Global Business Plan – Home Depot Stores Launch in Argentina
Introduction to Home Depot Stores
The Home Depot® is the world’s largest home improvement specialty retailer, with 2,122 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces and Mexico. Through its HD SupplySM businesses, The Home Depot is also one of the largest diversified wholesale distributors in the United States, with nearly 1,000 locations in the United States and Canada offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. In fiscal 2005, The Home Depot (HD) had sales of $81.5 billion and earnings of $5.8 billion. The Company employs approximately 355,000 associates and has been recognized by FORTUNE magazine as the No. 1 Most Admired Specialty Retailer and the No. 14 Most Admired Corporation in America for 2006. The Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor’s 500 index.
Home Depot (HD) Stores strive to be the best corporate partner possible in our communities. We make positive contributions as a neighbor, an employer, a retailer and as a profitable investment opportunity through successful and strategic operations:
The Home Depot (HD) helps people fulfill their dreams by helping them:
· To live in a clean, safe and caring community
· To be part of a challenging, diverse, and inclusive workplace
· To build and live in the house of their dreams
· To create wealth and financial security
Module 1: Identifying Global Business Opportunities
The business is currently looking to expand its stores into Argentina, keeping to the principle of creating value for our stockholders while never forgetting our values. We seek to be profitable, responsible and balance the needs of our communities.
The Home Depot (HD) Store aim would be to provide Argentinean customers and partners with the same opportunities whilst doing business based on our “value statement” (http://corporate.homedepot.com/)
Globalization is to make the world more economically interdependent. Expanding into new markets, new platforms and new geographies means better servicing existing customers and attracting new ones, opening a whole new world of opportunity. For some companies, being the world’s largest home improvement retailer is a goal. For us, it represents an opportunity.
The Company is already the number one home improvement retailer in both Canada and Mexico. The Home Depot (HD) entered Canada in 1994 and Mexico in 2001 through a combination of acquisitions and organic growth. Both markets are examples of how HD combines its vast knowledge of the home improvement industry with the needs, shopping trends and customs of each unique geography to best serve customers.
Please see below for a SWOT Analysis on launching Home Depot stores in Argentina:
Already implemented successfully in Canada, Mexico and China.
USP – the biggest home improvement store in US, Canada & Mexico (Absolute advantage).
Already has a Spanish presence in Mexico so language is no barrier
HD has sufficient finances to undertake this major step.
Sold off the Home Depot stores in Chile & Argentina in 2001 (BW – Web, 2006)
Therefore would have to re-enter Argentina with new strategy (sales & marketing)
Only positive foreign experience is of Mexico & China
Need to identify and access local distribution suppliers.
To enter a huge potential South American Market
To be the biggest home improvement store in Argentina (absolute advantage)
Argentina has small home improvement market for 33 million inhabitants (FA – web, 1999)…Note – now 39.9 million.
Sold the Argentinean stores in 2001 – need new strategy to succeed.
Will have to persuade local consumers and businesses they will succeed this time
Sodimac already well established in Argentina, therefore need creative marketing strategy to compete
Adverse tax consequences and exchange rate fluctuations
Potential volatile economic and political environments.
Module 2: Analyzing International Competitors
From 1998’s famous merger between France’s Castorama and the United Kingdom’s B&Q things start to point to a new era of increasing internationalization in the home improvement industry.
For evidence, one needs to look no farther than where the industry’s leading retailers are getting their sales. If, after its merger with Castorama, B&Q’s $3.2 billion in sales are considered “international,” some 10.8 percent of the 10 largest home improvement retailers’ total revenues — or $7.957 billion — came from outside their home markets in 1998. That’s up from just 4.7 percent in 1997. Even if B&Q’s sales are removed from the equation, international activity accounted for 5.4 percent of the top 10’s total sales in 1998.
Admittedly, a relative handful of individual companies is clearly setting the pace (see chart, below): bauMax, Austria’s largest home improvement retailer, which saw its international sales increase 46.7 percent in 1998; and France’s Leroy Merlin, which since 1995 has helped pioneer warehouse-style retailing in Poland and Brazil.
The surge in international activity in the home improvement industry is part of a broader retail trend, one that reached new heights when Wal-Mart outbid the United Kingdom’s Kingfisher (the parent company of B&Q) for Asda, the United Kingdom’s third-largest supermarket chain. With that purchase, Wal-Mart — already the world’s largest retailer — put itself into position to double its international sales to nearly $26 billion from stores in Argentina, Brazil, Canada, Germany, Mexico, Puerto Rico, China, Korea and the British Isles.
