How to brand in China?

TESCO in China
10 January 2008 Supervisor Susan Vonsild Group 3 Sascha Christensen Christelle Dal Molin Dong Wei Yao Lukas Krenovsky Niels-Christian Aaen Hegelund

Abstract
The project is focusing on branding and how branding must be adjusted while moving into new markets encompassing a new and significantly different culture. The group has interest in conditions and development in Asia and of that reason China was selected as the study area. China posses a very diverse culture compared to European countries thus it will be possible to discover and work on numerous controversies. A fast growing and newly occurred market is the retail industry. Because of the political situation the first supermarkets arose in the start of the 90s and not before 2004 the industry was totally opened. Consequently Chinese consumers have not grown accustomed to this new kind of shopping and still have some different habits and preferences influenced by the old Chinese system. To use an example of a typical European retailer entering China Tesco was chosen. This company has only recently entered the market and has still not managed to become an absolute success on the market. Furthermore Tesco has entered China without using its own brand name and products, and they recognise that the company does not fully understand the Chinese culture. However, recently Tesco has chosen to start applying its own branding activities on the market, including name, services, advertising and so on. The situation accounted for, makes up an interesting study area with several issues to be aware of and possibilities for combining the terms of branding and culture. To have background knowledge of China and what issues to have in mind, the macro environment of the Chinese market will be explored and afterwards the micro environment of the retail industry is examined. Then this knowledge is combined with theoretical models of branding and applied to create suggestions of how to brand Tesco in China. In this project the specific situation for Tesco and the retail industry is analysed. However, some findings can be transferred and used more generally in other industries and by other companies. The characteristics found about Chinese culture and society is generally applicable and applies to other branding campaigns. Thus the project in some degree can be used as a manual or inspiration to consider when developing a branding approach in China.

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Table of contents
ABSTRACT ...................................................................................................................................................................... 1  1. INTRODUCTION ........................................................................................................................................................ 4  1.2 PROBLEM FORMULATION .......................................................................................................................................... 6  2. METHODOLOGY ....................................................................................................................................................... 8  2.1 COURSE OF ACTION ................................................................................................................................................... 8  2.2 METHODOLOGICAL VIEW .......................................................................................................................................... 9  2.2.1 The objective view ............................................................................................................................................ 9  2.2.2 The subjective view ........................................................................................................................................ 11  2.2.3 The project’s methodological view................................................................................................................. 12  2.3 METHODOLOGICAL PROCEDURE/METHODICS ......................................................................................................... 13  2.3.1 Analysis and ambition level............................................................................................................................ 13  2.3.2 Research Design............................................................................................................................................. 15  2.3.3 Scope and limitations of the study .................................................................................................................. 16  3. COMPANY DESCRIPTION OF TESCO ................................................................................................................ 17  3.1 HISTORY OF TESCO ................................................................................................................................................. 17  3.2 TESCO IN NUMBERS ................................................................................................................................................. 17  3.3 TESCO’S CORPORATE STRATEGY ............................................................................................................................. 19  3.4 TESCO’S ENTRANCE AND PRESENT SITUATION IN CHINA ......................................................................................... 21  3.4.1 The joint venture and the brand name Le Gou ............................................................................................... 22  4. CULTURE AND BRANDING .................................................................................................................................. 24  4.1 CULTURE ................................................................................................................................................................ 24  4.2 BRANDING .............................................................................................................................................................. 25  4.2.1 Branding and communication ........................................................................................................................ 26  4.2.2 Branding in a global context .......................................................................................................................... 27  4.3 COMBINING CULTURE AND BRANDING .................................................................................................................... 28  5. RETAILING MARKET ANALYSIS ....................................................................................................................... 31  5.1 THE PESTEL ANALYSIS ......................................................................................................................................... 31  5.1.1 Political .......................................................................................................................................................... 31  5.1.2 Economical..................................................................................................................................................... 32  5.1.3 Socio-cultural ................................................................................................................................................. 34  5.1.5 Technological ................................................................................................................................................. 35  5.1.6 Environmental ................................................................................................................................................ 37  5.1.7 Legal............................................................................................................................................................... 37  5.1.8 Macro environment of the Chinese market .................................................................................................... 38  5.2 PORTER’S FIVE FORCES ........................................................................................................................................... 40  5.2.1 Threats of substitute concepts ........................................................................................................................ 40  5.2.2 Threats of new entrants .................................................................................................................................. 41  5.2.3 Intensity of industry rivalry ............................................................................................................................ 42  5.2.4 Bargaining power of customers ..................................................................................................................... 44  5.2.5 Environment of the retail industry.................................................................................................................. 45 

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6. BRANDING ANALYSIS ........................................................................................................................................... 48  6.2 BRANDING IN TESCO AND THE RETAIL INDUSTRY ................................................................................................... 48  6.2.1 Private labels ................................................................................................................................................. 48  6.2.2 Corporate branding ....................................................................................................................................... 50  6.2.3 Corporate branding and internationalisation ................................................................................................ 54  6.2.4 Customer thinking and motivation ................................................................................................................. 55  6.2.5 Culture of Chinese consumers........................................................................................................................ 57  6.3 HOW TESCO SHOULD BE BRANDED ON THE CHINESE MARKET ................................................................................ 60  6.3.1 Tesco Products and services .......................................................................................................................... 62  6.3.2 Tesco name ..................................................................................................................................................... 64  6.3.3 Tesco communication and advertising ........................................................................................................... 66  7. CONCLUSION ........................................................................................................................................................... 68  8. REFLECTIONS AND PERSPECTIVES ................................................................................................................. 71  9. LIST OF REFERENCES ........................................................................................................................................... 72 

