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TESCO PLC.

Tesco is a British multinational company (MNC), headquartered in Hertfordshire, United

Kingdom (UK). Tesco was founded by Jack Cohen in 1919, a small stall in East End of

London selling surplus groceries. Today, Tesco owns over 6,700 stores worldwide, serving

tens of millions of people per week (Tesco, 2013). It is the world’s 3rd

largest retailer with

stores in 14 countries all over the world, including China, India, Malaysia, Korea, America,

Ireland and Slovakia (Tesco, 2013). Tesco sells a wide range of products and services, such as

fresh foods and groceries items, electronics, clothing, household items and financial services.

Tesco aims to expand its business scope and diversify internationally in pursuit of a strong and

sustainable long-term growth (Tesco Plc., 2013e). Accordingly, its corporate vision and key

strategic objectives are; to grow the UK market, and to be a successful international retailer in-

store and online (Tesco Plc., 2013e). Tesco’s growth strategy is international expansion and

diversification.

INTERNAL BUSINESS CONTEXT

In 2012, its UK sales figure was £42, 248 million, making up over 60% of its group sales of

£64, 539 million, an indication that UK is its core market amongst other markets in the world

(Mintel, 2013; Tesco Plc., 2012). In the UK market, the retailer owns the largest market share

of 34.4% in the grocery retailing sector, competing with other retailers such as Asda (17.9%),

Sainsbury’s (16%), and Morrisons (11.9%) (Mintel, 2013; NASDAQ, 2013; Legge, 2013).

The grocery retail market (GRM) is highly competitive due to the high-concentration of

substitutable grocery products, thus low customer switching cost (TGC, 2010; Mintel, 2012).

Accordingly, Tesco competes on price, quality, range and innovation (Tesco Plc., 2013).

Tesco’s source of competitive advantage lies in its customer database system which enables it

to understand customer values, segments, cultures (i.e. sensitivity to local expectations) and

their needs intensively (e.g. buying behaviours, patterns, and quantities), and its proactive

effort to earn their loyalty through its Clubcard Loyalty Scheme. Tesco’s successes also source

from its operational strategies, for example, store location and formats (e.g. Tesco Extra, Tesco

Metro) (Tesco Plc., 2013a). Although the GRM is mature and rather saturated, it is highly

fragmented (TGC, 2010), thus the need for innovation and diversification.

Tesco’s operations in Asia have shown year-on-year strong performance, and the fastest

growing amongst its international and UK operations, both in sales and trading profit (Tesco

Plc, 2012). Tesco holds either the first or second position amongst its competitors, in both

Asian and European GRMs (Tesco Plc, 2012). Presently, it plans to accelerate its global

expansion in digital technology with online groceries in all its 14 countries of operation

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(Ruddick, 2013a; b; Thesing and Wille, 2013). Figure 1 shows Tesco’s operations

performances in the GRM.

Figure 1: Tesco’s Trading Profit (Loss) between 2008 and 2012

Adapted from: Tesco Plc (2012)

FOREIGN MARKET ENTRY STRATEGIES

Tesco’s entry strategies into new foreign markets involve joint ventures with local partners,

acquisitions, and Greenfield investments. Figure 2 shows Tesco’s entry strategies into foreign

markets. An international joint venture (IJV) is a partnership, where an organisation jointly

controls an overseas operation in partnership with a local organisation, in which each partner

takes an active role in decision-making (Harrigan, 1985; Henry, 2008). Acquisition occurs

when one organisation seek to acquire another by purchasing sufficient amount of its stock to

confer control (Henry, 2008; Kogut and Singh; 1988).

Greenfield investment (GI) is a form of wholly-owned subsidiaries (WOS) entry mode,

involving starting-up a completely new venture that is wholly-owned in a foreign market,

instead of acquiring a company (acquisition) or jointly-owning a new entity with another

company (joint venture). Joint ventures and acquisitions are relatively less risky than

Greenfield investments (Henry, 2008). This will be further discussed in the later sections.

