2013

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 worlds 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). Tescos 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%),
Sainsburys (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).
Tescos 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. Tescos 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.

Tescos 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 Tescos operations
performances in the GRM.

Figure 1: Tescos Trading Profit (Loss) between 2008 and 2012

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

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

2,480
2,504
2,413
2,309

605

527
496

474
440

737
355

529

-142

-165

-186
(153)

United Kingdom Asia Europe USA

Adapted from: Tesco Plc (2012)

FOREIGN MARKET ENTRY STRATEGIES

Tescos entry strategies into new foreign markets involve joint ventures with local partners,
acquisitions, and Greenfield investments. Figure 2 shows Tescos 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.

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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 companys 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 Tescos grocery retail operations only

Tesco Plc

International Market Entry Strategies

STRATEGIC ALLIANCE WHOLLY-OWNED SUBSIDIARIES

Joint Ventures Greenfield Investments Acquisitions

China United States South Korea

South Korea Malaysia
Thailand Japan
Turkey
Republic of Ireland
Slovakia
Poland
Ireland
Hungary
Czech Republic

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

Tescos 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 UKs
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 Tescos entry strategies in some of the many
countries in which it operates.

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Table 1: Examples of Tescos entry strategies in different countries

Acquisition of /
Region Country Entry Strategy Joint venture Partnership Operation
with:
Czech Republic Acquisition K-Mart Tesco
Europe
Republic of
Acquisition Power Supermarkets Ltd. Tesco
Ireland
Hymall chains (Ting Hsin
China Joint venture Tesco Le Gou
International Group)
Asia
Acquisition E-Land
South Korea Homeplus
Joint venture Samsung-Tesco
Greenfield
America America Fresh & Easy
Investment

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

The following section will selectively outline Tescos 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 Asias wealthiest
nation and Asias fourth largest economy, with about 5 million populations of which 83% is
urban population (Euromonitor, 2012; The World Bank, 2013). Tescos expansion into the
South Korean market began in 1999 by partnering with Samsung Corporation (Tesco, 2013).
Upon this partnership, Tesco had also acquired Samsungs 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 SKs 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 THIs chain-stores shares, and later in 2006 raising its stake to 90%
(Walsh, 2006). THIs 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 Tescos
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 Americas 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 organisations 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 Tescos international external environment.

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Table 2: PEST Analysis

POLITICAL AND LEGAL

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).

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).
SOCIO-ECONOMIC

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 Chinas 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 worlds 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)

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

TECHNOLOGICAL

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 organisations entry strategy. Thus, this section applies Porters
Five Forces framework to analyse Tescos 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 Tescos 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: Porters Five Forces for Tesco
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
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
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Threats of Substitute Products or
Services
No substitute for grocery products,
these are necessities only available
from the industry
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 Bargaining Power of Suppliers
undifferentiated, driven by customer
The industry is an important
choice based on price and service
customer of the supplier (especially
Low exit barriers
for farm produce)
The suppliers products are an
Thus, high barriers to entry
important input to the buyers
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: Tescos SWOT Analysis

Strengths Weaknesses

Strong, established brand and high Low brand awareness and unfamiliarity with
brand exposure in European markets. Tesco brand in Asian and Eastern markets
(GNP, 2005).
Diverse resource base.
Tescos price elasticity of demand is highly
Understands the importance of elastic due to high competition, low
international customer needs and customers switching costs and loyalty.
sensitivity to local tastes Halal,
INTERNAL ORIGIN

Kosher, Oriental food, local delicacies Dependence on the core UK market to

such as soft shell turtles in China finance its international diversification.
(Mintel, 2013; Tesco Plc, 2013a).
Stagnant or negative sales growth of GRM in
High and stable liquidity ratio developed European countries.

Strong core UK market, which Some resistance amongst economies

represents as its core market (Mintel, regarding large foreign firms.
2013)
Tesco lost focus of its core UK market
Implicit and explicit knowledge and (Mintel, 2013; Peacock, 2013).
experience in retail learned over the
years, with great innovative capacity.

Strong and stable growth in Asian

markets.

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Table 3: Continued

Opportunities Threats

Attractive international markets, such as Slow or negative growth in the UK,

Asian markets and their stable socio- European and US operations.
economic position, to counter saturation
in the UK market. UK economic restructuring involving
contracting consumer expenditure may
Rising per-capita income in markets such threaten demand for non-necessities
as South Korea and BRIC countries (i.e. product range such as electronics and
Brazil, Russia, India and China). furniture. Consequently, may threaten
domestic funding from UK market in its
Opportunities to the growing internet international diversification.
usage in Asia for e-tailing as a source of
competitive advantage, as opposed to the Variations in local tastes and preferences,
EXTERNAL ORIGIN

relatively saturated internet penetration in culture, lifestyle, business structures and

European countries. relationships and customers outlook in
International markets (Henry, 2008).
Still an opportunity to develop the Tesco
brand in Asia and emerging economies, Takeover by larger rivals, such as Wal-
BRIC countries. 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 Tescos 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 Tescos international
expansion strategies (e.g. SKs regulations
for MNC to stock 15 local items) (Lee,
2013).

EVALUATION OF ENTRY STRATEGIES

Based on the contextual analyses, the main influencers dictating Tescos 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 Tescos 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 Tescos 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, Tescos IJV provides itself access to
Samsungs 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.

Tescos IJV strategy in SK involves employing all of Samsungs employees including

Samsung-Tescos CEO and other top management team, and providing local managers the
authority to make decisions (GNP, 2005). Additionally, as part of Tescos 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 Tescos 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, Tescos IJVs has resulted in many excellent synergies.

Both Tescos 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 Tescos IJV strategy.

Table 4: International Joint Ventures

Main Elements of Post-Entry Strategy:

Localisation
Employing locals partners management and employees
Acquisition of local distribution unit
Decentralisation
Advantages Disadvantages
Local adaptation Saves costs of Lack of control and ownership
adaptation to local environments. Potential administrative conflict and
Minimise macro-economic risks and organisational cultural clash
uncertainties of operating in foreign, Shared control and ownership
international markets. Requires high levels of trust in
Employment of partners local transferring authority of marketing
employees and top management reduces expertise and other decision-making.
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 partners valuable local market
knowledge, local managerial
competencies, marketing expertise and
local distribution systems.
Local customer, community and society
acceptance.
Potential for inter-organisational
learning.

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

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GREENFIELD INVESTMENT: WHOLLY-OWNED SUBSIDIARIES

Although Tescos entry strategy of GI provides itself with full-control and ownership of its
American operation, it proves to be unsuitable. Despite Tescos intensive market research in
the US market prior to entry, its failure demonstrates flawed or inadequate market research.
Furthermore, much evidence of F&Es 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, Tescos 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 Americans 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 USs 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 Limitations to understanding and
operations. 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 Tescos 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 worlds 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 societys 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 customers 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. Sainburys and Morrisons) which may have contributed to Tescos 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 UKs (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, Tescos
failure in the US low-context culture market shows that Geert Hofstedes (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 Tescos
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 USAs decisions. Additionally, its international expansion activities have
distracted its management from its UK core business. Tescos 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 Tescos
survival in the economy and to remain relevant in the long-run.

In order to ensure Tescos 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 Tescos 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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