Is Home Depot (NYSE: HD) ready to make a move in the world's most populous nation? The Financial Times this morning is reporting that the home-improvement giant is looking to buy a 49% stake in Orient Home, a leading do-it-yourself retailer in mainland China. The deal is valued at roughly $200 million if it actually goes through.
Does that mean the company's orange apron will become a mandarin orange apron? Oh, you're clever, but it's bigger than that. Even though shareholders may believe that their homegrown companies are masterful enough to enter international markets on their own, it often pays to piggyback on established regional players to gain the necessary localized expertise and consumer acceptance.
In China, it's practically an imperative. When Starbucks (Nasdaq: SBUX) opened its first store in China in 1998, it sought out a local partner. Even though the majority of the company's stateside stores are wholly company-owned, Starbucks has gone on to broker partnerships in Beijing, Shanghai, Hong Kong, and southern China.
This approach isn't limited to the retail world, of course. Even though the Internet is seen as the great leveler, many of our own country's most successful Net companies had to find an established partner in China. Last year, Yahoo! (Nasdaq: YHOO) paid $1 billion for a 40% stake in Chinese auction site Alibaba. That came after eBay (Nasdaq: EBAY) had entered the market through the acquisition of Alibaba rival EachNet.
Even though most stateside companies have been approaching the Asian market for decades as a way to outsource production on the cheap, years of economic boom overseas have many companies starting to see China as fertile soil for expansion rather than a site for outsourcing.
Three of our newsletters have gone on to single out Chinese stocks, despite their inherent risks. We started the China recommendations with Advisor's selection of Sina (Nasdaq: SINA) in the summer of 2004, with Shanda Interactive (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) getting the nod at Motley Fool Rule Breakers a few months later.
So Home Depot wants to build a presence in China? Be thankful that it isn't thinking of going in alone.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time, and he recommended NetEase 14 months ago to Rule Breakers subscribers. It is trading 40% higher today. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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