£2

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United Kingdom Asia Europe USA

Tesco's Trading Profit (Loss) in Million (£)

2008/2009 2009/2010 2010/2011 2010/2012

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Tesco aims to achieve the number one spot in the foreign market within five years of entry

(Thunderbird, 2012). Its entry strategies in the Asian and most European markets have been

relatively successful; however, its entry to the American (US) market had been challenging for

Tesco (Thunderbird, 2012). This will be discussed in the later sections. The company’s great

success of international diversification stems from its sensitivity to local culture and

expectations, and understanding its domestic market environment (through partnership,

mergers and acquisition) especially in markets of high-context cultures.

Figure 2: Entry strategies for Tesco’s grocery retail operations only

Adapted from: Tesco Plc. (2012; 2013c)

Tesco’s strategies of global expansion and diversification are based on its long-term goal for

sustainable growth and success (Tesco Plc., 2013b). The saturation and maturity of the UK’s

GRM must have been the catalyst in pressuring Tesco for the need to remain relevant in the

economy for the long-run. Table 1 summarises Tesco’s entry strategies in some of the many

countries in which it operates.

Tesco Plc

International Market Entry Strategies

Joint Ventures

China

South Korea

Thailand

WHOLLY-OWNED SUBSIDIARIES

Greenfield Investments

United States

Acquisitions

South Korea

Malaysia

Japan

Turkey

Republic of Ireland

Slovakia

Poland

Ireland

Hungary

Czech Republic

STRATEGIC ALLIANCE

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Table 1: Examples of Tesco’s entry strategies in different countries

Region Country Entry Strategy

Acquisition of /

Joint venture Partnership

with:

Operation

Europe

Czech Republic Acquisition K-Mart Tesco

Republic of

Ireland Acquisition Power Supermarkets Ltd. Tesco

Asia

China Joint venture Hymall chains (Ting Hsin

International Group) Tesco Le Gou

South Korea Acquisition

Joint venture

E-Land

Samsung-Tesco Homeplus

America America Greenfield

Investment

Fresh & Easy

Source: Finch (2008), GPN (2005), Tesco Plc (2013; c)

The following section will selectively outline Tesco’s entry strategies in South Korea, China

and America, primarily focusing on IJVs and GI.

International Joint Venture and Acquisitions: Tesco Homeplus

Tesco had seen growth opportunity in South Korea (SK), as it is one of Asia’s wealthiest

nation and Asia’s fourth largest economy, with about 5 million populations of which 83% is

urban population (Euromonitor, 2012; The World Bank, 2013). Tesco’s expansion into the

South Korean market began in 1999 by partnering with Samsung Corporation (Tesco, 2013).

Upon this partnership, Tesco had also acquired Samsung’s distribution unit and its managerial

rights (Oliver, 2009). The MNC then acquired E-Land hypermarkets in 2008 for nearly £1

billion in its largest single acquisition, and quickly became SK’s second largest grocery retailer

(Finch, 2008; Reuters, 2008). Launched under the name Homeplus, today it operates 113

branches throughout the country.

International Joint Venture: Tesco Le Gou

Tesco entered the Chinese market by a joint-venture with Ting Hsin International (THI) in

2004 by acquiring 50% of THI’s chain-stores shares, and later in 2006 raising its stake to 90%

(Walsh, 2006). THI’s chain-stores, Hymall, were one of the leading chains in the country

(Barford, 2012). Under the name Tesco Le Gou, it employs more than 26,000 people and 99%

of them are locals, including managers and top executives (Tesco Plc, 2013c). China is Tesco’s

fastest growing Asian market, providing the main source of its Asian market growth (Tesco

Plc, 2012).

