Clash of cultural values: Epic expansion and merger fails

Developing and growing international operations involves a delicate balance of grasping cultural nuance and timing. As the epic expansion and merger fails presented here will show, getting it wrong can cost a company more than a lump sum of money and embarrassment.

Even the best idea can fail, and businesses need to be very cautious when expanding into unknown waters or combining two autonomous and unique entities to create a new one.

Here are some examples of successful companies that didn’t make it abroad and some epic merger fails.

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Target didn’t explore Canadian shopping habits

It was with great optimism that US retail giant Target decided to expand to Canada. They were wildly successful at home, so why not? They went about growing their business north of the border like they approached domestic expansion.

Fast forward less than two years later: Target had lost billions and estimated they wouldn’t turn a profit in many years. The brand laid off almost 20,000 employees and liquidated each of its 133 stores in the country.

What happened? Target focused on huge discounts and advertising to attract buyers, which worked great in the US. Between 2019 and 2015, the number of Canadians who said they looked at discounts and promotions before going shopping dropped by 10%. The number agreeing that clipping coupons was too much trouble was 14% higher in 2015.

Canadians stick to shopping lists, while Americans are more inclined toward impulse buys and pay more attention to advertisements.

All of these factors combined contributed to Target’s epic failure in Canada.

Walmart bets on German frugality – and loses

US retailer Walmart tried to expand into Germany in 1997 and failed miserably. Germans are known for their propensity to save, so the chain tried to tap into what they thought would be a highly profitable discount market.

The market didn’t end up being lucrative for Walmart due to restrictions on working hours, excessive bureaucracy, and complicated labour laws. What’s more, they failed to consider Germans’ appreciation of personal space. Customers were scared off by Walmart greeters, and they preferred to bag their own groceries. Walmart left Germany nine years after setting up shop there, losing $1 billion US dollars in the process.

Home Depot was ahead of its time in China

The Chinese economy was booming in the 2000s, so DIY behemoth Home Depot thought it would be a good idea to try to break into the local market.

After opening a dozen stores, they realized DIY really wasn’t a thing in China.

Home improvement is a popular pastime in the West, but repairing your home yourself is seen as a sign of poverty in some developing countries. Home Depot closed down all its stores in 2012 and lost $160 million after taxes.

They were ahead of their time. Revenue in the DIY market in China passed $767 billion this year and is anticipated to grow 2.15% a year.

Starbucks in Australia: too fast and too pricey

US coffee franchise Starbucks failed to appreciate the cultural differences between Americans and Australians, much like Target overlooked those between Americans and Canadians. The company assumed Australians’ coffee drinking habits would be the same and made the leap to the local market in 2000.

The first problem was the price – Starbucks proved too pricey for locals. Local providers dominated the Australian coffee market. The franchise lost money, slowly but surely. In 2008, these losses had reached almost $150 million. Starbucks closed 61 stores that year.

The chain persisted for six more years, ultimately selling the rest of its stores to another franchise operator.

Starbucks needed to take the time to adapt to Australian coffee culture. Coffee culture’s beginnings down under are credited to Greek and Italian immigrants who arrived there in the middle of the 20^th century and brought espresso with them. Australians had unique coffee drinks in the 1980s, like Australian macchiato.

More importantly, socialization at coffee shops is highly valued down under. Starbucks’ focus on taking things to go and on convenience proved to be the wrong approach for the Australian market. The coffee giant perceived the Australian market through the lens of US culture, which focuses on coffee as a quick pick-me-up or a commodity.

In addition, Starbucks’ prevailing sugary menu failed to whet local appetites.

Tesco didn’t grasp the US shopping experience

Tesco decided to open its Fresh & Easy shops in the US in 2007, a few years after the peak of local and organic food popularity across the pond. This was the first of many mistakes the UK grocery chain made, unfortunately. The US economy was teetering on the edge of recession, and US consumers were not inclined to overspend on food.

What’s more, the shopping experience at Fresh & Easy stores was utterly novel to Americans, and not necessarily in a good way. These stores were small and suitable for customers who shopped daily, which is what most people who live in big cities in the UK do. Americans shop very differently, preferring to buy their groceries in bulk and to go shopping just once every two or three weeks.

Tesco was also ahead of its time with too many self-service checkouts. They failed to target leading US supermarkets, focusing on niche shoppers instead.

Tesco’s American dream dried up in 2012. The chain closed almost 200 stores and lost around $1.8 billion.

The case of Best Buy’s cultural misalignment

Best Buy, the US electronics, computer, and appliance franchise, entered the UK market in 2010. They planned to open 200 stores but ended up opening only 11 and closed them in 2011. Unfortunately, Best Buy had chosen a steep economic decline to enter the market. They ended up losing around $318 million.

Another reason for the failure was that they chose isolated locations for their stores, away from larger populated areas. UK customers aren’t inclined to travel long distances to buy electrical items – or any items, for that matter.

Much of their spending had moved online because of convenience and rising fuel costs. Consumers also tended to buy smartphones and tablets directly from Apple and other specialized providers.

Mattel’s miss and hit in China

2009 marked Barbie maker Mattel’s first attempt to crack the Chinese market – the miss. The company built a huge Barbie fortress at the heart of Shanghai’s retail district, sprawling over 36,000 square feet. It had six floors, a Barbie-themed bar, and a stairway lined with hundreds of Barbies.

Chinese culture focused on educational toys and skill building, however, and parents saw Barbie as somewhat of a distraction. The gigantic Barbie store closed in two years.

In addition, Chinese customers’ purchasing decisions are less price-driven than Western ones, and they prefer custom-made products.

