1. Why did Tesco’s initial international expansion strategy focus on developing nations? They were looking for an area where there were few capable competitors but strong underlying growth trends. Such areas could provide Tesco with ripe ground for expansion. 2. How does Tesco create value in its international operations? There are factors that create value for Tesco:
1. The company devotes considerable attention to transferring its core capabilities in retailing to its new ventures; 2. The company hires local managers and support them with a few operational experts from the United Kingdom; 3. The company’s partnering strategy in Asia is a great asset because the companies Tesco has teamed up with are good and have a deep understanding of the markets in which they are participating; 4. The company and its partners bring equally useful assets to the venture which increases in the probability of success; 5. The company focuses on markets with good growth potential but that lacks strong indigenous competitors.
3. 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?
In Asia Tesco settled on a 50/50 joint venture with Hymall, a hypermarket chain that is controlled by Ting Hsin, a Taiwanese group, which had been operating in China for six years. As Tesco has teamed up with good company that have a deep understanding of the markets in which they are participating, it compensated the lack Tesco’s financial strength and retailing capabilities. Moreover, large size and rapid growth of the Chinese market give Tesco the benefit of doing in this market. In general the risks of entering into joint venture agreements with local partners are that the companies involved could pull out, steal Tesco ideas, or fail and leave Tesco with debt; especially when these companies control big hypermarket chains. All these risks can be mitigated by being involved into joint venture only in part; for example Tesco settled on a 50/50 joint venture. Both Tesco and its partners have brought useful assets to the venture, which have increased the probability of success.
As Tesco moved into China after careful research and discussions with potential partners. Tesco has teamed up with good company. Ting Hsin is a well-capitalized enterprise in its own right, and it could match Tesco’s investments, reducing the risks Tesco faces in China. Furthermore, after the venture becomes established, Tesco could increase its ownership stake in its partner. 4. 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? Tesco made this decision, just because it took its international expansion strategy to the next level.
The United States is a different market because it is a developed country and has many competitors in all of its markets. United States grocery market is also very crowded, so there is a risk that the United States competitors will beat out Tesco. But I think Tesco will fill its niche in this market with its Tesco Express concept. Tesco Express stores are smaller, high-quality neighborhood grocery outlets that feature a large selection of prepared and healthy foods. The Tesco Express format is not something found in the United States. Moreover, Tesco points out that in the United Kingdom it has consistently outperformed the ASDA chain which is owned by Wal-Mart; and Tesco could do it in the United States also.