Why did Tescos initial international expansion strategy focus on developing nations?

Tescos International Growth Strategy Tesco is the largest grocery retailer in the United Kingdom, with a 25 percent share of the local market.
MG5606: Group presentation topics and Assessment criteria Assessment criteria: Group presentation will be assessed out of 30 marks account for 30% of your final grade. 10 marks each will be awarded individually for the following three criteria: Clarity of presentation in answering the question posed. Breadth of reading beyond recommended readings Quality of application of taught concepts Case Study 1: Tescos International Growth Strategy Tesco is the largest grocery retailer in the United Kingdom, with a 25 percent share of the local market. I n its home market, the companys strengths are reputed to come from strong competencies in marketing and store site selection, logistics and inventory management, and its own label product offerings. By the early 1 990s, these competencies had already given the company a leading position in the United Kingdom. The company was generating strong free cash flows, and senior management had to decide how to use that cash. One strategy they settled on was overseas expansion. As they looked at international markets, they soon concluded the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local competitors already existed, but in the emerging markets of Eastern Europe and Asia where there were few capable competitors but strong underlying growth trends. Tescos first international foray was into Hungary in 1 995, when it acquired an initial 51 percent stake in Global, a 43-store, state-owned grocery chain. By 2004, Tesco was the market leader in Hungary, with some 60 stores and a 1 4 percent market share. In 1 996, Tesco acquired 31 stores in Poland from Stavia; a year later it added 1 3 stores purchased from Kmart in the Czech Republic and Slovakia; and the following year it entered the Republic of Ireland. Tescos Asian expansion began in 1 998 in Thailand when it purchased 75 percent of Lotus, a local food retailer with 1 3 stores. Building on that base, Tesco had 64 stores in Thailand by 2004. I n 1 999, the company entered South Korea when it partnered with Samsung to develop a chain of hypermarkets. This was followed by entry into Taiwan in 2000, Malaysia in 2002, and China in 2004. The move into China came after three years of careful research and discussions with potential partners. Like many other Western companies, Tesco was attracted to the Chinese market by its large size and rapid growth. In the end, Tesco settled on a 50/50 joint venture with Hymall, a hypermarket chain that is controlled by Ting H sin, a Taiwanese group, which had been operating in China for six years. Currently, Hymall has 25 stores in China, and it plans to open another 1 0 each year. Ting Hsin is a well-capitalized enterprise in its own right, and it will match Tescos investments, reducing the risks Tesco faces in China. In 2007, Tesco took its international expansion strategy to the next level when it announced it would enter the crowded U.S. grocery market with its Tesco Express concept. Already running in five countries, Tesco Express stores are smaller, high-quality neighbourhood grocery outlets that feature a large selection of prepared and healthy foods. Tesco initially entered the West Coast, investing some 250 million per year, with profitability expected in 201 0 when it planned to have 400 stores (the stores operate under the Fresh and Easy brand name). Although some question the wisdom of this move, others point out that in the United Kingdom Tesco has consistently outperformed the Asda chain that is owned by Walmart. Also, the Tesco Express format is not offered by anyone else in the United States. As a result of these moves, by 201 0 Tesco generated sales of 1 9.4 billion outside of the United Kingdom (its UK annual revenues were 43 billion). The addition of international stores has helped make Tesco the third- largest company in the global grocery market behind Walmart and Carrefour of France. Of the three, however, Tesco may be the most successful internationally. By 201 0, all of its foreign ventures except the U.S. operation were making money. In explaining the companys success, Tescos managers have detailed a number of important factors. First, the company devotes considerable attention to transferring its core capabilities in retailing to its new ventures. At the same time, it does not send in an army of expatriate managers to run local operations, preferring to hire local managers and support them with a few operational experts from the United Kingdom. Second, the company believes that its partnering strategy in Asia has been a great asset. Tesco has teamed up with good companies that have a deep understanding of the markets in which they are participating but that lack Tescos financial strength and retailing capabilities. Consequently, both Tesco and its partners have brought useful assets to the venture, increasing the probability of success. As the venture becomes established, Tesco has typically increased its ownership stake in its partner. By 2011, Tesco owned 99 percent of Home plus, its South Korean hypermarket chain. When the venture was established, Tesco owned 51 percent. Third, the company has focused on markets with good growth potential but that lack strong indigenous competitors, which provides Tesco with ripe ground for expansion Case Discussion Questions 1. Why did Tescos initial international expansion strategy focus on developing nations? 2. How does Tesco create value in its international operations? 3. In Asia, Tesco has a history of entering into joint-venture agreements with local partners. What are the benefits of doing this for Tesco? What are the risks? How are those risks mitigated? 4 In March 2006 Tesco announced it would enter the United States. This represents a departure from its historic strategy of focusing on developing nations. Why do you think Tesco made this decision? How is the U.S. market different from others Tesco has entered? What are the risks here? You Just need to do 2 slides on question number 4

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