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Home Depot International Expansion Strategies
Abstract
International marketing is necessary for the current age of globalization. Companies are expanding to other parts of the world where their services are absent. The international market is a source of diversity. It may affect a company positively or negatively. This essay focuses on the international expansion and marketing strategies for Home Depot, which is one of the companies with a strong international presence. It looks at the entry strategies for the organization, the marketing strategies, and the analysis of the environment in which it operates.
Home Depot International Expansion: Executive Summary
Globalization has led to the emergence of the global market as an important part of any organization. Companies that wish to succeed market their goods and services on the global front. This strategy adds the profits that are available in their local branches. Globalization has also introduced diversity, along with a number of challenges that may hinder the performance of companies. Marketing has undergone a series of changes in the wake of globalization, especially due to the differences in these new areas.
One of the companies that have adopted international expansion as a strategy is Home Depot Company that was founded in 1978. It has undergone expansion. Home Depot Company originally offered home appliances in its stores. It also invested in some of the largest warehouse-styled stores (Weinberger & LaPadula, 2001). Some of the areas that the company has managed to excel include customer service and provision of quality brands. This essay looks at The Home Depots international expansion and the marketing strategies it used to achieve this expansion.
Nine Strategic Windows Model
The nine strategic windows model is important in determining the international expansion strategies that are applied by an organization. In this model, an organization can begin as a local company and expand globally. Besides, it may start as an international company and continue on its international expansion. The concept of Born Globals emerges. Companies are able to expand significantly in the presence of strong competition.
In the case of Home Depot, the organization started as a local retail store where it offered its services to a particular region in the US. The retail stores later expanded to offer services to other areas after the revenues were enough for expansion (Weinberger & LaPadula, 2001). Home Depot did not carry out international expansion until the US market became saturated with the stores. The company had enough revenues to counter any competition in the international expansion areas. The company started by strengthening its local market after it was created. Globalization was also achieved through venturing into nations that were seen as less risky for the already existing business.
The nine windows model is important in the analysis of the global expansion of companies. It provides a strategic route that may be followed to ensure an organized expansion strategy. Home Depot fits this model. Its expansion strategy is significantly compatible with the model. The company can be said to have followed a detailed expansion strategy in its global expansion.
Benchmarking
One of the companies in the industry that have managed to apply global marketing and expansion is Wal-Mart. This company has numerous stores around the world. It has managed to create a strong brand name for its products and services (Weinberger, & LaPadula, 2001). Wal-Mart is also Home Depots competitor. It offers services that are similar to those offered by Home Depot. Some of the things that have allowed this organization to expand on the global market include the wide range of services and goods that are available at its stores. Home Depot has also specialized in the provision of diverse goods and services that are compatible with those offered in Wal-Mart.
Wal-Mart uses pricing to attract different customers in the global market. This strategy has proved useful for the company, thus ensuring the companys growth in the international markets in which it operates. Competitors have also been unable to match the pricing strategies applied by Wal-Mart. Home Depot offers well-priced goods, although some of them are designed for the high-end market. Because of the differences in pricing, the organization has not applied this concept as the main strength in its international marketing and expansion. The customer service principle that is applied at Home Depot is the main strength that the company uses to expand globally.
Company SWOT Analysis
Strengths
Home Depot has a number of strengths that make the company successful in the face of global competition. Some of these strengths include a strong brand name, a large presence in the national and international front, a strong and devoted management team, and customer service that is above most other companies. The performance of the economy in the country of origin was a significant threat for Home Depot. The company has managed to withstand this threat among others due to its strong management team. The management has devised ways of ensuring that the company stays above the rest in terms of competition.
The performance of the company in terms of inventory management and revenue output can be attributed to the companys management structure. The other strength is the branding that has been adopted in the company. Home Depot pioneered in several types of stores across the country. It has managed to create a strong brand name that propels it to the current state of success. The company also has a strong brand name that is built on home improvement.
The global expansion of Home Depot is an additional strength. The company has over a thousand stores that are spread all over the world, with most of these stores being located in America (Chan, Goff, Stafford & Winkler, 2001). The company has managed to penetrate the market more in relation to any other company of its type, hence providing it with a large market. According to Hollensen (2007), customer service is one of the areas that companies should exploit to improve their performance. Home Depot has ensured that the services provided to its customers are the best and the most competitive. Customers are also able to select products from the available large variety.
Weaknesses
Just like any other company, Home Depot has several weaknesses that can limit its future expansion and profitability. One of the weaknesses is the companys inability to differentiate itself from other companies that provide similar products (Chan, Goff, Stafford & Winkler, 2001). Home Depot provides home improvement products. It has made unsuccessful attempts to switch to different products that may make it unique (Chan, Goff, Stafford & Winkler, 2001).
