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Winning in Emerging Markets: Lessons from the Trenches

Best Buy’s Kal Patel explains why inspiring and empowering employees is the critical for success in emerging markets.

Mr Patel’s talk begun by providing a background of Best Buy and its history to date, and went on to discuss lessons learned from Best Buy entering emerging markets such as China.

Background of Best Buy

Best Buy is a 40 year old company founded in Minneapolis, USA. Today, they are a successful consumer electronics retailer with $45 billion revenues and 1000 stores in the USA.

The business started off with computer experts knocking on people’s doors, offering to repair any broken computers that needed fixing. Currently, Best Buy is the largest retailer of PC’s in the USA. Their USA strategy is to focus on the stores they currently have, as opposed to expanding in number. The last six months, since the effects of the credit crunch were felt, have been tough for Best Buy.

They also have an international presence in countries such as Mexico and China. One particular venture is soon to be launched with the popular national UK retailer the Carphone Warehouse.

Best Buy have re-branded themselves to be the “underdog” in the market in order to stimulate innovation. This is a key factor in innovating effectively, Mr Patel emphasised.

Best Buy’s biggest challenge is to sustain their high growth rate which involved finding the next big source of growth and not getting to complacent with their current success. Their current strategy is to not focus on profits from product sales, but to focus upon add-on services they can offer and to look at how their products are consumed.

Emerging markets – China experience

Around four years ago, Best Buy expanded into China. They had a sourcing office based in China initially, and it was this team that were extremely passionate about expanding into the Chinese market. This passion persuaded Best Buy to expand further into China as opposed to Europe.

A lot of effort was spent in understanding the Chinese market. “Customer insight teams” spent one to two years understanding the Chinese customer’s wants and needs. This was aided by the team’s enthusiasm and passion for their work.

Lessons learned from entering China

  • Best Buy underestimated the requirement to re-invent business models to survive. Mr Patel believes this point should be emphasised more in business schools. This “re-invention” is more likely to occur when entering an emerging market.
  • Another learning point was not to assume the business can control a situation to meet its requirements. The business must inspire the situation and this is a lesson that applies globally.
  • The more you ask customers how you can help them, the more information they give you. Most businesses are too shy to ask.

Kal Patel

EVP of Emerging Business, Best Buy

As Executive Vice President of emerging business for Best Buy, a multinational retailer of technology and entertainment products and services, Kal Patel leads the company’s efforts to initiate, incubate and implement global growth opportunities while increasing the enterprise’s capabilities for innovation. He also focuses on building relationships with venture capitalists to enable Best Buy to learn from the experiences of others and quickly adapt best practices to advance the company’s business objectives.

Kal joined Best Buy in 2003 as vice president of strategy. In 2005 he was named Executive Vice President of strategy and international where he played a leading role in exploring and leading the development of growth opportunities in new markets outside North America, including the company’s retail presence in China. In these roles, Kal was also instrumental in helping Best Buy transform into a radically different retailer – one that continually innovates through the insights from employees closest to customers.

Prior to joining Best Buy, Kal was a Partner at Strategos, where he and his colleagues helped frame and implement major growth-driven transformation initiatives for clients across all industries. His clients included Aviva (formerly CGNU), Morgan Stanley, Roche Diagnostics, Whirlpool, Shell, Sonera and Analog Devices. Prior to joining Strategos, Kal worked for KPMG Consulting and Courtaulds PLC in the United Kingdom.

Kal holds a master’s degree in business administration from the London Business School. He also has a bachelor’s degree in chemical engineering from Leeds University in the United Kingdom.

[MUSIC PLAYING] A person and an idea are connected.

What is it that companies can do for these markets to create value and create wealth for themselves?

This is all about relationships.

And what Reliance did in the partnership with Steven Spielberg is to establish a virtual studio in Hollywood.

Modernising. We are not westernising.