That home improvement dealers are jumping onto the international bandwagon now is creating a greater dynamism within the industry. Take Germany’s Hornbach, which as recently as 1996 had no international presence. Today the dealer gets 13.7 percent of its total sales from eight stores in four countries, and it plans to enter two additional markets in the next year or two.
Eastern Europe, and particularly Poland, has been attracting expansion-minded dealers for a number of years. Now South America is drawing more interest. French retailers Leroy Merlin and Castorama have set up shop in Brazil.
Despite a population of 39.9 million and an economic might ranking second only to Brazil, Argentina is home to a surprisingly small number of home improvement retailers.
At the moment Sodimac is South America’s leading home improvement retail organization with stores in Chile, Colombia, and Argentina. With more than 50,000 products and services from 30 different countries around the world, Sodimac Homecenter stores provides clients with unmatched selection, highly competitive pricing, and award winning customer service.
Module 3: Assessing the Economic/Geographic Environment
Argentina is a country in southern South America, situated between the Andes in the west and the southern Atlantic Ocean in the east. It is bordered by Paraguay and Bolivia in the north, Brazil and Uruguay in the northeast and Chile in the west.
Argentina is the second largest country of South America after Brazil and the 8th largest country in the world. Its total area is approximately 2.7 million km squared.
Due to its size and population (39.9 million) it is a huge potential market for HD, and as the majority of the HD stores would be situated in large cities and towns there will already be the infrastructure for transportation of materials and goods from the US.
Argentina also benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, sufficient telecommunications and media services and a diversified industrial base. Historically, however, its economic performance has been very uneven. At the beginning of the twentieth century it was one of the richest countries in the world, but it is now an upper-middle income country. Despite this, Argentina remains the most economically developed country in Latin America (measured in GDP per capita and HDI (Human Development Index).
· GDP (per purchasing power parity): $599.1 billion (2006 est.) – (CIA, 2006)
· GDP (per capita, PPP): $15,000 (2006 est.) – (CIA, 2006)
· GDP (real growth rate): 8.5% (2006 est.) – (CIA, 2006)
Doing business in Argentina also creates a good point of entry to Mercosur (Southern Cone Common Market) which is the South American Common market, which includes Argentina, Brazil, Paraguay, and Uruguay with Chile, Bolivia and Peru as commercial partners.
As of January 1st, 1995, tariffs and other non-tariff trade restrictions between member states were eliminated and free movement of capital, services and people was established. Through Mercosur, Argentina provides access to a market of 226 million inhabitants, comprising an area of 11.9 million square kilometers.
Another important that can be mentioned is that Argentina has signed 53 Bilateral Investment Treaties (BTIs) with several countries in order to protect investment and avoid double taxation which means favorable investment legislation for those countries wanting to enter Argentina. The United States is amongst these countries.
Module 4: Assessing the Social-Cultural Environment
As we saw above Argentina is the most economically developed nation in South America, supported by a highly literate population (the lowest illiteracy rate in Latin America). GDP per capita is high enough to justify HD expanding into the country.
The age structure (estimated in 2006 – CIA, 2006) is as follows:
· 0-14 years: 25.2% (male 5,153,164/female 4,921,625)
· 15-64 years: 64.1% (male 12,804,376/female 12,798,731)
· 65 years and over: 10.6% (male 1,740,118/female 2,503,819) (2006 est.)
This shows us that the largest segment of the population is exactly the one which HD would be targeting (young adults to retirement age).
With 97.1% of the population above 15 being able to read and write, HD should not face any obstacles in employing good skilled staff. In most Argentine provinces, primary (elementary) education is compulsory for children between 5 to 14 years and the attendance rate is almost 100 percent.
92% of Argentineans are Roman Catholic and with Spanish being the official language of the country HD can draw on its Mexican staff for training and development should this be required.
According to Inventor the quality of life in Argentina is also very good. The locals have a welcoming attitude towards foreigners; the country offers a wide range of cultural activities and tourist attractions spanning diverse climates and landscapes. The education system is very good and the main urban areas have considerably lower pollution levels than most Latin American cities.
Module 5: Assessing the Political Legal Environment
Politics of Argentina takes place in a framework of a federal presidential representative democratic republic, whereby the President of Argentina is both head of state and head of government, and of a pluriform multi-party system. Executive power is exercised by the government. Legislative power is vested in both the government and the two chambers of parliament. The Judiciary is independent of the executive and the legislature.
