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There are factors that create value for Tesco:
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.
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.
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