Home Depot Under Bob Nardelli

Home Depot Under Bob Nardelli -- Case Study

What kind of internationalizing strategy did Home Depot pursue?

Because the potential for continued revenue growth is limited by factors such as competition and because the success of retail outlets is directly threatened by excessive saturation of identical venues in close proximity to one another, Home Depot began exploring foreign markets to expand sales in the early 1990s. Its first overseas ventures were in Argentina and Chile but those outlets were not successful enough to continue operations. Subsequently, the company opened two locations in Shanghai and Shenzhen, China primarily to accumulate customer data and analyze the revenue potential in China before committing more resources to that region. Presumably, the more empirical than speculative approach to foreign expansion proved successful, because by 2004, the company had established venues in Canada, Mexico, and Puerto Rico as well. In principle, it appears that Home Depot pursued a strategy base on assessing potential new markets by establishing pilot venues designed more to provide empirical data about the specific foreign market potential than to generate revenue directly from those pilot venues.

Does this make sense in light of pressures for local adaptation and pressures to cut costs?

Yes. The objective of cutting costs is not, in and of itself, necessarily incompatible with foreign expansion or with enterprise expansion, more generally. To a great degree, the relationship between the need for cost cutting and the advisability or inadvisability of expansion depends on the specific sources of costs considered to be the bases of a cost-cutting effort. To the extent cost cutting is necessitated because resources were spread too thin directly as a result of the pursuit of expansion, it would not make sense to expand (much less into foreign markets). However, to the extent the cost cutting is not considered to be necessary because of expansion-related issues, expansion (even into foreign markets) might still be perfectly consistent with simultaneous cost-cutting measures targeting the specific causes of excessive costs.

In the case of Home Depot, the specific reasons that cost-cutting was advisable were not functions of the devotion of excessive resources to expansion. In all likelihood, the advisability of the simultaneous foreign expansion efforts and cost cutting was unrelated to the need for cost cutting. In that case, the underlying reasons for cost cutting would have been able to be addressed largely irrespective of simultaneous expansion costs.

Was Home Depot's corporate strategy (both domestic and abroad) a success?

One could argue strongly that certain aspects of Home Depot's strategy have been much more successful than others but that even some of the organization's efforts that failed do not necessarily militate against the conceptual value of those efforts. With respect to expansion into new markets, the apparent approach adopted to research new potential markets through pilot stores would appear to have been highly successful. Meanwhile, the failure of ides such as the urban stores catering to urban customers does not necessarily establish that the idea is not potentially valuable. It may be that specific locations (and targeted market segments) require more data to justify the expenses of establishing a new venue in the same manner as the company employs overseas.