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Greenfield Investment: Fresh & Easy

In 2007, Tesco entered the American by means of Greenfield investment into the GRM under

the name Fresh & Easy (F&E) at an initial investment of £250 million per annum (Tesco Plc,

2013c; Ruddick, 2013). It competed against America’s top three retailers; Wal-Mart, Kroger,

and Safeway; their market shares were 16.2%, 8.0% and 4.78% of the GRM, respectively at the

time of entry (Metro Market Studies, 2008). Tesco had spent two years of intensive market

research prior to its American venture, including sending senior executives from the UK to live

in with 60 American families for two weeks to study Americans’ shopping and eating habits

(The Economist, 2007; Finch and Walsh, 2012). Its Greenfield venture opened its first F&E

store in Los Angeles (Tesco Plc, 2013c; Ruddick, 2013). Despite its loss-making and poor

sales, it continued to expand in the US, however at a slower pace than its expansion target rate

(Ruddick, 2013; Barford, 2012). In December 2012, Tesco announced to re-view its strategy,

after five unprofitable years, and later in April 2013 announced its exit from the American

GRM at a loss of £1.2 billion (Tesco Plc, 2013d; Finch, 2012).

STRATEGY FORMULATION & EVALUATION

EXTERNAL ENVIRONMENT

According to Henry (2008), the PEST analysis provides a link between the external

environment and the organisation’s competitive environment, whereby signals in the external

environment can become major forces in influencing the competitive environment and industry

structure. It is important in strategy formulation as it helps an organisation to detect trends and

understand current and potential environmental changes in the environment which may impact

its intermediate competitive environment and market structure (Henry, 2008).

Moreover, with the constant innovation and rapid technological changes, the global

environment is becoming increasingly turbulent and unpredictable (Henry, 2008), thus,

environmental analysis could reduce these uncertainties and risks by providing organisations

with the aptitude to make informed strategic decisions. Moreover, it provides organisations

with viable forecasts of future opportunities and threats (Ginter and Duncan, 1990; in Henry,

2008), thus helps the formulation of sound strategies. Table 2 will selectively outline the

findings from assessing Tesco’s international external environment.

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Table 2: PEST Analysis P

OL

ITIC

AL

AN

D L

EG

AL

Political decisions to restructure global political and economic landscape, through

reformation of international financial institutions and tightening of global financial

regulations to resolve shortcomings in the system of institutional and regulatory

governance revealed during 2009 global financial crisis (World Economic Forum,

2010; IMF, 2013).

British coalition government to cut spending in order to reduce its trade deficit

(Chang, 2013).

SO

CIO

-EC

ON

OM

IC

Healthy global economy and growth with economies all over the world are improving

and confidence increasing (Euromonitor, 2012c) – Will strong growth alleviate fears

of double dip recession?

Devaluation of the pound by 30% against the dollar, 50% against the yen, and 20%

against the struggling euro (Chang, 2013).

The middle class forms an expanding and increasingly sophisticated consumer base

globally, with rising spending power, driving growth in many discretionary spending

categories and particularly robust in emerging economies (Euromonitor, 2013; TGC,

2010).

Rising incomes and annual disposable income in emerging economies (Euromonitor,

2013)

Retail markets are growing and improving BRIC countries (Brazil, Russia, India and

China), particularly in China and India, with China’s retail sales growth growing by

10%, forming, potentially 44% of the new global retail sales in 2013 (Euromonitor,

2012c; TGC, 2010) while and Mexico represents the world’s fastest growing retail

markets (Euromonitor, 2012b).

Contracting European retail growth – European retail markets are contracting and

deteriorating, particularly in Czech Republic, Portugal and Germany (Euromonitor,

2012b)

Global food inflation – are expected to continue rising in US and Europe (Kenny,

2013; Hawkes, 2013) while in China food inflation eased with stable economic growth

(Edwards and Shao, 2013). However, inflation volatility is low at global level (Kenny,

2013; IMF, 2013).

