With its huge population and rising middle class, entering China has been on almost every American CEO’s growth plan for a decade. But, as The Home Depot’s recent announcement to close it’s last seven big-box stores in China demonstrates, entering a new market is tricky business.
Most companies will not readily think about geographic expansion as innovation. It’s not like we are creating something new, right? We’re just taking what we do and moving it to a different place. Even Doblin’s infamous 10 Types fails to consider geographic expansion as innovation. If something like adopting an existing skin care product for the teen market in the US (i.e. – taking an existing product to a new consumer) can be considered innovation, then adopting an entire value proposition for a new set of consumers in China should also qualify as innovation.
One of the fundamentals of innovation is a deep understanding of consumer behavior. We have developed a framework for creating innovation platforms that starts with a consumer insight (a belief that drives a behavior and offers a business opportunity), addresses a specific need and provides a clear benefit for a defined target. If The Home Depot had applied the rigor of innovation to the expansion into China, the beliefs and attitudes of the rising middle class may have led them to a different approach. It turns out that the rising middle class live in small apartments in high-rise buildings and, with relatively low labor rates, prefer the DIFM (Do It For Me) approach over the American can-do DIY attitude that has fueled The Home Depot’s growth for decades. After moving from the manual toil of rural China to a big city, middle-class income in a single generation, it turns out that the Chinese see expressing their new status as what they can hire others to do for them rather than what they can do themselves.
I love The Home Depot, because I like to get my hands dirty. I don’t feel like an expression of my status is what I can hire others to do for me. Manual labor connects me to my granfathers’ work ethic and reminds me of their toil and sacrifice to help build this country. This is the key insight that The Home Depot would have excavated if they had approached China as an innovation challenge.