Any retail store established in China is ultimately first approved (or denied) by a local government, and the process a foreign shop-owner must use to win that approval is trickier — and longer — than it is for a Chinese shop-owner.
And, even if an international corporation can get a handle on the red tape involved with doing business in China, there’s still the matter of appealing to the average Chinese consumer well enough make it worthwhile.
Best Buy certainly didn’t “get it” when it first ventured into China in 2007. Its aim was to re-create the American consumer experience in China, complete with walls stacked with well-organized merchandise sold by an army of blue-shirt-wearing sales people at the price plainly posted on the shelf or the box. Chinese shoppers wanted little to do with it.
As it turns out, China’s consumer technology buyers would rather rummage through a bin of random electronics, and then haggle with the shop-owner over the price. Best Buy eventually realized the key cultural difference, closing its namesake stores in China and instead focusing on its Five Star brand — a chain of smaller but more numerous electronics stores in China that is more established and looks nothing like the Best Buy that U.S. consumers have come to know.
Home Depot completely misjudged China’s consumer class too. While millions of Americans are do-it-yourselfers, most Chinese prefer to hire professionals to do most home-related projects for them. By late 2012, Home Depot announced it was closing all of its stores in China, never realizing much success there.
Bottom line? Bisaro might be right … China might not be worth the trouble for all U.S. companies, whether it be for cultural or for regulatory reasons. Ultimately, China may not be fruitful for those companies’ shareholders, which means investors should reconsider things if the only reason they like a stock is because of its plans for expansion in the Far East.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.