Debt crisis in the Euro-zone (Reuters, 2013)

TE

CH

NO

LO

GIC

AL

Low rates of Internet usage in South-East Asia (SEA) (Euromonitor, 2012a).

South Korea leads the world in internet retail penetration divergence (Euromonitor,

2012c).

World channel growth – Brick-and-mortar grocery retailing are increasing at a very

slow pace, whilst, internet as a retail channel grew at 25% rate between 2011 and 2012

(Euromonitor, 2012c).

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MARKET STRUCTURE AND COMPETITIVE ENVIRONMENT

Buckley and Casson (1998) emphasised that the intensity of competition from indigenous

rivals is a determinant of an organisation’s entry strategy. Thus, this section applies Porter’s

Five Forces framework to analyse Tesco’s competitive environment from an international

standpoint (Figure 3).

Although this analysis is undertaken from the perspective of an incumbent firm, it is also

applicable in determining whether a foreign firm should enter the industry (Henry, 2008). This

analysis will provide Tesco with the aptitude to assess its ability to compete effectively in that

industry. The GRM is a relatively mature market, and retailers compete on highly diverse

dimension where they compete with those they did not compete with in the past (e.g. furniture,

electronics, clothing) (Leszczyc, et al., 2000). Essentially, this analysis is to assess the impact

of the GRM competitive structure on Tesco’s choice of foreign market entry strategy.

Assumptions: Tesco positions itself to directly compete with large, dominant players within the

industry (Mintel, 2013). Thus, the following analysis assumes the exclusion of small grocers,

although they do compete directly with Tesco express.

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Figure 3: Porter’s Five Forces for Tesco

Competitive Rivalry among Existing

Firms

Few direct competitors with similar size

= intense competition with fights for

market dominance.

A high concentration ratio (based on

four- or five-firm concentration ratio)

Highly concentrated with slow industry

growth – an organization can only

increase its market share at the expense

of competitors in the industry

Lack of differentiation and low or no

switching costs – products are

undifferentiated, driven by customer

choice based on price and service

Low exit barriers

Thus, high barriers to entry

Threat of New Entrants

High capital requirements – Intensive

market research

Low product differentiation

Low switching cost

Low access to distribution channels

Cost advantages independent of size –

Domestic market/consumer

knowledge

Threats of Substitute Products or

Services

No substitute for grocery products,

these are necessities only available

from the industry

Bargaining Power of Customers

High concentration of buyer, but low

buying volumes

Products are standard or

undifferentiated – Low product

differentiation.

Low switching costs

No or low threat of backward

integration

Relatively price sensitive –

dependent on most grocery products

Customers are highly knowledgeable

about product

Bargaining Power of Suppliers

The industry is an important

customer of the supplier (especially

for farm produce)

The supplier’s products are an

important input to the buyer’s

business

No threat of forward integration,

assuming competition at this point

involves only rivals like Wal-Mart,

ASDA, and not including small

grocers.

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SWOT ANALYSIS

Based on the analysis of the internal, external and competitive environments in the previous

sections, its findings will be summarised and categorised in the form of a SWOT analysis,

presented in Table 3.

Table 3: Tesco’s SWOT Analysis

Strengths Weaknesses

INT

ER

NA

L O

RIG

IN

Strong, established brand and high

brand exposure in European markets.

Diverse resource base.

Understands the importance of

international customer needs and

sensitivity to local tastes – Halal,

Kosher, Oriental food, local delicacies

such as soft shell turtles in China

(Mintel, 2013; Tesco Plc, 2013a).

High and stable liquidity ratio

Strong core UK market, which

represents as its core market (Mintel,

2013)

Implicit and explicit knowledge and

experience in retail learned over the

years, with great innovative capacity.

Strong and stable growth in Asian

markets.

Low brand awareness and unfamiliarity with

Tesco brand in Asian and Eastern markets

(GNP, 2005).