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1. Introduction
This project is about the UK retailer Tesco and the company’s branding on the Chinese market. China’s position as “the factory of the world” has been known for years and the country is often the number one choice for production outsourcing due to competitive pricing, reliability and efficiency. However, China is becoming much more than a “factory”. A stabile and strong growth in consumer buying power has made it an interesting market for selling products. As a result the consumer market, including the retail industry, has developed a lot over the last years and attracted growing attention from world players. Multinational retailers look upon the Chinese market as a key factor in the enlargement of their companies, resulting in aggressive expansion plans in this fast developing market.1 This development is started by the economical and political changes in the Chinese society. China has become a more open market to foreign companies by for example joining the World Trade Organization (WTO) in 2001. At the same time China’s economy has undergone an incredibly strong and continuing growth over several years resulting in an increase in Gross Domestic Product (GDP) of several hundred percent over a relatively short period of time.

Figure 1 Development in China’s economy
1500,0 Index (1978=100) 1300,0 1100,0 900,0 700,0 500,0 300,0 100,0
19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

GDP per capita Wholesale and retail trade GDP

Year
Source: http://www.stats.gov.cn/tjsj/ndsj/2006/indexeh.htm – Statistical yearbook of China table 3.4

It is obvious that the Chinese population has become richer, which is also reflected in an increase in wholesale and retail trade. An increasing part of the population lives in cities and this leads to a change from buying goods on traditional markets, to buying in supermarkets. This reflects an
1

KPMG (2005), page 2

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escalating demand for goods of a guaranteed high quality and consumers are buying more expensive and processed goods. Yet, China is a culturally diverse market for European retailers and it will be a key determinant for a foreign retail investor to offer the right range of products and services to the market.2 Tesco is the largest UK retailer and a global player operating in both Europe and Asia. It sells a vast amount of food products as well as non-food products of several kinds. The company uses economies of scale that is closely connected with mass production and sales. As an advantage of this, Tesco is able to cut the prices and be highly competitive on world markets. Tesco finally moved to China in 2004 by entering a joint venture (JV) with a Chinese business partner. At that time the stores kept their original Chinese name Le Gou and the Tesco brand was not used. Tesco just owned 50% of shares but apart from that not much changed. However, recently Tesco has bought more shares and started changing the stores toward a Tesco concept.3 By entering the market Tesco is squaring up to both global competitors such as Wall-Mart and Carrefour, but also to local competitors as Bailian. Even though the global competitors are accounting for tough competition the local companies should not be underestimated. Local retailers are fast at picking up successful retail strategies and have knowledge about norms, rules and culture in China.4 Tesco ranks in a top position in all its overseas markets apart from China. Whereas in China Tesco has still got a long way to go before even closing in on a top position. Furthermore Tesco acknowledges that in spite of all the investigations and being an expert at retail operations they cannot understand this market.5 With this in mind it is a challenge for Tesco to improve its position on the Chinese market. It is certain that the market possesses some great opportunities but also threats are visible. The correct understanding of the market and its development is essential to be successful. The ability to target the consumers in the right way is essential to reach the goals of fast expansion, cover consumer needs and thereby reach leadership in this attractive market. As multinational giant retail companies have the economic potential to make big scale investments, it is still important to consider the differences from the Chinese market to western markets. Due to issues mentioned above the problem formulation is presented in the following part.

2 3

Landbrugsrådet (2006), page 3-7 miranda.hemscott.com 4 KPMG (2005), page 35 5 ce.cn

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1.2 Problem formulation
“Considering that the Tesco brand did not play a significant role in the initial entry of the company into China, how can branding and the adaptation of the brand to the Chinese market help Tesco to extend its market penetration in China?”

This study both has a describing and exploring aim. First it will describe the past situation of Tesco and the Chinese market in order to get background information. In this part it will be attempted to understand why Tesco entered China and why it happened as it did. The initial entry of Tesco was its first move into the Chinese market and covers the JV with the Chinese partner. It is argued that Tesco brand did not play a significant role in the initial entry. By “significant” it is meant that the brand was not an important factor in the entrance of China and it will be discussed why this was the case. The initial part of the project will also explore the connection between culture and branding. This connection is a key assumption in the project. “A brand is a name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from those of other sellers”.6A brand carries many associations in the mind of people and these make up brand image. By branding it is possible to create or change the associations about the brand thereby generating the brand image wanted by the company. Branding as a term means the promotion of a brand or can be seen as a synonym for advertising strategy and it is closely connected with marketing.7 In this way branding can be seen as a vehicle of placement in the consumer mind, and it is in this connection adaptation can be reached. By adaptation is meant to fit the brand to the new conditions. It is assumed that a new country make up a new brand situation.

6 7

Wood (2000), page 662 Bunn (2006)

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Figure 1.2 Brand model

Source: http://www.studioriley.com/BrandM.html

The figure describes the interaction between company and customer. Each part has its culture which when talking about Tesco and China is assumed to be very different. On the company side culture can be seen as organisational culture or corporate strategy which might have influence on all stakeholders. The company has some competencies, which is used to fulfil its goals and visions. On the opposite side customers has individual needs. This leads to the interaction which creates supply and demand. However, because of two different cultures it is not so simple to fit competencies and needs. Customer culture is usually connected with nationality or environment where an individual lives. Branding and adaptation is meant to make this fit better. However this will require an understanding of the concept of culture and the specific cultures in respectively Tesco and China.