Please see the below chart for Argentina’s exports and imports (FOB), in millions of USD, 1992-2004:
Immediately after the collapse of the Argentine economy at the end of 2001 and the devaluation of the peso in 2002, imports fell sharply and Argentina’s trade deficit became a surplus. As recovery continued and the exchange rate stabilized around 3 pesos/dollar, exports (mainly beef, soy and other agricultural products, as well as petroleum) grew steadily.
Imports began recovering in 2003, as the purchasing power of companies and individuals increased, and experienced further growth in 2004.
Argentina also benefits from favorable investment legislation. The Foreign Investment Act, enacted in 1993 by Executive Order 1853/93 established the legal framework for foreign investment. Its main aspects include:
· Foreign investors have the same legal treatment as nationals under the Argentine Constitution.
· Foreign companies may invest without prior approval or registration requirements.
· Foreign investors have the same access to incentive programs as local investors.
· Foreign companies have unrestricted access to all economic sectors.
· Foreign companies have the same access to credit as local companies.
· Foreign companies are free to transfer their capital and profits at any time, without any charges or taxes on such transfers (Invertir, 2007)
As discussed above in Module 3, Mercosur, the customs union that includes Argentina, Brazil, Paraguay, and Uruguay, entered into force January 1, 1995. Chile and Bolivia joined the pact subsequently as associate members. Cooperation between Brazil and Argentina (historic competitors) is the key to Mercosur’s integration process, which includes political and military elements in addition to a customs union. Brazil accounts for more than 70% of Mercosur GDP and Argentina about 27%. Intra-Mercosur trade rose dramatically from $4,000 million in 1991 to over $23,000 million in 1998. More than 90% of intra-Mercosur trade is duty-free, while the group’s common external tariff (CET) applies to more than 85% of imported goods. Remaining goods will be phased into the CET by 2006.
Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization and signed the Uruguay Round agreements in December 1993, including measures related to intellectual property. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. This, however, should not present any problems for HD.
Module 6: Selecting a Global Company Structure
In order to succeed in the Argentinean market HD will most likely be looking to build strategic alliances to assist HD with the home improvement needs of the local market, with regard so materials, types of housing etc, whilst adhering to its mission of “helping people improve the places where they live and work”. A likely candidate for this may well be Sodimac as they are currently the market leaders in home improvement in Argentina. This will enable HD to provide its goods more targeted to the local market and also draw on Sodimacs experience. In return HD can offer Sodimac business incentives such as exposure to the US market for specific products or financial offers.
The entry mode into Argentina should present no problems as HD are already fully established in Mexico and so we can draw on that experience and use their Spanish language resources to assist us in doing so
In addition to that HD will have learnt valuable lessons from its launch in Argentina in 1997 (pulled out in 2001 due to the government problems at the time) in order to avoid the same pitfalls this time round with a different government.
HD is a centralized organization, which means that the Management of the Argentinean stores will be supervised by an Argentinean President, who will sit on the HD corporate Leadership Team. Thus, there will be no franchising or joint ventures. However, having said that, HD may look to build partnerships with local suppliers in order to obtain cheaper raw materials for some of its products.
HD products are also standardized and fully quality assured, although we may consider revisions to certain items to suit the local market after extensive research of the Argentine market.
Module 7: Financing Sources for Global Business Operations
Over the past decade, Argentina has suffered problems of inflation, external debt, capital flight, and budget deficits. Growth in 2000 was a negative 0.8%, as both domestic and foreign investors remained skeptical of the government’s ability to pay debts and maintain the peso’s fixed exchange rate with the US dollar. The economic situation worsened in 2001 with the widening of spreads on Argentine bonds, massive withdrawals from the banks, and a further decline in consumer and investor confidence. Government efforts to achieve a ‘zero deficit,’ to stabilize the banking system and to restore economic growth proved inadequate in the face of the mounting economic problems. The peso’s peg to the dollar was abandoned in January 2002, and the peso was floated in February 2002. The exchange rate plunged and real GDP fell by 10.9% in 2002, but by mid-year the economy had stabilized, albeit at a lower level. GDP expanded by about 9% per year from 2003 to 2005. Growth is being led by a revival in domestic demand, solid exports, and favorable external conditions. The government boosted spending ahead of the October 2005 midterm congressional elections, but strong revenue performance allowed Argentina to maintain a budget surplus. Inflation has been rising steadily and reached 12.3 percent in 2005.