The global and local macroeconomic factors are also a major weakness for Home Depot. The performance of the housing market in many areas has not been good in the recent past. The company is unable to control this sector of the economy. Saturation has also been a major weakness for Home Depot since the company is unable to increase stores in new areas, with the only available growth in stores occurring in the existing markets (Chan, Goff, Stafford & Winkler, 2001). Traditionally, Home Depot depended on the untapped markets in the United States for growth and expansion in other parts of the world where it managed to establish itself (Chan, Goff, Stafford & Winkler, 2001). These markets have increasingly become saturated with the companys products and services. This situation presents a problem in expansion.
Opportunities
The principle opportunities that Home Depot has as a growing business include the potential for expansion in other markets and the available customer service initiatives (Chan, Goff, Stafford & Winkler, 2001). Expansion has proved expensive and involving for Home Depot. The management has planned to improve the company through performance enhancement as opposed to expansion. Therefore, Home Depot has specialized in quality customer service by offering a new range of services to the existing customers as well as prospective ones. An example of an initiative in place at the institution in the facilitation of this concept is the Service Performance Initiative (SPI) (Chan, Goff, Stafford & Winkler, 2001).
SPI was designed to increase contact between customers and employees, thus allocating more time to this contact compared to other activities. The Pro Initiative as another program was set to improve the services available to customers in the company (Chan, Goff, Stafford & Winkler, 2001).
International expansion is another strategy that will prove an opportunity for the company. Home Depot has expanded into other international markets in the last few years by offering its services to countries such as Mexico and Chile. The international expansion for the company is another opportunity to increase its global presence. The company has managed to grow its operations in Mexico, thus becoming only the second largest store of its kind in the country.
Threats
Competition is the main threat for Home Depot both on the local and international front. The main threat for this company in terms of competition is Lowes Corp. (LOW). This company has proven a challenge for Home Depot in the past in the form of occupying markets that Home Depot targets for expansion, thus registering better performance in these areas while at the same time attracting customers from Home Depot. LOW also has a strong distribution network compared to Home Depot. This situation makes it a better company in the management of inventory. The company reports an increase in revenue every year, with this outcome showing that Home Depot does not effectively challenge it. Other competitors apart from LOW are also a threat to Home Depot. They offer goods and services that are similar to this company. The combined effect of all these companies on Home Depot is reduced performance in terms of returns.
The other threat that affects Home Depot is cannibalization where the opening of a new store in an area reduces the performance of existing Home Depot stores. Over the last few years, the number of stores in regions where Home Depot operates has increased significantly. These new stores are a threat in that the company recorded a decrease in consumers, with most of the clients opting for competitors that offer better rates. This cannibalization can be attributed in part to the saturation that is being observed in these markets.
External Opportunities and Threats
External opportunities that may prove useful to the international expansion of Home Depot include the strong performance of the global market. The world economy has undergone significant improvement ever since the onset of the global economic crisis that was observed in the period around 2007. The performance in the areas where Home Depot operates has also improved, with the regional economies reporting growth in the respective sectors. The US economy where Home Depot has a large number of stores has reported significant growth in the home markets, and hence an opportunity that the company can utilize to improve its performance. The macroeconomic elements in regions such as Mexico, Asia, and South America have been favorable to the company, with the most important of them being an increase in the consumer purchasing power.
The main external threat to Home Depot is competition. Home Depot has many competitors in the area that it operates, including Lowe. These companies offer rivalry to Home Depot in different areas. The company has recorded a drop in the number of customers who frequent their stores. Some of these companies that offer competition to Home Depot have advantages over the company. They use these advantages to create a unique brand of customers. The loyalty programs created by these competitors have also been instrumental in attracting customers from Home Depot.
Although international expansion is seen as a significant strength for Home Depot, this strategy may also be a threat to the organization in several ways. Expansion into new international markets has proved expensive in the past, with finances in this company being channeled here instead of being used for other activities such as marketing and customer services. In the past, Home Depot has been forced out of international markets such as Chile due to the existing macroeconomic factors (Weinberger, & LaPadula, 2001). International expansion into countries such as Mexico is also a challenge to Home Depot. This form of expansion may be a liability instead of a source for growth in the company.
Competitor Analysis
Home Depot has several competitors both in the local and international front. The main competitor is Lowe that provides similar goods and services to those offered by Home Depot. The geographic distribution of Lowes stores is similar to that of Home Depot. This situation is a challenge for the company. Home Depots competitors are mainly those located in the United States because the company has the largest part of its operations being located in this region. Examples of companies that offer this form of competition include K-Mart Corp (KM), Sears, Roebuck & Co (S), Target Corp (TGT), and Wal-Mart Stores (WMT).