From this follows that if Tesco is able to make its branding fit the Chinese environment, it is able to target consumers better, thereby attracting more customers. That is what “extend its market penetration” refers to. Thus brand and branding is seen as a critical issue for achieving success on the Chinese market and in the attempt to produce good relations with the Chinese consumers.

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2. Methodology
The purpose of a methodology chapter is to discuss the overall choice of methodological view and the accordance between the view and the methodological procedure and methodics. Together these make the group’s working paradigm that defines how the project will be made. The choice of methodological view is therefore essential for the project’s structure and how it is conducted.8

2.1 Course of action
The aim of this part is to explain how the methodology chapter is structured. An attempt to illustrate this has been made in following model. Figure 2.1 Methodological course of action

Methodological view

Course of action

Methodological Procedure/ Methodics

Ambition level & Scope
Source: Own creation

The present part can be seen as an overview of the coming chapters and a description of the course of action taken in the methodology chapter. The methodological view part is an investigation of the possible approaches to our methodology and the project’s choice of approach will be examined. The methodological view is chosen primarily from:9 Ontology: How we perceive the construction of the world.

8 9

Arbnor & Bjerke (1997), page 1-20 Olsen & Pedersen (2003), page 150-151

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Epistemology: How knowledge is created and on the subject if true/scientific knowledge can exist. These are compared to the project’s character and the group’s point of view. After this the techniques and theories used in the project will be compared to the methodological approach in the methodological procedure and methodics part. At last ambitions and goals of this project are explained and the limits of the study are set up by accounting for its scope.

2.2 Methodological view
The projects work with methodological views, are based on Arbnor & Bjerke and their separation of the theories of science into different approaches. Consequently we work with three superior approaches: The analytical approach, the systems approach and the actor approach.10 It is the aim to make an understanding for these approaches and on that behalf be able to compose a well argued selection between the possible approaches. First of all it is possible to select between the objective and subjective viewpoint.

2.2.1 The objective view
The foundation of the objective view is made of the positivistic paradigm. In social sciences it means that everything must be quantified in order to make it measurable. The world is an objective reality, it exists independently of the individuals and they are determined by it. The whole dominates the parts, and consequently the values in this system become over-individual. The perception of reality is built on the assumption that reality has a summative character and is static. Both the analytical and systems approach are built on objective ontologies. Thus reality due to the analytical approach is viewed as well-defined divided parts, where the whole equals the sum of the parts. Focus is therefore on the study of each part as the whole simply consists of the summarising of these.11 Contrary to this the system approach is working with wholes or systems. A system is defined as: “A set of components and the relations between them” 12

This means that focus is not just on the single components but also the relations and synergy effects that might occur and makes the system approach more overall-oriented. It is emphasised that the

10 11

Arbnor & Bjerke (1997) Arbnor & Bjerke (1997), page 86 12 Arbnor & Bjerke (1997), page 111

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parts are explained based on the characteristics of the whole. As a result a project built on system approach will have the purpose to create knowledge about the nature of the whole system.13 The epistemology is also objective for both the analytical and systems approach. This means that the knowledge created can be used universally. However, in the systems approach a purpose may also be to reproduce individuals’ subjective ideas and conceptions, but these are treated as if they were objective. As the analytical approach demands a high level of formalism this is not required in the systems approach. Using the different techniques correctly is not necessarily coupled with success in the systems approach. On the other hand success is associated with imagination, alertness and awareness when facing the complex reality postulated by this approach. Consequently it is more difficult to choose the correct technique for the study area. The study is very much a matter of trial and error which means having to modify techniques as the study progresses.14 The system approach has two different plans or perspectives on a guiding study: Goal-means orientation sees the system as a mechanism making the goals and means structural or processual concepts. Goals for both the study and the system, is stated at an early stage and the researchers can seek the means that will permit to reach the goals. This orientation is often concerned about elimination of system powers that contributes lack of fulfilment of the goals.15 Trial and error orientation usually stress the process aspects of the system. The possibility of even broad planning of the study is denied and instead the course of the study provides material for successive continuations. Therefore the study does not focus on a goal and the problem is not defined as lack of fulfilment.16 The design of a project in system approach starts out with a system model 1 which is made up by a general study of the system and its situation. In goal-means orientation this will refer to the problem formulation and the description and explanation of this. By now a problem will have been discovered and the general state of affairs be known. Following a diagnosis and analysis of the problem area is conducted and on this basis a system model 2 is created. In the new system the original problem is solved and, in terms of the project, a conclusion can be written.

The system approach acknowledges that reality is complex and that techniques need to be adapted in order to fit the specific study area. Additionally it believes in relations and synergy effects and tries to describe the study area as a coherent system and this is seen as an appealing view in our project.

13 14

Arbnor & Bjerke (1997), page 109-155 Arbnor & Bjerke (1997), page 294 15 Arbnor & Bjerke (1997), page 299-302 16 Arbnor & Bjerke (1997), page 299-305

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2.2.2 The subjective view
In the subjective view the actor approach is applied. The ontology states, that not every individual see the same reality. The picture of the world is made inside each person’s head and is consequently individual. All individuals act upon their own picture of the world and is thereby realising it to something external. When it comes to the view of human nature the individual is playing an important role as he/she becomes a constructor of the world. The individual is given creating powers and can change the world that is perceived.17 However they are still actors and are therefore still affected by the world around them. The actor approach does not deny that humans are influenced by external factors but it is denied that human nature is to be determined. The epistemology in actors approach is that objective knowledge is impossible. On the other hand subjective knowledge is created. This is caused by the researcher being unable to withdraw from the world he/she is researching. As a result it is impossible to avoid bias. The researcher will always have a pre-understanding of the research area because of society, history, culture and his/ her personal life. Afterwards it can be tried to make a critical self reflection where some faults can be corrected.18 All knowledge will be created in an interaction between own experiences and the total experiences collected together with others. This knowledge is called a social construction. It is created in a dialectic process where all actors represent both a subjective and objective world. Actors will at the same time enter into several different social constructions and hence both influence and be influenced by these constructions.19