Even with Argentina’s favorable investment legislation, HD will not require financial help for this expansion into Argentina.
In 2005 HD completed 21 acquisitions to better service professional contractors and announced several others, adding to our distinctive portfolio of category leaders, such as National Waterworks, Contractors’ Warehouse, Williams Bros. Lumber Company and Chem-Dry. In 2005 we announced Hughes Supply, the largest acquisition in our history.
Internationally, we are the number1 home improvement retailer in Canada and in Mexico, using a portable business model that respects the cultures in which we are privileged to operate. By fiscal year-end of 2005, we had 137 stores in Canada, a country that delivered more than US$4 billion in revenues. In Mexico, we ended the year with 54 stores and expect our business in that market to top $1 billion in 2006 for the first time. We will continue to explore the most prudent way, therefore, to enter the Argentinean market.
The amount of money we will need wholly depends on whether HD decides to buy a competitor store, create strategic alliances or go it alone so it is impossible to put a figure on it at this stage.
Module 8: Creating a Global MIS (Management Information System)
HD has been leveraging technology to improve the customer experience. With bold IT initiatives – self-checkout, Back End Automation and Re-engineering (BEAR), and centralized automated replenishment – we increased our operational efficiency, achieved expense productivity and helped shift more “tasking” hours to the selling floor.
During fiscal 2005, HD continued to improve our technology capabilities by opening a second technology center, located in Austin, Texas. In addition to providing redundancy, the center allows for growth and expansion. The center currently houses engineers, software developers and computer operation staff.
The MIS already installed in HD will be rolled-out to any new store and management team in Argentina (regardless of area), which will be supported by the staff in Austin, Texas (24×7) through telephone help-lines and e-mail contact. HD will be looking to employ more Spanish speakers in their Support organization to serve the Argentinean business.
Sales reports, forecasts, and other fiscal information will be made available on a software programme accessible from the HD corporate intranet, as will other automated services (such as BEAR and Accounting software) to limited users within those areas of the industry – with log-in details.
With HD’s experience in Mexico it will draw on that experience to customize any software to be applicable to the Latin American Market. This may include differences in Accounting standards, language changes, currency translation and uncertainty avoidance. HD will also make all its training materials and other documentation available in Spanish.
Module 9: Identifying Human Resources for Global Business Activities
Initially HD will bring in some of its US and Mexican staff to oversee the start-up and help with the recruitment of local people. Then once the recruitment has been done they will remain there either full-time or on a ‘need only’ basis for training purposes. On-going training will most likely be conducted by senior members of HD, Mexico – in Spanish.
However, HD will be looking to recruit local senior level executives almost immediately who have sufficient knowledge of the home improvement business and local economy to make an impact from day one. They should also have sufficient contacts in the industry to aid recruitment needs. This will either be done through acquiring strategic companies locally or by hiring the services of well-established head-hunters and other employment agencies.
HD will advocate recruiting as many staff as possible from the local area to fulfill its mission of “helping people improve the places where they live and work” and respecting the local community in which it operates. A senior HR executive will therefore be brought in quickly, either through head-hunting or from Mexico to be a full-time employee in Argentina.
The average wage in Argentina in 2005 was AR$ 539/month. This varies widely according to education and experience (to detail all this would warrant a separate paper!). This is a lot less than its US equivalent but although HD will comply with local standards they will also have beneficial incentive and bonus schemes for over-achievers and will offer benefits and other employment compensations according to Argentine laws.
Module 10: Managing International Financial and Business Risks
The risks associated with opening HD stores in Argentina are numerous (as proved by the company’s previous sell-off in 2001 after the political and economic instability).
Potential Risks are:
· The costs and difficulties of managing international operations
· Establishing a US-based company abroad with limited local knowledge
· Adverse tax consequences
· Greater difficulty in enforcing intellectual property (IP) rights
· Negative foreign currency exchange rates and fluctuations
· Strategic Alliances stealing copy-writed company information and Intellectual Property (IP).
· Renewed Economic or Political instability in Argentina
Risk reduction strategies would include:
· The immediate employment of Argentine senior executives, with the historical local knowledge to deal with any crisis should it arise.
· Having properly drafted contractual documents to be signed by partners, strategic alliances and all staff prior to commencing work. Thus, hiring good Argentine lawyers.
· Forming secure partnerships with local companies whether they are suppliers, alliances or distributors – they will have the local “know-how”, which will avoid HD making costly mistakes in those areas.
· Having sufficient local insurance cover to safeguard HD from any situation which would be beyond its control.
