the challenges and opportunities faced by the company

during this period. Best Buy, a prominent American multinational retailer specializing in

consumer electronics, faced significant disruptions in the retail landscape, including

5
 evolving consumer preferences, supply chain issues, and the need to adapt to an increasingly

digital world.

IV. Point of View

Assuming the role of the Vice President of International Expansion, our perspective

is centered on making decisive recommendations that will facilitate Best Buy's strategic

approach to entering and thriving in the complex and dynamic Chinese market.

V. Statement of the Problem

Best confronts the critical challenge of establishing a solid presence in China while

navigating through formidable local competition, accommodating price-sensitive

consumers, and managing narrower profit margins compared to the US market.

Strategic Issue / Problem Identification

a) Background: Best Buy's journey into China commenced in 2003 with the establishment

of a sourcing office. This was followed by the acquisition of Five Star in 2006 and the

inauguration of its flagship store in Shanghai later that year.

b) Primary Issue: The central problem revolves around achieving sustainable growth in

the competitive Chinese electronics market while maintaining profitability in an

environment with lower margins compared to Best Buy's native US market.

c) Scenarios:

 Best Case: Successful market penetration, leading to a notable increase in market

share and profitability.

6
  Likely Case: Steady growth, with moderate challenges in adapting to the Chinese

market dynamics.

 Worst Case: Struggles to gain traction, encountering formidable competition and

profitability challenges.

VI. Objectives
 Increase Market Share: Achieve a 15% increase in market share within the Chinese

electronics market over the next three years through effective marketing and customer

engagement strategies.

 Profitability Improvement: Implement cost-effective measures to attain a 10%

improvement in gross profit margins within the Chinese market.

VII. Areas of Consideration

 Strengths: Best Buy boasts a globally recognized brand, an extensive product range,

and a customer-centric approach, which have proven to be invaluable assets in the

international market.

 Weaknesses: Intense local competition, lower profit margins, and price-sensitive

consumers present formidable challenges to Best Buy's expansion efforts in China.

 Opportunities: The Chinese electronics market is poised for continued growth,

presenting an opportunity for Best Buy to cultivate brand loyalty and capitalize on the

rising demand for consumer electronics.

 Threats: Local players in China's electronics market are known for their aggressive

tactics, and economic factors can significantly impact consumer spending, potentially

affecting Best Buy's market position.

7
Table 1 Areas of Consideration
Internal Factors Strength
A diverse range of products
available
Strong brand recognition
Excellent Customer Service
Customer Convenient (Geek
Squad Services)
External Factors SO Strategy
Opportunity (Strategies to Maximize
Opportunities through
Strengths)
International Expansion Brand Expansion
Strategic Partnerships Customer Retention
Sustainability Initiatives Cross-selling and Upselling
Expand Offerings
External Factors ST Strategy
Threats (Strategies to Leverage
Strengths to Transform
Threats into Opportunities)
High Competition Sustainable Product Lines
Changing Consumer Adapt to Consumer
Preferences Preferences
Online Competitors Enhance online shopping to
counter online competitor
Economic Downturns
Weakness
Limited Global Presence
Competitive Pressure
High Operating Costs
Pricing pressures and
margin erosion
WO Strategy
(Strategies to Use
Opportunities to Maximize
Weaknesses)
Global Expansion
Competitive Pricing
Collaborate with global
partners to reduce high
operating costs
WT Strategy
(Strategies to Counter
Weaknesses and Threats)
Market Research and
Adaptation
Continuously invest in
digital marketing and
website improvements
Economic Resilience
8
VIII. Alternative Courses of Action (ACA)

ACA 1: Expansion Strategy

Advantages: Pursuing an aggressive expansion strategy would allow Best Buy

to increase brand visibility and accessibility to consumers across various regions in

China. This approach aligns with the company's growth objectives and can lead to a

larger market share.

Disadvantages: However, this endeavor necessitates a significant initial

investment, including costs related to acquiring or leasing new locations, hiring

additional staff, and setting up operational infrastructure. Moreover, there is a risk of

oversaturation, particularly in highly competitive urban areas. This could lead to

diminished returns on investment and operational inefficiencies.

ACA 2: E-commerce Focus

Advantages: With China's rapidly growing e-commerce market, Best Buy can

capitalize on this trend by establishing a robust online and omni-channel presence. This

approach has the potential to lead to lower operational costs compared to physical

stores, as well as provide access to a vast customer base.

Disadvantages: Establishing a strong online infrastructure demands a

substantial initial investment, including costs for website development, digital

marketing, and fulfillment operations. Additionally, the online space in China is highly

competitive, requiring a well-defined strategy to stand out amidst numerous players.