In this project the actors approach is not used. The group is not interacting in a dialectic process with actors from Tesco or the Chinese market and consequently we are not able to produce a legitimate social construction according to the actors approach. Neither is it possible to make valid knowledge on the background of a hermeneutical circle as it takes two interacting parts. In this project we have tried to contact Tesco but they have not wanted to participate. As a result the hermeneutical circle has only one part and no interaction can take place. Furthermore we are only using secondary sources whereas in actors approach the importance of primary sources is stressed.

17 18

Arbnor & Bjerke (1997), page 159 Arbnor & Bjerke (1997), page 176-181 19 Arbnor & Bjerke (1997), page 181

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2.2.3 The project’s methodological view
The final choice of methodological view is the systems approach. It can be illustrated by following figure:

Figure 2.2.3 Methodological view

Analytical approach Systems approach Actor approach

The objective view

The subjective view

Source:Inspired by Arbnor & Bjerke (1997), pages 44-46

As the model shows the project’s methodological viewpoint is system approach. Our use of data and view of the research area is much characterised by the system approach. It is mainly a theoretical project that is only implementing a practical orientation through secondary data. Subsequently the project is built on data as research, analysis and theories made and conducted by others. The systems approach is emphasising the use of secondary data and as a result documentary and theoretical data are mainly used as primary sources.20 More over the overallorientation and focus on relations and synergy effects in the system approach will be a useful tool to analyse and understand a big and coherent organism as Tesco and the Chinese market. In the systems approach the goal-means orientation is used. Goals that steer the projects’ focus are set up at an early stage and goal fulfilment is the aim of the project. It is firstly attempted to get an understanding of the system and second means to solve the problem in the system is found. The Chinese market and company of Tesco is seen as a coherent system. They have their own characteristics, but in order to understand the results of these, it is essential to see the two systems interplaying. When put together these characteristics can result in synergy effects and make Tesco’s market penetration better. However, if the company and market characteristics are not fitting
20

Heldberg (2003), page 62

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together they can also result in a decrease in market acceptance which can be catastrophic for Tesco. Thus the construction of a system model of respectively the Chinese retail market and Tesco is needed in order to reach a valid respond to our problem formulation. The basic problem in this project is use of branding on a culturally diverse market. The project will seek to provide knowledge about this specific situation but also try to create objective knowledge which can be used in a later similar situation. In this sense the project can be a guidance to later studies in a brand-culture perspective.

2.3 Methodological procedure/Methodics
The methodological procedure and methodics are about 1) finding relevant techniques applied in the methodological view and 2) how these are assessed and used in relation to the methodological approach and research area. This part is thereby combining the theoretical view and practical use of methodology in the project. Many of the theories used in this project are focusing on describing structures and organisms in the system. As an example market analysis such as PESTEL is used and other theories for company and industry analysis are also utilised. Generally they can be characterised as inspired by the system approach and is therefore encompassed in the projects methodological view.

2.3.1 Analysis and ambition level
The project is built on three levels of ambition, which in this part will be discussed from the basis of analysis- and ambition levels. System analysis Systems construction System theory

In the system analysis the actual system is described without constructing any changes. The focus is to describe and explain the system and cover the field of problems included in the system. With the systems construction the aim is to construct changes. The field of problems is found and the changes are made in order to improve the system and erase the problems. The purpose of the system theory is to generalise. It is strived to use and generate system models of common validity. The system theory is based on both the system analysis and the systems construction and is a

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development of new system theories. In later studies the created system theory is background for the system analysis and the system construction.21 The three levels of ambitions are used in the project, where firstly an illustration of the real existing system is made – Tesco and the Chinese retail market. The system analysis consists of a description of the company Tesco and its environment, the Chinese retail market. This description of the company and the environment is done from secondary material and describes why branding is relevant and how culture has an effect on it. Then the basis is taken from the illustration and focus is on changing the system. At last system theory is made on the basis of the first two levels. In such way both the system analysis, system construction and system theory are used in the project.

Figur 2.3.1 General plan for the process of research – ”Goal-means” orientation
Source: Arbnor & Bjerke(1997), Methodology for creating business knowledge, page302

System theory

System analysis

Systems construction

Theory Practice Problems Implementing new proposal

Source: Arbnor & Bjerke(1997), Methodology for creating business knowledge, page 302

As explained in the figure beneath the problems exist in practice, but are found through the theoretical work conducted in the study. The changes that are able to solve the problems are also found by using theories and a new system model is created. This is meant to be implemented in practice in order to see if the theory has been useful. The implementing of new proposal remains on the level of practice, sustained by the fact that the group has no chance of implementing the proposals.22

21 22

Arbnor & Bjerke (1997), page 283-306 Arbnor & Bjerke (1997), page 283-306

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2.3.2 Research Design
This section is made to give an overview of how the project is built up and the thoughts behind the structure. The structure of project is inspired by the system research design. It is made up by a system model 1 and 2 where the problem field is diagnosed and a solution to the problem is proposed. Figure 2.3.2 Project design

Introduction Problem formulation

Field of Problem

Company description of Tesco How culture affects branding Retailing market analysis

