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Onur SAKA 7/12/11 Best Buys Withdrawal from Turkish Market As you click on

tr the web site of Turkish Best Buy, you will be directed to the global site. Yes, Best Buy-Turkey no longer exists; the American technology retailer closed their two stores in Izmir and Ankara pursuant to their withdrawal strategy from Turkish market. Best Buy, the special retailer of consumer electronics, accounts for 19% of the American market and operates more than one thousand stores in the U.S., Puerto Rico, Canada, Mexico. Before the recent withdrawal strategy this list has included China and Turkey, which were new markets and investments following their global strategy. 1 Turkey, on the other hand, one the biggest emerging markets in the Middle East region, has a remarkable young population which is very enthusiastic about technology and electronics. Turkey can be considered as a small consumer market compared the other markets that Best Buy operates, due to its lower GDP per capita, but some cities such as Istanbul, Izmir, Ankara and Adana are centers for commerce and residents of these cities have a relatively higher purchasing power. Best Buy decided to enter Turkish market only two years ago, in October 2009 with the first store opened in Izmir; the third largest city in Turkey in both population and purchasing power. This market entrance was a first step for the company. It was the first store in Europe and Middle East regions that has their brand, as stated by the CEO of Best Buy International Robert A. Willet, There are substantial sums of money being spent in those countries; theyre really investing in manufacturing. Were going to retail [in Turkey] and source [from Turkey]. I think thats what you always have to do. You go to a country and say What can we offer to them and what can we learn from them . They entered the market as a green field investment; they did not acquire any existing business and planned to grow slowly. Their plan was to open two more stores in Ankara and Bursa in the short term. The consumer electronics giant opened the second store in Ankara as they planned, but after two years they decided to withdraw from Turkish market. It was an unexpected decision for sure, after only two years of their entrance; and it was contrary to their global strategy regarding becoming a leader in Europe. As the CEO Brian Dunn said before We are not dipping our toe in the water here, we are coming, and we are excited. 2 While they still making investments in the United Kingdom, they suddenly closed Turkey stores, which were considered as opening gates to the Middle East Region. This withdrawal from the Turkish market was part of their new global strategy with a 9 store closing in China. 3 It is clearly imaginable that the company has lost a tremendous amount of money from these investments. The global managers of MNEs must assess the risk of the new markets very cautiously; the company is very exposed to the political, legal and economic/financial risks of the new market. In addition, they must be aware of the cultural differences since they have remarkable effects on businesses. All the notions of subsidiary host country interdependence, environment and sustainability, business
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Best Buy plots its global strategy, Jonathan Birchall, May 12 2008, FT Best Buy vows to be force in Europe, A. Parker, A. Felsted Nov 2009, FT 3 Best Buy brand closes shop in China and Turkey, P. Waldmeir, D. Strauss, J. Birchall Feb 2011, FT

ethics, and the cultural values and dimensions such as education, health, religion, language, individualism, power distance, uncertainty avoidance and masculinity are elements that can affect the foreign investments significantly. Assuming that a company acted prudently about all issues indicated above, the challenge is not over. The investment must be on target; in other word it must make profits to be successful. The managerial and the business strategies of the company must be sufficient to make profits and become a permanent player in the new market, and this depends on costs, reaching new customers, promoting, and wining the competition. Building a new business in an uncompetitive and high potential market would be extremely profitable; in this case, Turkey is not one of them, unfortunately. If assumed that Best Buy developed and implemented a sufficient penetration strategy with asserting all cultural differences and focusing on localization, their challenge is to win the competition. In the Turkish market, they faced some strong competitors such as MediaMarkt from Germany, Electro World (Dixons) from UK, Darty from France, Bimeks and Teknosa the local players. The timing was not so good for the Best Buy, they entered the market after all their competitors. For example, Bimeks, a local Turkish consumer electronics retailer opened its first store in 1990. All the foreigner competitors established their business in early 2000s. So, it was not the best time for Best Buy. On the other hand, timing or lets say being late to enter the market may not be a big problem against big investments; investing more than every competitor, better marketing, adopting a differentiation strategy ,better service and customer satisfaction with successful promoting will lead to the success. In the case of Best Buy, they made a green field investment and started very slowly, they did not differentiate any service, product or concept; also they almost did not do any promotion. And in the reality of Turkey, with one of every five people living in Istanbul, beginning in other cities was a risk. The significant amount of all business transactions and consumption takes place in Istanbul. And with that population, investing in Istanbul is a first step for brand recognition. For instance, the German competitor, MediaMarkt, opened a store in Istanbul right after they entered the Turkish market, and promoted their brand with numerous outdoor, newspaper, radio and TV commercials. (Which were not very much liked, but it was a better strategy than making no advertisements at all.) In addition, one of the main reasons behind their failure was their strategy to focus and compete on quality. The Turkish market is considered a price-sensitive market, like most of the developing and low income economies which is a natural consequence; people earning less money, shape their consumption decisions depending on the price. And also, especially young population of Turkey which is very interested in consumer electronics and reads knows very much about latest tech and products do not prefer a high quality service instead of price advantage. Since the products that the retailers sell are mostly the same, Best Buy clearly did not create a difference and yet lost in price competition. Best Buy declared the withdrawal as a part of their global strategy which they planned to reduce costs and make savings. Sure enough, the companies do not share the reasons behind their failures with the public, the reasons indicated above are personal assessments, in other words, there can be always other reasons that we do not know. The subprime mortgage crisis in the U.S. and effects on global arena causing recession may affect their global investments. And also some managers from Best Buy made comments on this issue explaining that it was not a failure, two stores were the part of the trial-run. But, if a trial or not, making a foreign investment is not a game.

In my opinion, they did not play quite well in Turkish arena, because it is a market large enough to make significant amount of profit and there is always a big potential to become even larger. For example, the recent Foreign Direct Investments Act 4 presents great opportunities making Turkey a freer field for investors. Nevertheless, closing stores after the second year gives us a sign of a failure. I believe they could be very successful in Turkish arena with a better business plan and a different managerial strategy; investing in advertising is very important today for being recognized. And they could achieve in a price-focused competition like the other retailers did, at least being at the same price levels would create an opportunity to build on their quality-focused strategy. And in the Turkish reality, Istanbul is sine qua non to develop your business. Right after they quit the market, Best Buys biggest competitor in Turkey, the Turkish consumer electronics retailer Teknosa purchased the affiliate of the U.S. retailer; the two stores will service as two new Teknosa stores. 5

Onur SAKA 7/12/11 Los Angeles

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Foreign Direct Investments Act, Law no: 4875 Date of Endorsement: 6.5.2003 Two Turkish technology retailers merge with each other,