UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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INTERNATIONAL BUSINESS MANAGEMENT

TESCO’S CASE

LECTURER: Ms. Nguyen Tran Kieu Van

Student’s name: Huynh Lan Thao
 1. Review the Management Focus on Tesco. Then answer the following
questions:
a) Why did Tesco's initial international expansion strategy focus on
developing nations?
Tesco's initial international expansion strategy center on developing nations
because:
- The government’s policies of alluring foreign investment
- Potential of rapid revenue growth
- There are more and more people who have good conditions and living
standards. They are willing to pay at a good price for good quality product, which results
in high potential revenue

b) How does Tesco create value in its international operations?

There are factors that create value of Tesco:
- The company focuses on transferring core competencies in retailing to its
new ventures.
- The company hires local managers and supports them with a few
operational experts from the United Kingdom.
- Good choice and have a deep understanding of the markets to collaborate
makes the company’s partnering strategy in Asia is valuable.
- The company and its partners bring equally useful assets to the venture
which increases in the probability of success. Besides, the company focuses on
markets that have good growth potential but lacking strong indigenous competitors.
 c) 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?
- Advantages: Tesco can share the ideas and use ideas from Asian
companies.
- Disadvantages: The local companies involved could pull out, steal Tesco
ideas, and leave Tesco with debt.
 The risk is mitigated by Tesco being involved only 50/50

d) In March 2006 Tesco announced 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?
- After surveying the competition with Wal-Mart in the United Kingdom and
conducting some analysis of the ability to do well in the United States, Tesco made this
decision:
+ The breakeven analysis would be achieved by the second year;
+ The market in the United States has not seen a model like Tesco’s format.
- What makes The United States a different market is the fact that it is a
developed country and has many competitors in all of its markets. This leads to the
threat to be defeated by competing companies once it enters this market.
- I think Tesco will do very well.
 2. Licensing proprietary technology to foreign competitors is the best
way to give up a firm's competitive advantage. Discuss.
- In fact, licensing technology exclusively to competitors creates the great
risk of losing technology. Therefore, usually, this is a way that the company should
avoid.
- However, licensing still may be a good choice in some instances:
o When proactively licensing, the firm can structure the technology in order
to reduce the risk of losing technological know-how.
o In case the company’s technological advantages is transient, and the
competitors can easily copy it, licensing proprietary technology to foreign
competitors is considered the best way to:
 Restrict other companies from developing their own technology,
which can surpass the initial technology.
 The advantage of a design that dominates the industry and ensure
a steady stream of royalty payments.
 In this case, the attractions of licensing are probably outweighed by the risks of
losing control over technology, therefore, it should be avoided.

3. Discuss how the need for control over foreign operations varies with
firms' strategies and core competencies. What are the implications for the choice
of entry mode?
- If a firm’s core competence is dependent on it’s control over proprietary
technological know-how, licensing and joint venture arrangements should be avoided if
possible so that the risk of losing control over that technology is minimized.
- For firms with a competitive advantage relies on management know-how,
the risk of losing control over the management skills to franchisees or joint venture
partners is not that great. Therefore, many service companies favor a combination of
franchising and subsidiaries to control the franchises within particular.
However, jointing ventures with local partners work best for controlling
subsidiaries is a better way.