Tesco’s price elasticity of demand is highly

elastic due to high competition, low

customers’ switching costs and loyalty.

Dependence on the core UK market to

finance its international diversification.

Stagnant or negative sales growth of GRM in

developed European countries.

Some resistance amongst economies

regarding large foreign firms.

Tesco lost focus of its core UK market

(Mintel, 2013; Peacock, 2013).

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Table 3: Continued

Opportunities Threats

EX

TE

RN

AL

OR

IGIN

Attractive international markets, such as

Asian markets and their stable socio-

economic position, to counter saturation

in the UK market.

Rising per-capita income in markets such

as South Korea and BRIC countries (i.e.

Brazil, Russia, India and China).

Opportunities to the growing internet

usage in Asia for e-tailing as a source of

competitive advantage, as opposed to the

relatively saturated internet penetration in

European countries.

Still an opportunity to develop the Tesco

brand in Asia and emerging economies,

BRIC countries.

Slow or negative growth in the UK,

European and US operations.

UK economic restructuring involving

contracting consumer expenditure may

threaten demand for non-necessities

product range such as electronics and

furniture. Consequently, may threaten

domestic funding from UK market in its

international diversification.

Variations in local tastes and preferences,

culture, lifestyle, business structures and

relationships and customers’ outlook in

International markets (Henry, 2008).

Takeover by larger rivals, such as Wal-

Mart, which have previously taken over

ASDA, drives the need to diversify.

Euro-zone debt crisis s, global political and

economic reform may threaten MNCs, such

as Tesco’s finances and operations, such as

credit allowances.

Stringent government regulations in some

countries that make it difficult for large

foreign companies. This provides a

potential treat for Tesco’s international

expansion strategies (e.g. SK’s regulations

for MNC to stock 15 local items) (Lee,

2013).

EVALUATION OF ENTRY STRATEGIES

Based on the contextual analyses, the main influencers dictating Tesco’s choice of entry

strategy are the threats involved in operating in foreign markets, such as cultural factors and

industry structure (i.e. intensity of competition). Nonetheless, analysis seems to suggest that

the primary influencers of Tesco’s market entry strategies are cultural factors, identifiable

from its entry mode propensities in certain world regions. The following will evaluate two

extremes of success and failures in Tesco’s market entry strategies.

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INTERNATIONAL JOINT VENTURES

IJVs had been primarily adopted as an entry strategy in Asian countries. These countries are

characterised by high-context cultures where organisations place high-value on interpersonal

relationships (Guffey and Loewy, 2010; Neuliep, 2012). Therefore, relationship networks

among colleagues, business associates and even clients are often close and personal.

Consequently, relationship-building and trust-development are vital in business interactions.

The importance of close business relationship is closely related to the high uncertainty

avoidance whereby trust and relationship reduces risks, uncertainties and ambiguities

(Barkema and Vermeulen, 1997).

Consistent with the importance of relationships, Tesco’s IJV provides itself access to

Samsung’s long-established contact with local manufacturers and suppliers (GNP, 2005).

This is important as South Korean customers tend to shop frequently, due to their preference

and priority for freshness and quality of products such as meat and vegetables relative to

stock-piling like UK customers, (Mintel, 2013; GNP, 2005). Frequent, low quantity buys can

be costly, thus the importance for discount and local business networks.

Tesco’s IJV strategy in SK involves employing all of Samsung’s employees including

Samsung-Tesco’s CEO and other top management team, and providing local managers the

authority to make decisions (GNP, 2005). Additionally, as part of Tesco’s entry strategy in

facing challenges of the competitive environment, it positions itself through decentralisation

and localisation, while its competitors position themselves via globalisation strategy. This

enables the company to be highly responsive to local consumer tastes and lifestyles, and

obtain a higher competitive position than its western competitors in the SK market such as

Carrefour and Wal-Mart (Reuters, 2013b; GNP, 2005).