· Implementing an effective Project Management Methodology to ensure meeting project deadlines and adhering to the quality standards required.
Module 11: Product Target Market Planning for Foreign Markets
The competitive advantage and Unique Selling Point (USP) for HD in Argentina will be to give the local customers direct access to all the products (or product concepts) HD offer in the US. A ‘product concept’ will have as many characteristics as possible to better communicate attributes and benefits within the organization as well as to potential customers. By constantly refining our ‘product concepts’ we will thus gain competitive advantage over our local competitors.
This in turn will encourage ‘repeat customers’ ‘Repeat customers’ are a group of people with identifiable characteristics with similar needs who have the ability, authority, and desire to buy or use what you have on numerous occasions and who will keep coming back to buy more of or update their initial purchases..
Once somebody has embarked on a home improvement project, they will be more likely to keep buying their goods from the same company if they were initially satisfied with their first purchase, especially considering home improvements which do not usually imply just a one-time purchase
However, HD will have to amend its branding and targeting strategies for the Argentine market too, bearing in mind the different types of housing structures, building materials and home decoration trends of the local market. This may require extensive research of the local market or making strategic alliances with longer established local competitors (such as Sodimac) who can give HD the expertise on the local consumer preferences as discussed previously.
Module 12: Designing a Global Distribution Strategy
Argentina has a well developed infrastructure. The national road network is around 40,000 kilometers long. Taking into account the Provincial and Municipal Network, there are almost 500,000 kilometers of roads across the country. The Argentine railway network is one of the longest in the world. It covers a distance of 35,753 kilometers. Argentina also has 38 seaports along the Atlantic coast and 25 river ports. In addition it has access to Chilean ports as a result of an agreement signed with the Government there (Invertir, 2007)
The main distribution channel for getting the majority of HD’s products into Argentina would be by the use of truck shipping. Large numbers of items or particularly big or cumbersome items can also be transported by sea freight.
Many items can be collected from HD stores by the consumer; again for large or difficult items HD will employ truck shipment by road for delivery by the use of local suppliers who will have the local geographical knowledge and experience to help HD deliver within its time promises.
The only barrier to these methods of distribution is the levy of import duties on US imports. However, very recently, Argentina has created several tools in order to promote foreign and local investment. These can be classified into three main categories:
1) General incentives – these are export incentives, tax exemption on imported capital goods, reduction on VAT for capital goods, special import regime for large industrial investments, in-house customs, simplified import system, and temporary admission scheme. Very recently the Argentine Congress approved a Law, which creates new mechanisms to promote investment. These include; accelerated depreciations for machinery, equipment, and infrastructure works, and refund on VAT on goods destined to investment projects.
2) Sectoral incentives – promotional Laws for Forestry, Mining and Tourism
3) Regional promotion – various provinces in Argentina now have specific investment promotion regimes.
(Source – Invertir, 2007)
Module 13: Planning a Global Promotion Strategy
The Global Promotion Strategy for HD will include:
· Direct advertising – advertising banners along major roads, signs, displays in populated areas.
· Local press releases on various media to inform the public that the new HD store is open and ready for business.
· Distribution of flyers and discount coupons (10% off your first purchase etc.) in other shopping areas and major pedestrian streets.
· Media advertising – radio, television, daily press and Internet (We plan on having ads on high traffic sites. Our local web page will also play a major role because we are planning to offer discounted prices for online ordering). This media advertising will be ‘variants’ of the successful formulae that are already established in the US and Mexico.
HD Argentina’s Promotional Strategy will include both ‘push’ and ‘pull’ promotions for its business operations. (A pull strategy is aimed at the end-user of consumer goods and services (such as the marketing methods described above). A push strategy is aimed at intermediaries, such as retailers, and is more common among firms selling industrial products or services.). The ‘push’ strategy is likely to be targeted at HD’s Argentinean logistic distributors, such as transporting companies and potential affiliates.
Module 14: Selecting an International Pricing Strategy
Prices are most commonly influenced by production costs, potential demand, actions of competitors, and government regulations.
Local economic factors which will influence HD’s pricing strategy in Argentina include:
· Personal disposable income (GDP per Capita) – this is substantially lower than in the US so prices will have to be adjusted accordingly.
· Inflation rate (currently at around 10%)
· Taxes & import duties (please refer to above sections for full explanations of the favorable foreign investment legislation now in place in Argentina).
· Demand for HD’s products – the Argentinean economy is strong at the moment, however, it is known for its volatility so this must be monitored closely in order for the HD business to be successful.