Trying to build this self-confident organisation that has humility is our day-to-day challenge, as leaders inside of Best Buy, and it’s pretty tough. At a store level, all the way to the corporate office, everywhere, and especially, internationally now. Don’t assume that you can create control. You have to still inspire people, no matter where you are.

So quite often when you kind of– whether it’s a leader of a company that we bought– we’ve had lots of lessons in China, and I’m happy to share them with you. And in all of that, there’s one thing, that you make an assumption that you can control the situation. When really, in the end, when you’re dealing with people, you have to inspire the situation.

Whether it’s in China or it’s back in the US. That’s more sustainable. Whereas, if you try and control it, you basically, you come unstuck somewhere along the way. You either try and put it in the contract with the founder, that they’ve got to be like this, or you try and control your store environment in a certain way. Whereas, the best thing is to inspire it.

We have this online site that we’re setting up. It’s called Idea Exchange for customers. And it’s amazing how much information they want to give. In our business, assume you ask customers, can we get more information from you? They give it to you. Customers invite you to co-create. They invite you. And you just have to take up the invitation.

And we had a joint venture with Carphone Warehouse. We brought their proposition more or less as it was because the American consumer loved it. We did all the tests and everything and said, we actually like this with our brand– so it’s Best Buy– and we put it in those five stores and we increased market share to 6% from 1%.

So we thought this is going to work. So effectively, we tried in one of two places in the next six months. And within a year, a year and a half, just like we did Geek Squad, we got it all 1,000 stores. So now across the US, you go to a Best Buy store, you have Best Buy Mobile as a proposition, which is Carphone Warehouse. So you can get Carphone Warehouse in the US.

Now, the multiple vested interest in the ecosystem is that you got Carphone Warehouse who needed to grow their retail business, and they needed to grow. And then you had Best Buy, who’s trying to reinvent their fundamental cell phone business. And then you’ve got a consumer that was just hungry for something new. And you put all of those together, right now in this recession, this is the fastest growing business we have.

At the heart of it all is a fundamental principle called customer-centricity. And that’s just a broad label. It’s not segmentation. It’s literally a deep, deep sense that a person and an idea are connected. You can’t disconnect the two. A deep, deep sense that that’s how strategy happens.

So quite often you look at case studies, you look at analysis, and you look at companies, and you tell me how Carphone Warehouse happened, I can give you a rational case of how that happened, like I just explained. But behind it were people, people that had a vested interest in a personal journey to make that happen. And if you don’t connect the two, we found that either you don’t execute fast enough, or you don’t get into new places and you don’t challenge things.

I remember when I was given the role to go and explore an international strategy beyond North America, most of the people had suggested that I look at Europe as a market. I remember coming back to the board, and I remember the board kind of saying, logically wouldn’t you think about us understanding Europe better or UK pay better? And my only logic back to the board at the time was, again, back to the Best Buy strategy, which is: a person and a point of view are connected.

I increased the chances of implementation when somebody cares about implementing. And there was a team in China that really cared about implementing it, really cared about implementing it. And we hadn’t figured out a story in Europe yet. Ethnography work is really, really interesting work when you first start off in emerging markets. I know, separately, I know, some of you guys know that really well, more so than the basic research. Because there’s no analytic, I mean, the transactional data doesn’t tell you much.

The first thing we built was a customer insight team. And we started off with a customer insight team that fundamentally created a point of view about what we wanted to do. And then after that, you built the whole machine that came after that. We had underestimated how much the emerging markets because of the scarcity that they had and how you have to create new business models and how you have to bring in to the US. In fact, this crisis in the US is forcing people to say, what I’ve been doing every day, I may have to reinvent.

I think one of the core curriculum of any business school has to be how you reinvent business models, not how you reassert them. Because you have all these shrines to different disciplines. And those shrines to those different disciplines basically reinforce all the students to say, this is how you should do stuff. Please, please train people to reinvent business models because that’s what they’re going to have to do. They have to keep reinventing them. I think working in emerging markets will help them.