Cultural factors such as psychic distance may also influence Tesco’s entry strategies. Kogut

and Singh (1988) defined psychic distance as the degree to which an organisation is uncertain

of the characteristics of a foreign market. Essentially, IJVs with local organisations in high-

context countries reduces the risks, complexities and costs such as adaptation costs, cultural

barriers, and psychic distance (Kogut and Singh, 1988; Pan and Tse, 2000). Thus, explains

the general propensity for IJVs in high-context countries (Pan and Tse, 2000).

Acquisition of local distribution unit distribution unit provided Tesco with an invaluable

advantage in a market where, other foreign retailers such as Wal-Mart and Carrefour were

struggling with South Korean customers’ strong nationalistic outlook, and intense

competition from leading South Korean rivals, E-Mart and Lotte-Mart (Reuters, 2013b).

Tesco also decentralises its IJV operations. For example, in its South Korean market, it

provides its CEOs substantial autonomy to determine its own strategic development (i.e.

product ranges, market niches, investment policies, and site decisions) (GPN, 2005). This

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benefits Tesco with the marketing expertise of its local employees. Additionally, Buckley and

Casson (1998) emphasises the importance of marketing expertise to the success of foreign

market entry. Evidently, Tesco’s IJVs has resulted in many excellent synergies.

Both Tesco’s IJV in SK, China and Thailand follows similar post-entry strategies which

largely influence the success of foreign operations, thus Table 4 represents the advantages

and disadvantages for Tesco’s IJV strategy.

Table 4: International Joint Ventures

Main Elements of Post-Entry Strategy:

Localisation

Employing locals partner’s management and employees

Acquisition of local distribution unit

Decentralisation

Advantages Disadvantages

Local adaptation – Saves costs of

adaptation to local environments.

Minimise macro-economic risks and

uncertainties of operating in foreign,

international markets.

Employment of partner’s local

employees and top management reduces

likelihood for common HRM problems

with IJVs such as communication

barriers, and reduces cost of

administrative conflicts, mismatch

between organisational cultures of

Samsung-Tesco (i.e. organisational fit).

Access to partner’s valuable local market

knowledge, local managerial

competencies, marketing expertise and

local distribution systems.

Local customer, community and society

acceptance.

Potential for inter-organisational

learning.

Lack of control and ownership

Potential administrative conflict and

organisational cultural clash

Shared control and ownership

Requires high levels of trust in

transferring authority of marketing

expertise and other decision-making.

Source: Henry (2008), McGovern (2013), Buckley and Casson (1998)

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GREENFIELD INVESTMENT: WHOLLY-OWNED SUBSIDIARIES

Although Tesco’s entry strategy of GI provides itself with full-control and ownership of its

American operation, it proves to be unsuitable. Despite Tesco’s intensive market research in

the US market prior to entry, its failure demonstrates flawed or inadequate market research.

Furthermore, much evidence of F&E’s operations to duplicate its UK operations, suggesting

standardisation rather than localisation (see Peacock, 2013). Several analysts (e.g. Barford,

2012; Peacock, 2013; Mintel, 2013) had also reported Tesco seemed to ignore its 5-year

research prior to its US entry.

Additionally, Tesco’s research seemed to only focus on Americans’ buying behaviour and

ignores other variables (e.g. aesthetics, shopping experience, store atmosphere, value and

quality) from which substantial corrective investments had been made in response to

complaints associating with those marketing aspects (Tesco Plc., 2012a). For example, Tesco

sells pre-packaged fruits as opposed to American’s expectations of selecting their own fresh

fruits at F&E, and consequently, criticized to contradict its “Fresh & Easy” image (Peacock,

2013).

Seemingly, Tesco have under-estimated the US market, thus failing to fully understand or

appreciate its US customer base. It can be implied that Tesco had treated its US operations as

a business extension of its domestic UK market. At the time of entry, Tesco may have been

mainly attracted by US’s booming economy and raising property value, which may also have

encouraged Tesco to opt for GI at the time. Yet, it failed to account the deeper financial

dynamics, which could have saved Tesco from the financial crisis in 2009.