· The pricing strategies of local competitors, such as Sodimac must be analyzed and reviewed regularly in order for HD to remain competitive in this area.
To consolidate, we compare this information together with the costs below…
· Direct production costs (mainly in US)
· Distribution costs (logistics, transportation etc.)
· Administrative costs (import duties, legal fees, salary payments etc.)
· Local overheads (Ownership or rental of property for HD stores and warehouses, utility bills, investments in technology, such as locally compatible cash registers, parking meters etc.)
All of the above will enable HD to establish a local pricing strategy using demand analysis and competitor analysis.
We do not expect the prices to vary widely from those already established in Mexico.
Module 15: Determining Organizational Financial Results
As discussed in Module 7, the amount of capital HD will need to expand its business into Argentina fully depends on whether HD decides to buy a competitor store (as we did in Mexico with great results), create strategic alliances (either with competitors or local suppliers) or go it alone. The sole revenue source from HD Argentina would be through sales of its goods in the stores, through telephone order lines and through the Argentinean website to customers and some income of after-sales services. Customers are defined as home-owners and owners of small to medium sized individual businesses (Small Medium Enterprises – SME’s) for this purpose.
Operating costs will include:
· Product distribution & warehouse facilities.
· Merchandise inventories.
· Establishing stores in Argentina, either through strategic acquisitions, partnerships or by obtaining land for our stores alone (leasing or buying).
· People costs – wages and training needs and potentially bring staff in from the US & Mexico).
· Government costs – income taxes etc.
· Legal fees and Insurance.
· Stockholders’ equity.
Profit margin, return on investment, and market share are some of the common financial measurements which will be used to assess HD’s success in Argentina.
Based on current economic conditions, competition, the size of the operation, and the market environment of Argentina at present HD can expect its stores to be profitable within one year. The evidence to support this is the sound financial performance of HD in Mexico (HD Annual Report, 2005)
Module 16: Measuring International Business Success
As discussed above in Module 15, measurements of financial success commonly include profits, return on investment (ROI), market share, and sales growth. However there are other ways to look at and measure international business success, such as:
· Local Economic benefits:
o Improved infrastructure (in order for HD to expand in Argentina and lead the way for future expansion in other countries or regions.
o Expansion of products available to the local market.
o Creation of jobs.
o More efficient use of natural resources.
o Increasing personal income
· Social benefits to Argentina (mainly locally) from HD’s business operations:
o Employee training.
o Expanded healthcare.
o Other benefits such as additional housing.
To measure business success properly we need to assess the benefits outlined above compared to the costs, both economic and social (including increasing pollution, reduction in natural resources, or changes in traditions). A good return on investment (ROI) would be if the benefits far exceed the start up and ongoing operating costs in setting up HD stores in Argentina. To calculate this in detail all the above factors need to be taken into consideration.
A positive ROI would indicate a ‘go’ decision; a negative ROI would indicate a ‘no go’.
For HD it all points to a positive ROI (based on the financially strong performance of HD in Mexico (HD Annual Report, 2005), provided the previous lessons learnt in 2001 are taken on board and that factors beyond the companies control (political and economic unrest, for example) stay constant.
Our expansion strategy includes expansion of our operations in existing and new international markets by selective acquisitions, strategic alliances and the opening of new stores. Our ability to successfully execute our expansion strategy in international markets is affected by many of the same operational risks we face in expanding our U.S. operations. In addition, our international expansion may be adversely affected by our ability to identify and gain access to local suppliers as well as by local laws and customs, legal and regulatory constraints, political and economic conditions and currency regulations of the countries or regions in which we currently operate or intend to operate in the future.
Risks inherent in our international operations also include, among others, the costs and difficulties of managing international operations, adverse tax consequences and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations may have an impact on our future costs or on future cash flows from our international operations.
APPENDIX I – Cited References
· BW Web, 2006 – http://www.businessweek.com/magazine/content/06_18/b3982066.htm (Retrieved 1 April 2007)
· CIA The World Fact Book (CIA, 2006) – https://www.cia.gov/cia/publications/factbook/geos/ar.html (Retrieved 1 April 2007)
· FA Web, 1998 – http://www.findarticles.com/p/articles/mi_m0VCW/is_1998_Nov_9/ai_53251036 (Retrieved 1 April 2007)
· Invertir – http://www.invertir.com/ (Retrieved 16 April 2007)
· The Home Depot Annual Report 2005