James Moring 09331141

MKT3005
Case Study of
the
Internationalizati
on of Best Buy
This report looks at the American company Best Buy and
suggests that they expand their operations into Australia. By
using their existing suppliers and the already well developed
logistical systems in operation within Australia it is suggested
that Best Buy would be able to increase their companies profits
and overall takings within a similar country.
James Moring 09331141

Contents
Introduction.....................................................................................................2

Current Domestic Market....................................................................................2

History of the Company...................................................................................2

Domestic Takings............................................................................................3

Current International Market............................................................................4

Existing Customers.........................................................................................4

Method of entry into the proposed market............................................................5

Suggested Market to move into...........................................................................6

Potential Customers........................................................................................7

Competitors...................................................................................................7

Suppliers and general logistics............................................................................8

Summary.........................................................................................................8

References.......................................................................................................9

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Introduction
This study will look into an American company "Best Buy", the aim of this study is to
evaluate the current domestic market Best Buy operates in and will propose a new
international market suited for the company to move into. The existing and potential
customers will be considered as well as looking at the key drivers of customer
satisfaction within the proposed new market. Suppliers and general logistics will then
be considered, and recommendations will be given on how to select these in a way
which will enable them to operate successfully within this new international market.
Also the method of entry into the new market will be identified and justified by looking
at academic theory and research. Finally a competitive strategy will be developed as a
whole to justify and support the evaluations and recommendations made throughout
this study.

Current Domestic Market

Best Buy is the global leader in consumer electronics, they operate more than 4,000
stores, the 11th largest retail website in the world, and employ over 160,000 staff
(Best Buy, 2013a, online). To best analyze the current domestic market, this report
will look into the history of the company and the way it has expanded out into other
areas within its own domestic market; the current international operations which Best
Buy already operate within shall then also be analyzed, allowing the identification of
the company's main strengths, this will allow a proposal for a new market to be as
beneficial to the company as possible.

History of the Company

Best Buy was incorporated in the state of Minnesota in 1966 as Sound of Music, Inc.
Now within the U.S., Best Buy stores offer customers a wide variety of consumer
electronics, computing and mobile phone products, entertainment products,
appliances and related services with a wide variety of product assortments, staffing,

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promotions and store design to address specific customer groups and the local market
needs (Best Buy, 2012b). Best Buy have expended within the U.S. in a number of
ways, the most predominant of these was through the acquiring of other businesses,
examples of this include; Magnolia Hi-Fi, Inc. a Seattle-based, high-end retailer,
aimed at accessing the upscale customer segment, Geek Squad Inc. acquired in 2003
to provide repair, support and installation services, other companies such as
California-based Pacific Sales Kitchen and Bath Centers have also been purchased, this
time focusing on selling high-end and mass-market premium brand kitchen appliances
to builders and remodelers. All these acquisitions are available within Best Buy stores
via their "store-within-a-store experience", offering customers many of the same
products and services offered in that brand's stand-alone store format (Best Buy,
2012a). By using acquisition as a method of increasing their business size within their
own domestic market, Best Buy have been able to expand into more specific areas,
and by using an existing company which has its own strengths and weaknesses, which
can include an existing customer pool (Nielsen and Melicher, 1973), Best Buy has been
able to grow its business within its own domestic market.

Domestic Takings
Within the U.S. in 2012 the revenue for the company stood at $12.55 billion, this was
a small decline of 0.3% compared to 2011. It is suggested that this decline was driven
by the loss of revenue from 49 big box stores which they closed earlier in the year, but
was substantially offset by a positive 0.9% comparable store sales increase and
incremental revenue from 126 additional Best Buy Mobile stand-alone stores.

Domestic online sales were also a big boost to the company with an increase of
11.2%, reaching a record $1.3 billion as momentum accelerated throughout the final
quarter. These results were better than expected, this was most likely due to a highly
effective traffic-generating marketing initiatives the company initiated.

When looking into a merchandising perspective within the Domestic segment, there
was strong growth in mobile phone, tablets/eReaders and appliances however there
were declines in gaming and digital imaging sections.

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Current International Market

The revenue for Best Buy's international stores stood at $4.16 billion in 2012 an
increase of 2% versus the $4.09 billion of 2011. This increase was driven entirely by
the positive impact of changes in foreign currency exchange rates, as there was a
decline in comparable store sales on average across all stores of 6.6%. This was
generated by positive comparable store sales in Europe, however these were more
than offset by declines in Canada and China. In Canada, overall industry softness drove
the decline in comparable store sales. However, in China the decline was attributed to
an increased level of competition from e-commerce and year-over-impacts from
expired government stimulus programs in the financial year, these were the key
drivers of the comparable store sales decline.