In 2017, Mattel made another attempt, this time via a partnership with online retailer Alibaba. Statistics at the time showed around 20% of Chinese customers preferred to shop for toys online instead of visiting toy stores or superstores. Mattel is working in China and seems to have succeeded.

Top mergers failed by incompatible values

Some world-famous companies have entered promising acquisitions and mergers in the hope of transforming the market with unique new product offerings. Sadly, many of them found their values and cultures clashing, resulting in merger failures – and one unlikely success story.

Amazon and Whole Foods: Efficiency vs. idealism

Amazon and Whole Foods merged in 2017 so the online retail giant could grow beyond e-commerce and sell groceries in the certified organic product company’s physical locations. However, the values and cultures of the two companies were so different that the outcome of the merger was less than optimal.

Amazon’s core values involve technology and efficiency. Personalization is a relatively low priority. Whole Foods, on the other hand, is driven by idealistic approaches and values.

Ultimately, Amazon made a lot of changes to Whole Foods in the years after the merger, from integrating checkout technology in its stores to reducing prices. Whole Foods had more than 500 stores in the US in 2022.

AOL and Time Warner: Worlds apart

AOL’s takeover of Time Warner was the biggest of its kind in US history. It mainly failed due to cultural incompatibility. The companies had almost no similarities in the way of values and corporate cultures.

They missed out on critical opportunities to advertise online because of the clash between tradition and modernity. Although AOL was the undisputed leader in some areas, Time Warner continued to market its services and products in those niches.

Having undergone two mergers already, Time Warner had a culture where every business unit operated autonomously. AOL’s main value was profit, and short-term goals were a priority.

AOL rapidly shrank after the acquisition, which was also due to the decline of dial-up and the advent of broadband and high-speed internet. It has been part of Yahoo, Inc. since 2021.

Google and Nest: Rigid structure vs. informality

In 2014, Google acquired the start-up Nest, which impressed with its innovation and automation capabilities. However, the two companies soon proved to be incompatible. Nest’s approach was more structured, while Google’s was more casual. It had a bottom-up approach and was more driven by engineers, while Nest placed greater value on transparency and had a top-down culture.

WordPerfect and Novell: Share decline and massive layoffs

Novell and WordPerfect, a word-processing software company, merged more than 20 years ago. The plan was to create a strong entity that could beat the competition in the face of Microsoft. Not only didn’t this happen, but the merger ultimately resulted in a drop in the share prices of both companies and massive layoffs on both sides.

The cause was a severe culture clash. Novell planned to absorb WordPerfect’s different services, products, and culture and instil new values in their team. WordPerfect was not happy and this affected the overall business.

Eventually, Novell sold WordPerfect off for much less than they had paid.

Clash of the railroad titans

Pennsylvania Railroad and New York Central Railroad, two historic competitors in the industry, merged in 1968. They formed Penn Central, the sixth-biggest company in the US at the time.

Ultimately, the merger proved to be a terrible decision because the two companies were not prepared to cooperate. Decades of fierce competition had instilled feelings of deep rivalry. Penn Central filed for bankruptcy in 1970.

Chrysler dropped off the map after the Daimler merger

US company Chrysler and the German Daimler, the manufacturer of Mercedes-Benz, became one roughly two decades ago in what was called the merger of the century. Great success was expected, which turned out to be far from the truth. Immediately after the deal went through, the conflict started, and the newly formed entity began to struggle.

There were major cultural and value clashes, including on issues like expenses and payment, formality, and operating styles. Daimler’s culture came to dominate, and Chrysler employee satisfaction plummeted. Significant losses were expected as early as 2000, and the layoffs started in 2001.

The entity continued to struggle in the next few years. Cerberus Capital Management bought Chrysler for $6 billion in 2007. Chrysler filed for bankruptcy two years later.

Daimler continued to operate with some success. They announced a series of partnerships and acquisitions of start-ups focused on ridesharing in 2017. They were eighth worldwide in intellectual property development in 2021.

Daimler rebranded as Mercedes-Benz in 2022 in pursuit of more considerable value for the corporation as it moved into the electric car market with a focus on digital equipment.

The unlikely success of HP and Compaq

Finally, an unlikely merger success story to finish our exploration of deals that failed due to cultural clashes. It is the story of Hewlett-Packard and Compaq, two computing companies that were struggling back in 2001. HP acquired Compaq a year later in a merger that appeared ill-fated from the very beginning. Compaq valued swift decision-making and selling at any cost, while HP valued consensus and cooperation and was more engineering-driven. They were a poor cultural match, which led to losses of around $13 billion in market capitalization.

Ten years later, it emerged that the merger had actually helped both companies. It led to the formation of a global tech powerhouse with impressive revenue from printers, computers, and servers, which was exactly what the two entities had promised their customers when they joined forces.

After completing the integration, HP augmented support for its enterprise products and perfected its partner program. Compaq brought an enterprise focus to HP, which went above and beyond enterprise-targeted technology. Although Compaq was the smaller company, it felt like they had acquired HP because their enterprise- and sales-focused approach came to dominate. Compaq culture and values basically took over.

The deal eliminated two of HP’s biggest competitors, increased HP’s market share, and gave HP high-value product lines. It also allowed it to face off against Dell, and that rivalry continues to this day. HP and Dell remain two of the most prominent computer manufacturers on the market. According to April 2022 data, Dell’s share of the PC market in the US was 27.2% compared to 23% for HP.

HP continued to use the Compaq brand for lower-end systems until 2013, when they decided to discontinue it.

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