Busn paper – 3 successful companies failed their oversea




International brands like Gucci and Starbucks renowned for their brands in their own domestic markets have not been able to capitalize on this while expanding overseas. There has been a global disaster in the overseas strategy.


Reasons for failure of Gucci in the overseas market:


The reasons for the failure of Gucci in the overseas market are due to some of the reasons like the demand conditions in the overseas market where Gucci products are highly expensive and fall under the luxury category. Gucci brand is known because of the best leather that is available in Italy. This was the reason of their success as the world‘s best leather brand. When Gucci expanded overseas, the brand could not be supported by the related and supporting industries in the overseas market mainly due to extremely prohibitive cost of setting up units there where it was practically impossible to bring in the same quality leather and had to instead depend upon local supplies. This made brand erosion.


Another important reason was that Gucci did not look at a good entry strategy while expanding globally. The luxury leather giant should have decided to go alone by opening their own exclusive outlets instead of franchising options which made Gucci available with other global products and other competitive products. This was the gravest mistake that was committed by Gucci.


The inherently visualized successful diversification strategy adopted by Gucci was not successful in the global market. The consumers and the market did not respond favorably to the diversified product portfolio of Gucci.


This luxury band had a minimal price entry point into the luxury market. The price point was defined in each country differently as should have been uniform for all markets overseas. This further led to dilution of the product efficacy in the market competition and Gucci lost out on this sole leadership as premium leather branded store.


Lessons learned:


Management should have looked at the product portfolio very carefully instead of looking at product diversification .Entry should have through their own flagship brand and store .Cross cultural management was very necessary to being Gucci into domestic market recognition .


Causes for Starbucks failure in overseas market:


The most important reason was that Starbucks partnered with domestic and local partners and did not go alone in the overseas market.


The coffee juggernaut” could not compete with “local stores’ homespun hospitality and boutique qualities.


Starbucks could not get the taste right or cater to the cultural aspects of coffee drinking in overseas markets.


The Café culture in many overseas markets was not understood by Starbucks. Every country had a coffee culture of its own and so people did not want to shake that culture away.


The overseas market was saturated with not only domestic brands but international brands too and they were all very competitive.Starbucks was not only fancily priced but had its own culture which was very different from the overseas culture.


Lessons learned:


Starbucks management has to look at cultural adaptations when doing business abroad.


Though it may be a world renowned brand, price needs to be according to domestic competition and not on the American market.


Changes to product had to be made if Starbucks had to succeed in the overseas market.


Starbucks as to rethink on cultural adaptations as many New Gen drinkers are not that hyped about Starbucks.


Best Buy: Failure in foreign markets


Best Buy is an American multinational which deals in consumer electronics. Apart from consumer electronics it has also expanded its portfolio to include software, music DVD’s, video games, mobile phones, cameras and stereo systems. It has been considerably successful in the American market. After its success in the American, the company sought to enter foreign markets. It started out with China and Europe where it specifically aimed for gaining market share in the UK. However, its prospects of these markets were far too ahead of themselves and it failed miserably in both the markets. Both the markets have different reasons for Best Buy’s failure.


Considering the UK, Best Buy operates mega stores which are not popular in the UK. Moreover, it announced its plans for UK two years before it actually entered the market. Therefore, local competitors had the chance to prepare themselves for the rivalry that was to come when Best Buy entered the market. Another disadvantage was that they entered a new market when the whole continent was facing financial downturn. Adding to that downturn the popularity gained by online shopping, customers preferred to purchase products through the internet than visit stores and spend on fuel. Best Buy located their stores in out of town locations and as a new entrant with very little brand recognition, this was a bad move as it did not help in generating interest from the UK customers. Therefore, the overall strategy for UK misjudged the market situation of the country and led to a failed plan.


Similarly in China, Best Buy opened large mega stores offering products at fixed prices. They lacked the information about the Chinese market or did not put the information to good use. Chinese customers prefer to buy products at cheapest prices and would only pay higher prices for products to a seller which is not available with other sellers. However, Best Buy offered electronic products which were already available at local stores at lower or open to bargain prices. Therefore, there was no motive for Chinese customers to prefer Best Buy over local vendors. Moreover, as in the UK market, the location of Best Buy stores were in out of the way places whereas Chinese customers prefer do shop from local markets and don’t travel large distances for shopping unless the product is not available in local market places.


Thus, Best Buy did not change their business design for foreign markets and applied the same scheme they successfully did in the US market. Both UK and China had different market conditions and Best Buy’s strategy could not be successfully implemented in neither of the markets. Hence, the main reason for Best Buy’s failure would that it did the same thing continuously in every foreign market it entered just because it had worked in their domestic market.


The best strategy Best Buy should have implemented before entering these foreign markets would have been to gain considerable knowledge of both the macro and the microenvironment of these countries both as an economy as well as a market for consumer electronics. Then onwards, they should have used this knowledge to design a separate strategy for each of the foreign locations rather than adapting the US market strategy everywhere. For instance, localized stores are more apt than having mega stores if off locations. Moreover, offering products which are available with other vendors at lower prices won’t do any good. Best Buy should have offered only those products in its Chinese market portfolio were price competitive with local offers. For the UK market, building up a brand image through extensive marketing efforts would have been a right step forward. Moreover, they should have not promoted their launch so early such that competitors gained an advantage from that. The essence of the right strategy would have been adapting to local trends.


Assignment –

Write a thoughtful page on what you learn from these 3 successful companies failed their oversea.


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