It can be seen that currently the domestic market in the U.S. is nearly four times the
size of all current international markets Best Buy operates in combined, and with a
strong decline in actual sales hidden by the increase in takings due to the positive
impact of changes in foreign currency exchange rates, the current international
markets Best Buy operates in may not be the most beneficial. By moving into a new
market this should open up a number of different revenue streams and increase profit
for the company.

Existing Customers
Best Buy currently has the largest customer loyalty program of its kind in America,
showing that a large amount of its success is down to returning customers, with more
than 1 billion visitors to their websites and greater than 600 million visits to our stores
each year, Best Buy operates within a competitive environment and by offering:

1. The latest devices and services, all in one place

2. Knowledgeable, impartial advice
3. Competitive prices
4. The ability to shop when and where you want
5. To support you for the life of your products

(Best Buy, 2013, Online)

Best Buy has become the global leader in consumer electronics.

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Method of entry into the proposed market

Having looked at the existing market which Best Buy operates in, both within the USA
and within its existing international markets, it is clear that despite greater profits
internationally, sales themselves have lowered generally across the company.

It is therefore suggested that a new international market be identified and

recommendations shall be given on what market is believed to be most beneficial;
equally this paper shall select a way which will enable them to operate successfully
within this new international market. The method of entry into the new market will be
identified and justified by looking at academic theory and research and a competitive
strategy will be developed as a whole to justify and support the evaluations and
recommendations made throughout this study.

Market entry decisions are among the most critical made by a firm relative to
international markets. The choice of which country to enter commits a firm to
operating on a given terrain and lays the foundation for its future international
expansion. It signals the firms intent to key competitors and determines the basis for
future battles. (Douglas and Craig 1992: 302)

Any firm attempting to expand into international operations must decide on the
number of countries and market segments it will attempt to penetrate at any given
period. Given a fixed marketing budget the firm must also decide how to allocate its
efforts among different markets served. There are two major and opposing strategies
for market entry - market diversification and market concentration. Diversification
implies a fast penetration into a large number of markets and diffusion of efforts
among them. Concentration - is based on the concentration of resources in a few
markets and gradual expansion into new territories. (Ayal and Zif, 1979).

Certain firms can produce their products overseas as well, either through contractual
modes (e.g., licensing and franchising) or via foreign direct investment (joint ventures
and wholly owned subsidiaries) (Erramilli, 1991).

For Best Buy this paper suggests that the best method of market entry will be through
the acquisition of an existing company within a single country. Looking at the

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proposed methods put forward by Ayal and Zif (1979) their "concentration" entry
method is suggested, so by acquiring an existing company within their target market
and then focus their efforts with their resources, both staffing and management as
well as financially.

The best example of where similar companies have expanded into other markets and
where this has been successful, would be with Wal-Mart's takeover of ASDA, Wal-
Mart's purchase of ASDA in 1999 illustrates the global scale of much modern retailing
(Burt, Sparks, 2001). It is clear that acquisition of existing companies in a country

Suggested Market to move into

There are many possible markets which Best Buy currently do not operate in, this
gives a large choice of countries to chose from. It has been noted that since the early
1990s, the fastest-growing markets in the world for most products and services are
the developing countries (Khanna, Palepu and Sinha, 2005). There are a number of
things which also need to be considered when moving into a new country, the location
and proximity of the proposed country geographically to move into, as well as the
close proximity of the culture of proposed country to the existing market.

In 1980 Hofstead developed a number of indices based on information provided by

88,000 respondents from 66 countries, (Hofstede, 1980) this measures four
dimensions of national culture: power distance, uncertainty avoidance, individuality,
and masculinity / femininity. Employing these indices, Kogut and Singh (1988)
compute cultural distances between the United States and other countries, and
culturally, they found that the six most proximate countries to the United States
include Australia, the United Kingdom, Canada, Switzerland, New Zealand, and
Ireland. When looking at the United States biggest company Wal-Mart's acquisition of
ASDA within the United Kingdom it is clear to see the success which Wal-Mart has
achieved can be partly put down to the proximity.

However there are a number of reasons why this paper believes that the developing
countries may not be as beneficial for Best Buy as an already existing market,

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therefore it is the belief of this paper that the best market for Best Buy to move into is
Australia.

Potential Customers
Australia has a population of 22.6 Million people (World Bank, 2011, online), with a
GDP of $1.379 Trillion which ranks it as the world's 13th largest economy. In Australia
the gross national income per person is $49,130, which ranks its' population as the
fifth most wealthy in the world.