Creation of System model 1

Diagnosis of system problem

M E T H O D O L O G Y

Branding analysis

New system model 2

Conclusion
Source: Own creation

The project design illustrates how the project is build up and how the choice of methodology affects its structure. First part, the problem field, is described in the introduction ending up with the problem formulation. Then the system model 1 is created through a description of Tesco, an explanation of the importance and relation of branding and culture and at last a description of Tesco’s environment consisting of the Chinese retail industry. The last element is explained through 15

PESTEL analysis and Porter’s five forces. In this part a diagnosis of the system problem is made. These first chapters results in a wide knowledge about the system, and leads to a creation of a new system model 2 throughout the chapter of branding analysis which contains the branding process of Tesco in China. In this chapter Tesco is looked upon in a future perspective and solutions of how to brand the company are developed. Finally the project ends up with a conclusion, where recommendations or forecasts are made of how Tesco should brand itself in China in the future. Behind it all lays the methodology, which is helping the project to keep the focus and structure.

2.3.3 Scope and limitations of the study
In this part it is intended to explain where the focus of this project is. The aim is to offer insights in the Chinese retail industry but the study itself imposes constraints on insights. As explained in the problem formulation part, the focus is on branding and how cultural aspects influence this. However, each selection means a corresponding sacrifice of what remains unselected. Theories used in the start of the project, PESTEL and Porter’s five forces, are though covering a broad area of the Chinese market. Still its content is focused on relevance for Tesco, the retail industry and branding. Thus economy, politics, competitors and so on are discussed but only to the extent that the group find it relevant for answering the problem formulation. This is also the reason why bargaining power of suppliers is left out in Porter’s five forces. The reason for choosing the problem in question is that branding communication to an increasing extent is crossing borders and cultures due to globalisation of the economy. This implies that culture of the marketers and consumers are different and the implications of this demand a detailed study. The reason for selecting China is that the country is a highly distinctive market compared to Europe when it comes to culture, language and so on. Furthermore it is a big, attractive and interesting market. Tesco was Chosen because it is a big international company with good possibilities for finding relevant secondary material. In addition, the retail industry is seen as very interesting for China. It is growing explosively and deals with ordinary Chinese people. As a result culture of the population and consumers is of high relevance. In general our branding theories are the heart of the project. They are focused on respectively culture and the communication between Tesco and Chinese consumers. The chapters 3, 4 and 5 are applied as background knowledge for constructing a system model and being able to create an understanding of culture and communication between the two parties. Chapter 6 is constructing the new system model and providing concrete suggestions of how to improve Tesco’s branding and communication.

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3. Company description of Tesco
This part of study presents the chosen company Tesco. The chapter is providing a background view of the company in accordance to history, strategy and financial situation. The chapter also covers Tesco’s activities on the Chinese market and how it has performed since its entrance. Tesco’s entrance in China will be regarding, how it happened and which consequences it has had to following business performances. Last the present company situation in China is presented, which includes the location and spread of recent business activities and choices of branding activities till now.

3.1 History of Tesco
Tesco as a company was established in 1932 by Jack Cohen in the United Kingdom (UK) which is the home market. In 1947 Tesco shares started to be sold on the public stock exchange. The key and first big acquisition was made in 1959 when Tesco took over more than 350 stores in the UK. In 1961 Tesco built up the largest store in Europe and entered the Guinness Book of Records. Tesco started opening several petrol stations in 1974 and in 1991 it became the biggest petrol retailer in the UK. The first entered market abroad was Hungary in 1995.23 In 1990’s Tesco started to provide several additional services to its customers such as Internet connection, insurance, mobile services and Tesco.com. These services are Tesco’s advantage that helps to retain customers and persuade new ones to buy in Tesco stores. Tesco.com is the UK most famous online store with food and non-food Tesco assortment.24

3.2 Tesco in numbers
According to the figure below Tesco has achieved fast economical growth through the last decades. The company’s turnover increased more than seven times in the last 15 years.25 The company performance was caused by several acquisitions and entering several markets with Foreign Direct Investments (FDIs) and Joint Ventures (JVs).26

23 24

www.tescocorporate.com – A www.tescocorporate.com – B 25 Coriolis Research (2004), page 4 26 Tesco Annual Report 2007, page 6

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Figure 3.2.1 Tesco’s turnover in the last 15 years

Source: Coriolis Research, 2004, TESCO: A case study in supermarket excellence, page 4

The economic growth is also reflected in the number of Tesco stores and the level of internationalisation in the company. Tesco has spread to several countries in this period creating a global company and brand.

Figure 3.2.2 Tesco presence in market stores Year of entry UK Hungary Poland Czech Republic Slovakia Rep. of Ireland Thailand South Korea Malaysia Turkey Japan China TOTAL No. of stores 1988 101 280 84 48 95 370 91 19 30 109 47 3262 Sales area (million sq fts) 27,8 4,8 6,5 4,1 2,5 2,3 7,5 5,1 1,9 1,1 0,3 4,2 68,1 Planned store openings 2007/08 (incl. Acquisitions) 142 14 54 24 17 9 162 51 7 49 35 10 574

1994 1995 1996 1996 1997 1998 1999 2001 2003 2003 2004

Source: www.tesco.cz -Tesco plc, 2007, Inside Tesco: Tesco at a glance

As seen in figure 3.2.2 Tesco focuses in few regions. The first operation was set up in the UK. In the mid 90’s Tesco showed its interest in Central Europe and in 2003 also in Turkey. In the

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beginning of the millennium Tesco entered several markets in Asia. As it is obvious, according to planned numbers of new stores that will be opened in 2007/08, Tesco’s main interest is in Central Europe and Asia. Tesco wants to retain the leading position on the home market with more than 140 store openings in the UK in 2007/08. Tesco has more than 400.000 employees in 13 countries. It includes 12 countries with Tesco stores and one country, India, where the service organisation for the stores is placed. The service organisation called Tesco Hindustan Service Centre (HSC), consists of call centre and IT support department.