Table 5: Greenfield Investment

Advantages and Gains Disadvantages and Costs

Full control and ownership over its

operations.

Limitations to understanding and

sensitivity over the US customer base.

Limitations to local marketing skills

and other skills required to operate

successfully in the highly competitive

US retail market

Lack of local managerial expertise

restricts Tesco’s ability to compete

with indigenous rivals

Cost of adaptation to local

environment

Source: Henry (2008), Buckley and Casson (1998)

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Additionally, its entry strategy may have been mainly influenced by egoism and managerial

short-termism. Consequently, a number of mistakes can be identified from its entry strategy

and post-entry strategies. Firstly, Tesco had increased its own barriers to exit (i.e. increased

sunk-cost) by aggressively adding more stores in the US despite its loss-making operations in

the country. Secondly, it may have been governed by managerial subjective interest for

power, and driven by over-confidence over many prior international-expansion successes. It

seems Tesco had failed to fully assess post-entry plans and strategies, resulting in a flawed

strategy in its ambitious and confident quest to compete in the home of the world’s largest

retailer, Wal-Mart (Reuters, 2013).

In addition to the £1.2 billion losses and costs from its US operation (Guardian, 2013;

Reuters, 2013), Tesco also incurred losses from its market exit involving costs of staff

redundancy and store leases of £250 million (Reuters, 2013a), and property write-off charges

costing £804 million (Guardian, 2013; Reuters, 2013a).

RECOMMENDATIONS

Based on the previous evaluation, a number of recommendations can be made for Tesco with

how it could retain and establish a sustainable competitive advantage in its core UK market

as well as in its other international markets, for the present and future.

RETAINING COMPETITIVE ADVANTAGE

Importance of Localisation and Marketing

The offering of the grocery retail industry closely represents a society’s culture, involving the

consumers’ daily necessities such as food (Goodman et al., 2010). Thus, Tesco should

continue to incorporate strategic localisation and appreciate cultural sensitivity in all of its

internationalisation strategies. Both in the UK and its international markets, Tesco should be

more proactive and innovative in its marketing initiatives, for instance, by expanding the

scope of its Club Card loyalty schemes beyond customer’s shopping behaviour. As an

extension to localisation strategy, Tesco could enhance its customer database and market

intelligence to provide customers with better customisation with shopping experience, as

consumers in GRM places importance on customer service (Euromonitor, 2012b; Mintel

2012; TGC, 2010).

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Low customer loyalty and switching costs in the GRM emphasise the importance of

marketing activities. Essentially, the ability to understand customer values and attract them is

vital in both domestic and international GRM. Accordingly, the contemporary marketing

scope for GRM involves market- and customer-oriented strategies with focus on customer

intimacy. Evidently, in international markets, local management are more suitable to make

such strategic decisions. Furthermore, employing locals may also save substantial costs of

intensive market research in foreign markets. In both UK and international markets, Tesco

should also be more proactive in its marketing innovations, for instance, in identifying new

consumer segments. Tesco could also rejuvenate its internationalisation process to ensure

sustainable competitive advantage, for example, by incorporating stakeholder-marketing-

oriented approach (see Ferrell and Ferrell 2009).

Regain Focus

Tesco has been distracted with its international expansion (Barford, 2012; Peacock, 2013),

particularly in the US and Chinese market, as quoted by David Gray, a retail analyst, „Tesco

went on an acquisition and diversification spree‟ (Barford, 2012). Consequently, it lost focus

on its UK operations resulting in slow reaction to rivals’ marketing innovations and

developments (e.g. Sainbury’s and Morrisons) which may have contributed to Tesco’s slight

erosion in market share in 2012 and 2013, whilst its rivals had shown slight growth in market

share and financial performance (Mintel, 2013). Therefore, Tesco should regain focus on its

core UK business.