Given the type of products which Best Buy sell, as discussed earlier in this paper, it is
advised that by moving into a more affluent country where the population may not
just be more willing, but more able to purchase the higher end and higher quality
goods.

Furthermore, 70% of the entire population of Australia is situated within its 10 largest
cities, this means that despite being a geographically large country, the population is
concentrated, allowing for few stores, and therefore less overheads, with a greater
reach across the country.

Competitors
There are a number of large stores which are already operating within Australia; the
largest of these would be "Mega Buy technology superstore", they are Australia's
largest online retailer of computer, hardware, software, consumer electronics and
other technology products (Mega Buy, 2013, online). Harvey Norman are another
large Technology company, they have 213 stores across Australia, with a revenue
sales of $4.83 Billion (Harvey Norman, 2012, online).

By looking at both these very successful companies operating within Australia, this
paper is able to identify the key drivers of customer satisfaction within Australia, these
would be, the supply of many different technology products all under the same roof,
available at a competitive price both online and in stores.

By looking at what this paper identifies as the main drivers and comparing them to the
driving factors behind Best Buy it is clear to see that Best Buy's core principles are

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similar to those already in use by other companies who are doing well within the
Australian Market.

Suppliers and general logistics

The relatively close proximity of Australia to the United States allows for supplies who
are already working with Best Buy to continue working with them in the proposed new
market, furthermore, within Australia there is already an established network of rail,
road and airports in many of the large cities. DHL and SSI Schaefer are two examples
of logistics specialists already operating within Australia, both of whom would be able
to help with the supply to all stores across the entire country.

Online sales within Australia would be able to be operated in a very similar method as
to how they are already being done in the United States, with logistical operations
being run in the same, already very successful way. The way Best Buy handles its
logistics is very important, it has been noted that the levels of flexibility a company
can provide can affect not only the cash flow of the company, with the need to avoid
large quantities of cash tied up in excess stock (Tracey, 1998).

Summary
This report has suggested that Best Buy, the global leader in consumer electronics,
currently operating in America, Mexico and Canada, expand its operations into
Australia. The suggested way for Best Buy to enter this new market is through the
acquisition of another company already operating with Australia. Using the existing
supply networks in operation with Australia as well as existing suppliers to maintain
the already built relationships Best Buy should be able to make a real impact within
the market.

References

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Ayal, I. and Zif, J., (1979) Market Expansion Strategies in Multinational Marketing
Journal of Marketing, Vol. 43, No. 2, pp. 84-94

Best Buy, (2013a) Investor Relations, online, available from http://phx.corporate-

ir.net/phoenix.zhtml?c=83192&p=irol-irhome [accessed 09/03/13]

Best Buy, (2012b) FORM 10-K, ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934, online, available from
http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-reports [accessed
09/03/2013]

Best Buy, (2012c) About Best Buy, online, available from http://pr.bby.com/about-
best-buy/ [accessed 09/03/2013]

Burt S, Sparks L, (2001), "The implications of Wal-Mart's takeover of ASDA"

Environment and Planning A 33(8) 1463 1487

Douglas, Susan P. and C. Samuel Craig. 1992. Advances in international marketing.

International Journal of Research in Marketing, 9: 291-318.

Erramilli, M., K., (1991) The Experience Factor In Foreign Market Entry Behavior Of
Service Firms, Journal of International Business Studies, Vol. 22, No. 3 pp 479:501.

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Harvey Norman, (2012) Annual Report 2012, online, available from

http://www.harveynormanholdings.com.au/pdf_files/2012_Annual_Report_Final.pdf
[accessed 03/03/13]

Hofstede,G . 1980. Culture's consequences International differences in work-related

values. Beverly Hills: Sage.

Khanna, T., Palepu, K., and Sinha, J., (2005) Strategies That Fit Emerging Markets,
HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION 10030,

Kogut, Bruce & Harbir Singh. 1988. The effect of national culture on the choice of
entry mode. Journal of Internationial Business Studies,F all: 411-32.

Mega Buy, (2013) About Us, Online, Available from

http://www.megabuy.com.au/about-us.html [accessed 03/03/13]

Nielsen, J., and Melicher, R., (1973). A Financial Analysis of Acquisition and Merger
Premiums. Journal of Financial and Quantitative Analysis, 8, pp 139-148.

Tracey, M., (1998) "The Importance of Logistics Efficiency to Customer Service and
Firm Performance", International Journal of Logistics Management, The, Vol. 9 Iss: 2,
pp.65 - 81

World Bank, (2011), Population, total, online, available from

http://data.worldbank.org/indicator/SP.POP.TOTL [accessed 09/03/13]

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