3.3 Tesco’s corporate strategy
A company of Tesco’s size should have a clear corporate strategy. The figure 3.3.1 shows the first of two strategy models adapted from a Tesco case study.

Figure 3.3.1 How Tesco sells for less

Source: Coriolis Research, 2004, TESCO: A case study in supermarket excellence, page 9

Tesco tries to sell more volume which means that the assortment is wide and the scale of products still increases. The company uses the economies of scale and it helps to fulfil the two next steps in Tesco’s circle.27 Tesco tries to take an advantage of economies of scale and to become extraordinary big. The massive size of the company can help to cut the prices of offered items and

27

Guy, Bennison & Clarke (2005)

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helps to sell more volume. After this corporate strategy description it is obvious that it is advantageous for Tesco as well as for its customers.

Figure 3.3.2 Tesco key objectives

Source: Coriolis Research, 2004, TESCO: A case study in supermarket excellence, page 9

The second strategy is connected with Tesco’s main interests areas which are people, customers, operations and financial. The content of each area are defined in the figure above. The customer part is about relationship between Tesco as a company, its employees and customer. It defines what must be provided to customers in terms of price of Tesco products and staff behaviour. This part also covers how the company wants to retain customers and their loyalty. Another part of the strategy is dealing with people - its employees. Tesco is interested in motivating its staff and that is why it tries to create a friendly and team working environment and add these values to the corporate strategy. The third part of strategy is called operations and describes how processes inside Tesco are performed. The operations conducted by Tesco employees should be as simple as possible in order to make the work easy and faster. This result in advantages for the customers, as the employees can give a better service. Last point of operations is called “cheaper for Tesco” and it means that all processes have to be done in the most effective way, however without any loss of additional value or friendly environment for customers and staff. 20

The last part of Tesco corporate strategy is financial features and goals. As most companies, Tesco wants to maximise its profit and increase sales. As mentioned before economies of scale help to fulfil these tasks. The last point is managing of Tesco investments, which is important to decide what to acquire, where to invest and what market to enter.

3.4 Tesco’s entrance and present situation in China
Tesco entered China quite recently, in 2004, when it created a JV with a Chinese business partner called Ting Hsin after a three year search for a partner. Tesco signed for a 50-50 JV agreement with Ting Hsin for its wholly owned subsidiary called Ting Cao. Ting Cao owns the Hymall chain of stores in China. Consequently Tesco acquired 50% of Ting Cao’s equity in Hymall for US$260 millions. When it was bought in 2004, Hymall supermarkets served around 2 million customers every week and the 25 supermarkets were mainly situated in the east, north and northeast of China (Shanghai, Hangzhou and Ningbo in the east; Tianjin, Shenyang and Dalian in the north). It was already a leading retailer in Shanghai with 10 hypermarkets. A hypermarket is defined as a gigantic discount retail complex that combines the features of supermarkets, department stores, and specialty stores under one roof.28 Then in December 2006, Tesco acquired a further 40% of the share capital of the JV, giving the group control of the entity and making it a subsidiary. The minority shareholders of Hymall also entered into an agreement that by 2009 they will sell their parts to Tesco to have the 100% Tesco ownership of Hymall chain.29 At present time Tesco has its biggest presence in Shanghai as the Hymall chain has a major part of its supermarkets in Shanghai with 14 stores. Now, the plan is to focus on the north (including Beijing and Tianjin) and the south (including Guangzhou).30 Regarding Beijing, the first store opened in February 2007 and was the first in China to feature the Tesco name, alongside the existing Hymall brand. Located in the central business district, the stores cover 8,000 square meters and receive around 8000 customer a day.31

28 29

Credit Research Foundation miranda.hemscott.com 30 www.guardian.co.uk 31 www.chinadaily.com.cn - A

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Tesco wants to be present in the areas where the middle-class population is the most important, and where economy is dynamic enough to give customers an interesting purchasing power. Tesco has today 47 hypermarkets in China, with a total of 4.2 million square feet and planned to open 10 stores in 2007-2008.32 That means that they are big size supermarkets, as for instance in Hungary Tesco has the double of numbers of supermarkets but with the same total size.

3.4.1 The joint venture and the brand name Le Gou
As mentioned in the chapter of the retailing market, JV was the only possible way to enter the Chinese market for foreign investors before 2004.33 It is an interesting way to enter foreign markets as both companies bring some skills and knowledge into the organisation. Usually the foreign firm brings its business knowledge and technological skills while the domestic partner has already a relationship network and the knowledge of the market. Concerning Tesco and Ting Hsin, both companies have brought competencies in the JV. Ting Hsin brought its local knowledge and operating expertise gained from Hymall but also from its other business interests in China. Tesco has brought its finances, supply chain, product development and
32 33

www.tescocorporate.com – C Kinsey and Xue (2005), page 11

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store operation expertise to improve the shopping experience of the customer, giving them even more choices and quality products.34 Competition in China is fierce, and Hymall needed this JV to remain a competitive and leading player.35 In December 2006 Tesco increased its shares in the business from 50 to 90%, the aim was to permit Tesco to accelerate its growth in China. This acquisition of the JV gives Tesco nearly the total ownership and control of Hymall chain, which is a determinant to expand its activities on the Chinese market.

