Hbs Gome Case Analysis
Case ReportOnBoardroom Battle Behind Bars: Gome Electrical Appliances Holdings—A Corporate Governance Drama1. Gome Electrical Appliance Holdings Ltd, is electrical appliance retailer in Mainland China and Hong Kong. Huang Guangyu and his brother founded the brand, in 1993. It core products include audiovisual appliances, and information technology and digital products. Gome expanded in a very fast way, owning 587 chain stores all over China in 2004. It was listed on the Hong Kong Stock Exchange in a reverse takeover in 2004. In 2008, Huang Guangyu became the subject of an investigation for corruption and insider trading. In China, it is not rare to see corrupt collaboration between businessman and government officials.In the mean time, Gome’s net income fell as global financial crisis slowed consumption. Huang’s arrest worsens the company’s performance. In 2009, Bain Capital made a $233 million investment for 10% stake in Gome, with the full knowledge that Huang could be jailed. In mid-2010, Huang was sentenced to a 14-year prison term for insider trading, illegal business dealings, and bribery.
However, Huang still controlled the board meetings and business operations as major shareholder with help rom his sister and his attorney. The new chairman Chen Xiao, who was backed by Bain Capital, and senior management had to battle with Huang and his proxy for control of the company. 2. Gome’s competitive strategy is low pricing and fast expansion of chain stores.  In 2004, the company owns 587 chain stores. In 2010, when Huang fought for his control in the boardroom, Gome’s owned over 1000 chain stores, according to news in 2010. In 2002, Gome started a “lowest-price guarantees” policy to make sure products sold in Gome was priced as the lowest. They offered to give customers money back if they found lower prices elsewhere.Because they established a huge network of distribution by chain stores all over the country, they had the bargain advantage to squeeze profit from suppliers. Gome’s business model consisted of fast expansion of chain stores, low cost by direct purchasing from manufacturers, and low pricing. For low cost part which is not elaborated in the above, Gome adopted concessionaire business model whereby it utilized a sales force made up of supplier employees rather than its own personnel to control its cost.