Tesco Goes Global
Why did Tesco’s initial international expansion strategy focus on developing nations?
There are valid reasons why Tesco decided to operate on developing countries as they planned to expand its business internationally despite its competencies in many aspects in terms of business operation and management right in its home market – in the United Kingdom. These reasons have been proven effective after many years of recorded successes in their performance in the international markets.
As an initial step, venturing with local retailers in some Eastern European and Asian countries where there are few capable competitors at stake is very effective in carrying out its business plan with less efforts and threats as a result of political, social and economic resistance. Tesco simply avoided strong competition outside its country where marketing strategies might be powerful than it has. Its primary goal is to penetrate and establish a business before utilizing other strategies to compete in the market. This means that their marketing strategy is effective as far as their research is concerned but that will not be so if utilized in countries known to have strong competitive advantage.
As a result, Tesco as one of the largest retailing company in the world has generated more business ventures in addition to what it already established in the United Kingdom having a total of about 3,000 stores in 2005 alone. Getting into global business became easy for Tesco after carefully analyzing the trend in international business.
How does Tesco create value in its international operations?
Entering into international operations makes a lot of risks for the company that in order to first establish itself, it is important that it gained public acceptance of the company and its products. Choosing to venture in developing countries but potential business opportunities was a good start for Tesco; but, that would not give the company any promise in the future. The management knew that in the first place, so, along with the partnering strategy, it created other strategies and courses of actions in order to penetrate the market easily and compete with local markets. It certainly created value in its operation.
There is a variety of ways that it does to create values that certainly gained acceptance from the people by means of localizing its stores. Tesco did it in various means. First, it hired local expatriates who had enough understanding of the local cultures to manage and develop marketing plans for further expansion. Second, the company develops products that cater to the taste and culture of the people. Third, it sells goods and products that are considered primary needs of the people such as food, grocery products, and others. Fourth, in many instances, Tesco makes partnership with leading and known stores in the company so that people will not develop resistance against the company or the product.
Localizing products is certainly the most effective strategy that company employ when doing international business, which posts a lot of risks and challenges especially if the target place has resistance over some ideology aspects. However, most common problems that global business institutions are facing have something to do with political, legal, social, and cultural barriers, which would be easily confronted when presenting the product after the taste and culture of the people – or localizing the company and products.
In Asia, Tesco has a long 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?
Primarily, Tesco receives a lot of benefit with their joint venture business with other partners around the world, which is mainly in profit. For instance, A Tesco Interim Report released on August 13, 2005 by UK Regulatory stated that their international sales were up by 25.6% that resulted to an increase in the annual group sales by 14.1% while the sales grew by 25.6% and by 17.3% at constant exchange rates. Their diluted earnings per share increased by 15.7%, with an interim dividend as proposed by the Board were 2.53p per share (Leahy, Tesco).
The profits gained are sure manifestation that the company is growing stronger as years pass by. A joint venture type of business has certainly provides Tesco a lot of advantage because it could easily introduce its company to the customer that are aligned with local products. The strategy of localizing the products with application of newest sales strategies in UK would surely make marketing a lot more competitive in other countries. It only takes a risk to invest under the name of the local business using other scheme suitable for local buyers. It is risky enough to entrust the fifty percent of the management and perhaps another fifty percent investment to local expatriates to establish and to stabilize the partnership.
In order to mitigate the risks, Tesco is well-focused and built a guideline that will keep the business throughout many challenges. Tesco’s international strategy is built on six key pillars: flexibility, act local, keep focus, multi-formatting, develop capability, and build brands. As— mentioned, “Tesco’s strategic superiority and obsessive attention to detail have set it part from its UK rivals and enabled the group to compete robustly almost immediately after it enters each of its international marketplace.”
In March 2006, Tesco announced that 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? How do you think Tesco will do?
Entering a joint venture with some business institution in the United States of America seems to be a new challenge that Tesco would like to do after successive growth in the joint venture business with other developing countries. This step would likely be riskier but I think a must to do for Tesco because there is no place they could go after doing successful business in less developed countries.
Given the assumptions of possible difficulties that Tesco may encounter in opening stores in America such as competition with local stores, varying cultures in America, and the rivalry it will create with Wal-Mart, Sarah Butler also identified other reasons why Tesco is insistent to put up a joint venture in that place. First, Tesco will strategically open stores in areas where Wal-Mart is not visible such as in westernmost part of mainland America. Second, Tesco has conducted a twenty-year research about American market and the possibility of success if it opens a joint venture type of business in America. Third, an American team player, Tim Mason, may help create greater opportunity for Tesco.
Making decision is really hard but given the reasons why British operators of business chain did not succeed will provide Tesco some idea how they could figure out the right strategies. I think, to make things possible for Tesco considering the causes of failures of most UK business in America are strategic planning with consideration of the local identity and characteristics of the community, sufficient funding in case of ups and down, developing management style suitable for American employees, and identifying the correct places for the business.
Thus, risks such as misunderstanding caused by applying UK style of leadership to America, problem identifying right places that suit to UK own retail set up, finding the right partner to work with, and lack of funding are just some of the reasons why UK joint venture business does not succeed in America. Given this information, Tesco will definitely make it at the initial action; however subsequent events may require careful steps making sure that the principle of localization is utilized at full extent. Many still in anticipation for any development in the future of Tesco in America.
Butler, S. (10 Nov. 2007). Tesco Faces Fresh Challenge in America. Times Online. http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article2843939.ece
Leahy, Terry (13 August 2005) Tesco Interim Results. http://www.advfn.com/news_Interim-Results_12527886.html
Leighton, T. (May 2007) Tesco Ready to Take On U.S. Retail Market. Produce Market. http://www.producebusiness.com/ArticleReprints/TescoComesToUSA-5-07.pdf