Regarding the branding strategy in China, Tesco chose to operate through its partner brand name: Hymall/Le Gou (which means Happy Shopping). This choice has probably been made by Tesco in order to facilitate its entry on the Chinese market, to gain knowledge of the market before imposing itself as a western retailer. However, it is assumed that during two years Tesco was unknown by the customers as the name of the store was still Le Gou. Then at the beginning of 2007, Tesco opened its first Tesco-fascia store in Beijing, which means under its own brand name. It was currently branded as a Hymall store and Tesco decided to re-brand it with its own name, making it the first Tesco store in China. On February 2007, China's Ministry of Commerce reports that Tesco asked the Chinese government to authorise the use of the Tesco logo across its stores. Tesco is thinking of re-branding its 46 supermarkets in China, including its hypermarkets in Shanghai, to the Tesco brand.36 It shows that after opening the first Tesco-fascia store, Tesco’s name is recognized and accepted by the customers and that it is conceivable to make the Tesco brand progressively the main brand on the stores. Tesco has already introduced Tesco branded products in the stores and according to Tesco, the range of 1000 Tesco labelled products have been well received by the customers.37 However, Tesco may want to keep Hymall’s chain name, Le Gou, on its shop fronts to differentiate itself from its western competitors, to keep a local image and to give customers a sense of continuity.

34 35

miranda.hemscott.com Decision News Media SAS 36 www.tescocorporate.com – D 37 www.chinaretailnews.com

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4. Culture and branding
This chapter aims to define and discuss the terms of culture and branding. The assumption in this project is that the branding of a company has to take the culture of the surrounding society into account. This assumption needs to be explained in order to verify the connection between the two terms. This chapter consists of three parts. The first will discuss culture, the second branding and the third is a combination of the two concepts describing how they interact. It is the intention to validate later chapters as relevant for the project and confirm that the Chinese culture can have a crucial importance for branding in the country.

4.1 Culture
Culture has been defined in a vast number of ways but generally the definitions can be divided into two groups. Either they define the content of culture, what culture is, or they define how culture functions, what culture does. A classic definition of the content of culture is. “Culture consists of patterned ways of thinking, feeling and reacting, acquired mainly by symbols, constituting the distinctive achievements of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional (i.e., historical derived and selected) ideas and especially their attached values”.38 As it is important to know what culture is, it is maybe even more important in terms of branding to know what culture does and how it functions. Most argue that culture, no matter how you define it, means shared symbols for convenient and easy communication. It is shared aspects, which enable easy and understandable communication between individuals sharing the same culture. This definition implies that cross-cultural communication is problematic. Even though the definitions are stressing different issues of culture they are two sides of the same case. In all, culture is a complex whole of values, beliefs and behaviours of a group of interacting people. It can be defined as containing different components but in the end it has the same functions as serving as a framework for communicating.39 The finding of culture as a framework for communicating is essential for this project. It makes us understand the reasons for cross-cultural misunderstanding. It is impossible to communicate without an understanding of the cultural meaning. That is without sharing the same content of
38 39

Li (2001), page 11 Li (2001), page 12

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culture. In branding this emphasize that it is problematic to communicate an understandable and suitable branding to a market you do not share cultural content with. The brand message may be misunderstood by the receiver who does not share the sender’s terminology. It can be explained as: “when developing messages, our automatic pilot takes over: We produce, create, and send what fits our own patterns of learning and our own pictorial conventions, our own language, our own vocabulary. This is often done irrespective of the vocabulary of the receivers of our messages, who do not belong to our own culture”40 It can be helpful to classify different cultures such as business culture, industry culture and so on in order to make useful knowledge about them. However these classifications do have limitations and are relative. In this project the study area is the Chinese culture but it can be hard to characterize the limits of this. Normally a nation is defined from geographical, linguistic, ethnic and political criteria. In the case of China the language is not just spoken in China but also by millions of foreigners. Furthermore there are several dialects of the language. To argue that people living inside Chinese borders share the same culture is not safe, as geographical borders has changed and many Chinese living outside China feel they share Chinese culture. At the same time some members of a society may not agree to its dominants cultural values. The difficulty in answering this question of the Chinese market reveals the complexity of classifying cultures. However it will be necessary to classify a culture in the project and everyone agrees that a Chinese culture does exist. It is not easy to define it by geography, politics and so on. However, it will be possible to find some common values, symbols and behaviours which make it possible to differentiate a Chinese culture from other cultures.41 In this project it will be crucial to find these values, symbols and behaviours influencing how retailing is conducted in China and how Chinese consumers perceive and act in this industry.

4.2 Branding
As for culture branding can also be defined in a variety of ways. Branding used in this project has an intercultural communication perspective. It is defined and described in the chapter of the problem formulation how branding should be understood and used in this particular project. However, the term of branding will be discussed further in this part. First of all it will be needed to give a more exhaustive and profound explanation of branding and how it can be understood.

