Tesco Plc. - International Business Entry Strategy (SWOT, PESTEL, Porter's 5 Forces) | Tesco | Bric


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 instore 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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2013 (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

Tesco's Trading Profit (Loss) in Million (£)
2008/2009 2009/2010 2010/2011 2010/2012

















United Kingdom




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.

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2013 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

Tesco Plc International Market Entry Strategies



Joint Ventures China South Korea Thailand

Greenfield Investments United States

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

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.

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2013 Table 1: Examples of Tesco’s entry strategies in different countries
Region Country Czech Republic Europe Republic of Ireland China Asia South Korea America America Entry Strategy Acquisition Acquisition Joint venture Acquisition Joint venture Greenfield Investment Acquisition of / Joint venture Partnership with: K-Mart Power Supermarkets Ltd. Hymall chains (Ting Hsin International Group) E-Land Samsung-Tesco Operation Tesco Tesco Tesco Le Gou Homeplus 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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2013 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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2013 Table 2: PEST Analysis POLITICAL AND LEGAL SOCIO-ECONOMIC TECHNOLOGICAL 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). 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) 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). 6 Atiqah Ismail


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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2013 Figure 3: Porter’s 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

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

Threats of Substitute Products or Services  No substitute for grocery products, these are necessities only available from the industry

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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2013 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


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. Tesco’s 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, 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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2013 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 UK economic restructuring involving in the UK market. 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, 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 WalBRIC 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 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).

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. 10 Atiqah Ismail

2013 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 highcontext 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 11 Atiqah Ismail

2013 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 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.     Disadvantages 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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2013 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 Full control and ownership over its operations. Disadvantages and Costs 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) 13 Atiqah Ismail

2013 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).

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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2013 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-marketingoriented 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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2013  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).

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 highcultural 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 16 Atiqah Ismail

2013 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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