9
 ACA 3: Strategic Partnerships

Advantages: Collaborating with local Chinese electronics manufacturers offers

Best Buy an opportunity to leverage their expertise in the market. This can potentially

lead to the creation of unique and exclusive products, providing a competitive edge

over rivals.

Disadvantages: However, negotiating and maintaining partnerships with local

manufacturers can be complex and time-consuming. There may be challenges related

to aligning business goals, quality control, and potential conflicts with existing

suppliers.

IX. Decision Matrix

The researcher used the 5-point Likert scale as follows:

5 - Most likely

4 - More Likely

3 - Likely

2 - Less likely

1 - Unlikely

10
Table 2 Decision Criteria

ACA – 1 ACA-2 ACA-3

Decision Criteria (Expansion (E-commerce (Strategic

Strategy) Focus) Partnership)

1. Risk 4 4 4

2. Cost of
5 4 4
Implementation

3. Ease of
4 3 3
Implementation

4. Profitability 3 5 4

5. Adaptability 3 4 4

Total 19 20 19

Average 3.8 4.0 3.8

The decision matrix indicates that ACA 2, focusing on building a strong online and

omni-channel presence, has the highest average score of 4.0, making it the most favorable

alternative.

X. Recommendation

Based on the decision matrix, it is recommended to implement ACA 2 - Focusing

on building a strong online and omni-channel presence. This strategy aligns with the rapidly

growing e-commerce market in China and offers potential advantages in terms of lower

operational costs and access to a wide customer base.

11
 The rationale for the Recommendation

This recommendation is based on the following key decision criteria:

1) Cost of Implementation: ACA 2 scored 4, indicating that it requires a moderate

investment to establish a robust online infrastructure. This is considered reasonable

compared to other alternatives.

2) Profitability: ACA 2 received the highest score of 5, signifying that a strong online

presence has the potential to significantly enhance profitability in the Chinese

market.

3) Ease of Implementation: While ACA 2 received a slightly lower score of 3,

indicating a moderate level of complexity, it is considered manageable with the

right resources and expertise.

Goals and Objectives

The recommended course of action aims to achieve the following:

1) Increase Online Market Share: Achieve a 20% increase in online market share

within the next two years by leveraging e-commerce platforms and digital

marketing strategies.

2) Cost Efficiency: Implement cost-effective measures to maintain a competitive edge

in the online space while ensuring profitability.

3) Customer Engagement: Enhance customer engagement through personalized

online experiences, customer reviews, and efficient order fulfillment.

4) Market Expansion: Explore opportunities to expand the omni-channel presence

by strategically integrating physical stores with the online platform.

12
 XI. Action Plan

PERSON
ACTIVITIES TIME FRAME BUDGET COST
INVOLVED

1. Understand the Chinese

market thoroughly, including
Market Research
consumer behavior, local 6 months $500,000
Team
competitors, and regulatory
landscape

2. Identify and collaborate with

Business
local partners or distributors to $1,000,000 (includes
Development 4-6 months
gain insights into the market and partnership costs)
Team
establish credibility

3. Tailor product offerings and $2,000,000 (includes

Product
marketing strategies to align product adaptation
Management and 8-12 months
with Chinese consumer and marketing
Marketing Teams
preferences and cultural nuances expenses)

4. Train staff to understand the

local culture, and language, and Human Resources
Ongoing/ $500,000 (annual
provide exceptional customer and Training
Continuous training expenses)
service according to Chinese Department
expectations

5. Optimize supply chain

operations to ensure efficient Supply Chain and
6-8 months $1,500,000
delivery and distribution of Logistics Team
products within China

6. Ensure full compliance with Legal and Ongoing/ $1,000,000 (annual

Chinese laws and regulations, Compliance Team Continuous compliance costs)

13
including product standards,
import/export, and labor laws

7. Build a localized brand image $1,500,000 (includes

Marketing and
and messaging that resonates 12-18 months marketing and
Branding Team
with Chinese consumers rebranding costs)

8. Establish feedback channels to

actively listen to and act on Customer $200,000 (annual
Ongoing/
customer feedback to Relations and feedback system
Continuous
continuously improve the Marketing Teams costs)
shopping experience

9. Continuously monitor and N/A (cost

optimize costs to remain Finance and Ongoing/ optimization may
competitive while maintaining Operations Teams Continuous reduce overall
profitability expenses)

10. Regularly review market

performance, adapt strategies as Senior N/A (adjustments are
Ongoing/
needed, and be open to exiting or Management and based on market
Continuous
adjusting operations if market Strategy Teams conditions)
conditions change significantly

NOTE: These time frames and budgets are estimates and may vary based on the scale and

complexity of Best Buy's operations in China. Continuous monitoring and adjustments are

crucial to ensure the plan's effectiveness and efficiency.

14