K-Mart Corp offers competition to Home Depot by providing products such as general merchandise. The company also offers discounted rates. It operates over 2,000 stores in the US, Virgin Islands, Guam, and Puerto Rico (Weinberger & LaPadula, 2001). This company also reports significant profits and growth in revenues each year. This observation is a direct threat to Home Depot, especially in the US. Sears-Roebuck & Co has stores in the US, Canada, and Puerto Rico. This company offers a variety of services, most of which are similar to those offered by Home Depot. These services include retail, corporate services, and credit (Weinberger & LaPadula, 2001).
Target Corp (TGT), just like Sears-Roebuck & Co, is a general merchandise retailer (Weinberger & LaPadula, 2001). This company has many stores in over 45 states. It operates grocery stores in addition to the general stores. The company has reported significant growth in revenue over the past, thus offering brands such as Mervyns and Marshall Fields (Weinberger & LaPadula, 2001). Wal-Mart has a variety of services in many countries around the world. This company is among the best performing ones in the world. It operates discount stores, warehouses, and superstores (Chan, Goff, Stafford & Winkler, 2001).
Wal-Mart is the best performing retail store in the US, with an intricate supply chain network and inventory management. These competitors pose a significant threat to the international expansion of Home Depot since they offer similar services and products at different rates. Some of the competitors such as Wal-Mart have managed to target a particular part of the market by using pricing to their advantage.
Porters Value Chain
Activity Analysis
The international expansion of Home Depot will require several changes and activities. These activities include formulation of an objective for the international marketing plan, creation of the respective department to oversee the international expansion, training of human resource, improvements in the supply chain management, and improvement of inventory management. The company has undertaken some of these activities since the onset of its international expansion. However, some of them will have to be added. Advertising will also have to be increased in this organization, and hence the need for increased financing of this part of the organization.
Necessary Changes
The changes that are necessary for Home Depot to facilitate its international expansion include increased financing for the marketing department. Home Depot needs to invest in more advertising techniques and better form of advertising as compared to the one that is in place in the organization. With the international expansion, the company has adopted a marketing plan that is fit for the international markets. However, different markets require different techniques to market products and services. Therefore, there is a need to enhance the marketing activities that the organization carries out.
Training is an important aspect of international expansion. Home Depot has to invest in training of its employees on service provision and effective marketing strategies. A brand name that has been created over the years will need to be protected and marketed aggressively on the international front. Inventory management is part of any retail store in the category of Home Depot. The organization needs to invest in the form of inventory management that is accurate and/or allows room for effective replenishing of the products offered in this organization. Automation is the main change that should be introduced in the inventory management and supply chain management at Home Depot.
Marketing Objectives
The marketing objectives for the international expansion of Home Depot present the initial step in this strategy. The first objective is to increase the international presence of Home Depot. The company targets to increase the number of stores in several parts of the world. This move is predicted to improve the performance of the stores. The other objective is to improve the brand positioning for Home Depot. An international marketing plan should lead to an improvement in the brand positioning for any organization since this strategy is a possible way to improve the performance of the organization under discussion. The fourth objective is to improve the international performance for the organization in terms of increasing its sales and consumer preference.
Market Entry Strategy
The market entry strategy that is used by an organization in its international expansion is important in determining its performance of in the markets. Home Depot used a number of strategies in entering the international markets. The main strategy is the creation of new stores in regions such as Chile. Home Depot contracted construction companies that would construct new stores or renovate some of the existing buildings to the necessary standards to house its operations.
The company has also rented several buildings where it plans to offer its services in new countries. Franchising is another entry strategy that has worked well for this organization. According to Hollensen (2007), franchising is a better entry strategy in the international markets compared to the other entry strategies because it allows companies to venture into new markets without having to invest significantly in the operations in these countries. Home Depot operates many franchise stores in different parts of the world. Partnerships, mergers, and acquisition of stores in the regions that are targeted for expansion have also been useful in the international expansion efforts for Home Depot.
Home Depot acquired smaller stores in Mexico and Chile. It launched its services in these countries using the strategies. Mergers and acquisitions also allowed the company to spend less on international expansion. Some of the stores that Home Depot has acquired have commodities that are similar to those offered by the company. It offers similar services in the area. Therefore, acquisition of these companies means reduced competition for the company in the new areas of operation. The reduced competition facilitates positive performance for the new branches that the company opened in these areas.
Marketing Mix Plan
Marketing Mix encompasses the four Ps, including product, place, price and promotion (Hollensen, 2007). Home Depot has applied these in the marketing mix targeted to the international market. A marketing mix allows organizations to apply their marketing strategy while at the same time increasing their presence in markets and regions that it targets for expansion. In the case of Home Depot, product promotion is a major form of marketing. Home depot offers general merchandise to customers, with the most of the commodities being used to improve homes for the customers.