CREATING COMPETITIVE ADVANTAGE

Re-entering the US market

Although Tesco have just recently withdrawn from the US market, it could have been an

advisable choice to withdraw earlier should it have an exit strategy in place, or at least cease

store expansion across the country. Tesco could re-enter the US market in the future, but with

due diligence in much broader scope of the US consumers rather than solely basing intense

market research on shopping and eating behaviours. With lessons from previous withdrawals

of many European retailers (e.g. Carrefour in 2000, M&S and Sainsbury in 2001) including

itself, a different and mindful approach to market research should be conducted. An IJV

could be beneficial to Tesco for future US operations. However, Tesco may also re-enter the

US market by GI provided that it has learned from its previous mistakes, by employing US

top management team with retail experience and market knowledge, and incorporating an

exit strategy.

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Expansions into New International Markets

Analysis has shown opportunities for expansion into other BRIC countries, particularly

Brazil, Russia and India. These emergent markets, including Mexico, have shown rapid real

growth in retail markets, expansion in middle-class consumer base, and stability and growth

in consumers’ disposable income. Additionally, the low rates of internet usage in SEA has

been seen as a strong growth potential for Internet retailing and online advertising segments,

and are anticipated to experience rapid expansion in these areas in the near future

(Euromonitor, 2012a). Tesco could expand in SEA markets, with its technological expertise

as its competitive advantage while gaining a first-mover advantage in grocery e-tailing.

However, Tesco should be vigilant as these are high-context culture markets with huge

cultural difference relative to the UK’s (Dana et al., 2010; Agarwal and Ramaswami, 1992).

Thus, requires due diligence of the environments, as opportunities may also become a

dangerous threat. From the aforementioned evaluation of its strategies, Tesco should enter

new markets through IJV with local partners or acquisition of local grocery retailers, and

employ local staff with local knowledge and understanding of local market dynamics, and

thus may be able to make informed decisions, enabling Tesco to compete successfully with

indigenous rivals (Buckley and Casson, 1998).

CONCLUSION

The intensity of competition and knowledgeable consumers in GRM highlights the need for

due diligence. Ignorance of the uniqueness of each market can easily put a retailer in a very

vulnerable competitive position, thus cannot afford flawed strategies. Additionally, Tesco’s

failure in the US ‘low-context culture’ market shows that Geert Hofstede’s (1983) (in

Neuliep, 2012) cultural categorisation cannot be relied on for international GRM entry

strategies. This also provides an implication that, the GRM may actually have a more

intimate association with its consumers, deeper than general categorisation of low- or high-

cultural contexts.

Overall, it can be suggested that Tesco review its corporate governance as a whole. Its most

recent USA failure and divestment could imply current corporate governance or managerial

problems acquiring immediate attention which could otherwise be detrimental to Tesco’s

future. Moreover, Tesco may have been too optimistic and confident following its numerous

successful international expansions in the emergent markets and Asian markets, thus

influencing its USA’s decisions. Additionally, its international expansion activities have

distracted its management from its UK core business. Tesco’s overall strategies for growth

suggest emphasis on power and dominance rather than organic growth. Nonetheless, as the

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GRM is relatively mature, international diversification also seems necessary for Tesco’s

survival in the economy and to remain relevant in the long-run.

In order to ensure Tesco’s sustainability, a number of issues could be recommended;

corporate governance review and restructuring, regain focus on UK core business, a more

diligent research prior to market entry, a more objective and structured strategic market entry

decision-making, and rejuvenation of internationalisation processes. For future market entry,

Tesco should acknowledge that exit pressures might arise during the course of market entry.

As illustrated by Tesco’s behaviour in the US, divestment or de-internalisation strategy was

not envisaged or at least, was treated as trivial. Thus, exit strategy should be incorporated in

all its internationalisation strategies.

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