BM1917

TASK PERFORMANCE ON THE ORGANIZATION OF INTERNATIONAL BUSINESS

NAME: Esther, Ursua SECTION: BA3101 DATE:

Marquez, Kimberly December 15, 2022
Castromero, Estephanie Claire
Arroyo, Rosalie
De Mesa, Janine
Tesco’s International Growth Strategy
Tesco, founded in 1919 by Jack Cohen, is a British multinational grocery and merchandise retailer. It is the
largest grocery retailer in the United Kingdom, with a 28 percent share of the local market, and the second largest
retailer in the world after Walmart measured by revenue. In 2017, Tesco had sales of more than £62 billion ($70
billion U.S. dollars), more than 480,000 employees, and 6,553 stores in 13 countries

In its home market of the United Kingdom (with a headquarters in Chestnut, Hertfordshire, England), the
company’s 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 1990s, these competencies
had already given the company a leading position in the United Kingdom. Tesco was generating strong free cash
flows, and senior managers had to decide how to use that cash. One strategy they settled on was overseas
expansion.

As managers 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. Tesco’s first international foray was into Hungary in 1995, when it acquired an initial 51
percent stake in Global, a 43-store, state-owned grocery chain. By 2017, Tesco was the market leader in
Hungary, with more than 200 stores and additional openings planned, accounting for 1 percent of the whole
economy of Hungary!

A year after the Hungary expansion, Tesco acquired 31 stores in Poland from Stevia. The following year, in 1996,
Tesco added 13 stores that the company purchased from Kmart in the Czech Republic and Slovakia; and the
following year it entered the Republic of Ireland. Tesco now has more than 450 stores in Poland, some 80 stores
in the Czech Republic, more than 120 stores in Slovakia, and more than 100 stores in Ireland.

Tesco’s Asian expansion began in 1998 in Thailand when it purchased 75 percent of Lotus, a local food retailer
with 13 stores. Building on that base, Tesco had more than 380 stores in Thailand by 2017. In 1999, 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, Japan in 2003, 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 Hy mall, a hypermarket chain that is controlled by Ting Hsin, a Taiwanese
group, which had been operating in China for six years. In 2014, Tesco combined its 131 stores in China in a joint
venture with the state-run China Resources Enterprise (CRE) and its nearly 3,000 stores. Tesco owns 20 percent
of the joint venture.

As a result of these moves, by 2017 Tesco generated sales of about $21 billion outside the United Kingdom (its
UK annual revenues were roughly $41 billion). The addition of international stores has helped make Tesco the
second largest company in the global grocery market behind only Walmart (Tesco is also behind Carrefour of
France if profits are used). Of the three, however, Tesco may be the most successful internationally. By 2017, all
its foreign ventures were making money.

In explaining the company’s success, Tesco’s 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

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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 Tesco’s 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. For example, by 2017 Tesco owned 100 percent of Homeplus, its
South Korean hypermarket chain, but 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.

Questions (4 items x 10 points):

1. Why did Tesco’s initial international expansion strategy focus on developing nations?
The company enters foreign markets mainly through joint ventures with local firms, acquisitions, and
Greenfield investments (Mosley & Barrow 2013). The company aims at being the market leader in the foreign
country it enters within five years. Tesco started its international expansion only about 10 years ago and is
present in about a dozen countries in Europe and Asia. The organization can significantly reduce the time it takes
to launch operations in new regions and lessen the cost of country deployments by using a standard model like
TOM. Additionally, it collaborates with other businesses to grow. It has been quite beneficial to focus on local
managers' progression. The reason for this is that developing nations have all the qualities necessary for a
business that would allow Tesco a chance to conduct business internationally and earn higher profits.
Additionally, there will be less rivalry but a still significant possibility for growth in the developing countries that are
still in the process of growing where competition is quite strong and expensive.

2. How does Tesco create value in its international operations?

Tesco create value in its international operations in terms of Seeking out markets with a lot of room for
expansion but few fierce competitors. Look for existing companies that are knowledgeable about the local market
there. Transferring the joint venture’s core retailing competencies to its new businesses, hiring local managers,
and providing them with some UK operational know-how. After which buy the partners out. The project benefits
from the resources provided by the company and its partners. The business’s partnering strategy encourages in-
depth and thorough market comprehension.

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?

Tesco's history of entering into joint venture agreements with local partners in Asia creates several
benefits and opportunities for Tesco. According to the statement above, the addition of international stores
helped Tesco to be the second-largest company in the global grocery market and entering a joint venture helped
the company succeed outside its home firm. The detailed understanding of the important factors by Tesco
Managers helps the company avoid possible risks mitigated in entering a joint venture such as decreasing tight
control over subsidiaries and leading to conflict of control between the firms. Tesco, make it possible to gain
benefit out of this joint venture agreement by knowing its strengths and weakness. For instance, the company
devotes considerable attention to transferring its core capabilities in retailing to its new ventures. Which, Tesco
benefited from their local partner’s knowledge of the host country’s competitive conditions. wherein, they hire
local managers and support them with few operational experts in their home firm which make them still in control
of the operation. Moreover, Tesco, consider teaming up with good companies that have a deep understanding of
the markets to fill in Tesco’s lack of financial strength and retailing capabilities. Thus, entering a joint venture
agreement of Tesco in Asia has been a great asset, which increases the probability of success for both firms.

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4. Tesco’s entry into the United States represented 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
other markets that Tesco has entered?
I believe Tesco will succeed, based on how it competed with Wal-Mart in the United Kingdom, Tesco
predicted that it would fare similarly in the United States. The breakeven point in the breakeven study would
occur in the second year since the Tesco format is new to the American market. Because it has developed, the
US market is distinct due to its status and intense market competition. Moreover, developing nations have highly
developed capital markets, large levels of liquidity, and numerous fierce rivals across the board. Additionally, a
Fresh and Easy store's Tesco express concept cannot compete with large supermarkets because to various
client tastes and cultural differences. Therefore, tesco may not be able to compete with American companies.

Rubric for grading:

CRITERIA PERFORMANCE INDICATORS POINTS

Provided pieces of evidence, supporting
Content
details, and factual scenarios 8
Expressed the points in clear and logical
Organization of Ideas
arrangement of ideas in the paragraph 2
TOTAL 10

REFERENCES
Hill, C. W., & Hult, G. T. (2018). International business: Competing in the global marketplace (12th ed.). New
York: McGraw-Hill Education.

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