The pricing for commodities that are offered at Home Depot is dependent on the products that are on offer. The company offers competitive pricing for most of the products. In the international regions where Home Depot has managed to expand, the existing competition has forced it to adjust its pricing because of the favorable pricing strategies that it uses. The pricing for the different commodities offered by Home Depot is often below the competitors pricing levels. This pricing method has made the company remain above the competitors in the form of positive performance.
The targeted customers in the international expansion for Home Depot include the middle class and high-end customers. The company offers goods and services to all levels of customers, with the high-end ones contributing significantly to the companys profits. In countries such as Chile, Home Depot has had to exit the market because of the macroeconomic conditions that are unfavorable to the applied pricing strategies because pricing is a significant part of the company.
The marketing strategies that are used by the company include marketing on print media, electronic advertising, and the internet. Home Depot has specialized in the use of the internet not only in marketing, but also in other areas such as e-commerce. This means that customers can transact over the internet and pay for the merchandise. The other form of advertising that Home Depot utilizes in international expansion is a strong brand name, appealing logo and slogan, and the use of attractive colors such as the orange tint that forms the background shade for the companys name.
Traditional forms of marketing are still applied in the marketing strategy for Home Depot. They include newspapers, magazines, television, and radio. The company has invested in the advertisement on these platforms in areas to which it has expanded, including the international markets. Alternative forms of marketing such as the internet have enabled the company target customers in different parts of the world where geographic conditions do not allow the penetration of the company. The sparsely populated areas that are not a priority for the company have also been accessed using these alternative advertising techniques.
Home Depot International Expansion: Marketing
Cross-Border Control
Cross-border control is an important aspect in international marketing. It allows organizations to practice international operations in different parts of the world. In the case of Home Depot, the cross-border control can be exemplified by the operations of the company in Mexico. Home Depot has different strategies that it utilizes in the marketing of its products in the international market, including the use of the internet and local marketing platforms. The company also has branches that report to the headquarters in the US. The policies developed at the headquarters of the company are applied in these international outlets and offices.
International Marketing Budget
The international marketing budget for Home Depot is a one of the largest for any organization of its kind. The company spends millions of dollars in the marketing of its goods and services in areas that it operates in the international front. A significant proportion of the $74,754,000 that Home Depot recorded in revenue for 2012 was used in advertising. The budget for international advertising was also a large proportion of the advertising budget. The organization spent this amount in Mexico and North America.
Television advertising costs the organization more than any other form of advertising. The amount spent on international adverting in television networks is over $100,000. Radio advertising accounts for over $50,000 while $20,000 may be spent on magazine advertising in one month (Weinberger & LaPadula, 2001). Internet advertising per month can be projected at over $70,000 while the billboards can account for $40,000 per month. However, the international marketing budget Home Depot adopts is dependent on the market dynamics and the area that it is likely to enter.
Organization of Global Marketing Activities
The global marketing activities should be organized in a way that allows easier marketing of the organization. The organization of Home Depots international marketing activities has allowed the organization to increase its performance in the markets into which it has ventured. The company has developed a marketing strategy that captures the objectives of international expansion, thus allowing it to be as productive in the new markets as in the US. The use of television advertising has been the main tool for advertising in the international markets for Home Depot. With the growth of the internet as an important marketing tool, Home Depot has developed a special site that is dedicated to the marketing of its products. It also contracts other online advertising companies that are charged with the promotion of services and products offered here.
Marketing Control
Marketing control allows the company to oversee the marketing strategies that it has put in place. The global market is a challenge to most organizations in marketing because it is significantly large and saturated with companies that offer similar products. There is also the issue of diversity, with the different parts of the world preferring certain products and services as opposed to others. Home Depot has adopted a marketing strategy that is targeted to the individual markets that it operates. The marketing strategies that it applies in any country are different from those applied in others.
The main marketing strategy in Home Depot is similar in most of the regions where it has asserted its presence. Marketing is controlled by the many strategies that are in place and the team that is charged with the management of the marketing strategy for this organization. The organization has a special committee that evaluates the strategies that are used in various sections including marketing. This strategy provides feedback on the performance of the organization on the global market.
Conclusion
In conclusion, international marketing is important in the current age of global trade. Global expansion requires a company to develop a working international marketing strategy. In this essay, Home Depots international expansion and marketing strategies have been evaluated. The company has established its presence in many parts of the world. This achievement has contributed to its growth over the years.
Reference List
Chan, C., Goff, J., Stafford, K., & Winkler, J. (2001). The Home Depot. New York, NY.: Valanium Associates. Web.
Hollensen, S. (2007). Global marketing: a decision-oriented approach. Harlow: Financial Times Prentice Hall. Web.
Weinberger, K., & LaPadula, T. (2001). The Home Depot. New York, NY: Scholastic. Web.
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