40 41

Li (2001), page 13 Li (2001), page 14-16

25

A brand is an entity of name, term, sign, symbol, trademark, logo, sound, colour, or package and product design.42 A brand is used to identify the goods or services of either one seller or a group of sellers, and to differentiate the goods or services of one seller from another. In the modern age a brand is also used to reduce the primacy of price on the purchase decision and to change the basis of differentiation. A brand includes both tangible substance such as quality, function and features and intangible substance such as reputation and image. As branding increases consumer awareness and loyalty it can be thought of as an economic shortcut but essentially it is a way of communicating between company and consumer and plays an important role in the exchange process between the two parties. A brand is no longer just a mark to differentiate sellers, but a trigger to win the market.43 The market is won primarily of three reasons. First a successful brand enables a company to maintain a competitive advantage hard to match by competitors. Second a brand is a shortcut in information search as the purchasing risk experienced by a consumer is reduced due to the amount of trust the consumer has in a brand. Through seeing a known brand name the consumer can use this to examine the memory and if enough relevant and positive information is remembered use it to make a fast purchasing decision. Third brands enable consumers to show something about themselves. The decision to buy a product is connected with the image a consumer wants to express.44

4.2.1 Branding and communication
Branding which aim to build up a brand is a category of marketing communication. It is possible to view marketing in different ways. Orientation can be on respectively the product, consumer or brand. Product-oriented marketing aims at pushing products onto the market, consumer-oriented marketing aims at pulling buyers into the market and brand-oriented marketing aims at pushing goods and pull buyers by branding. In this project consumer- and brand-oriented marketing is discussed as our focus is on consumers and how branding can help satisfy these. Consumerorientation intends to add value to goods to differentiate it from competitors. Brand-orientation focuses on the communicative processes of message development, message transmission and message reception. Together these two orientations can allow us to adapt the brand to fit the consumer wants by utilization of culturally appropriate branding contents.45

42 43

Li (2001), page 17-19 Li (2001), page 17-19 44 Li (2001), page 20-21 45 Li (2001), page 21-22

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As described branding crosses the cultural border between the company and consumer. Like shown in figure 4.2.1, all communication branding has a sender, channel, message and receiver. Company, as a sender, codes the messages and chooses the channel. Consumers, as the receivers, perceive, decode and react to the messages. Due to different cultural backgrounds, misunderstandings easily occur in branding. Following figure explains how it happens. The marketer is sending a message through a media to a receiver. By feedback it is checked if the receiver decodes the message in the right way. In the figure the receiver perceives a triangle as meant to but it is totally different from the one the marketer perceives. In accordance to the project this imply that without a deep and thorough cultural understanding and exploration the marketer cannot know if there is misunderstandings and if the branding is correct and beneficial.

Figure 4.2.1 Branding as communication

Source: Report: Li, Z., Cultural impact on international branding, page 25

Although the message can be difficult to deliver correct branding can add value to a brand. A positive perception creates a strong brand and increase brand awareness and loyalty. As a result branding must happen but as the model shows it is crucial to do it properly.

4.2.2 Branding in a global context
Globally there are two adversary views of global branding. Advocates of globalisation argue a standardisation of branding where meanings and strategies are the same. Advocates of localisation argue specifically tailored branding with different meanings and strategies in different areas. From an intercultural communication perspective culture must of course be considered in global branding. Findings have shown that global branding with the same cultural values might be differently interpreted by consumers from different cultures. Therefore global branding meets perceptions

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different from the original intention. In global branding a brand extended into markets which have different wants and behaviours will experience cultural barriers. These barriers occur from five cultural aspects: Values, symbols, nonverbal communication, life style and country-of-origin. Every element should be taken into consideration while performing global branding. In the project these aspects can be a help to remember all angles while working with the cultural influence on branding.46 To sum up branding is seen as value-adding communication and it is argued that values are culturally bound. The impact of culture is discussed due to globalisation and even though different views of effective branding exist they all agree that culture is an inevitable factor in international branding.

4.3 Combining culture and branding
As described in the problem formulation this project works with how branding and the adaptation of this to the Chinese market, can help Tesco become more competitive. The former parts of this chapter have explained how culture affects branding on a global market, but it still needs to be discussed how branding should be approached. As described in the last part branding can be seen as marketing communication and messages are sent through various channels. Furthermore the communication between marketer and consumer is interactive.

Figure 4.3 Branding as communication

Source: Report: Li, Z., Cultural impact on international branding, page 37

46

Li (2001), page 25-28

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As the model shows branding consists of three layers. The first is the product or service itself and the branding is its attributes, features, design, colour and so on. Second layer is brand name and comprise for example match to product/company philosophy and translation to other languages. Third layer is values of the brand and includes what associations are desired and how value can be added. The three layers moving from inner to outer becomes more and more uncontrollable for marketers. It is especially difficult to ensure that consumers view and perceive favourable on the value added by marketers. This is due to the cultural barriers. Therefore emphasis must be put on this layer but it does not mean that layers one and two should be forgotten. These inner layers are the core and the starting point of all branding. Consequently this project will need to consider all three layers in order to make a successful branding approach.47 All three layers are needed to gain a comprehensive view of the cultures influence on branding. Furthermore the model states that branding is a two-way process – it is interactive. It requires that both the company and the consumers are considered while finding the right branding. It is impossible to find the points of match or mismatch and the reasons behind them if not both parties are investigated. As a result knowledge about both the company and market in question will be made in this project. From the consumers view a branded product also embrace three layers. The core is the product or service but the surrounding less tangible layers of name and value can be as important. This implies that the value branding is adding can be very hard to measure and recognize. However, it is important to view how the terms of value and culture are connected with the purpose of investigating the projects problem formulation. First value can be defined as: “A value system is a learned organization of principles and rules to help one choose between alternatives, resolve conflicts, and make decisions.”48 This definition both point to the function of a value system, that they are learned from he surroundings and that they are abstract beliefs centrally located within a person. A value does not have an explicit expression but are broad tendencies to prefer a certain state of affairs to others. Further values are learned implicitly but not consciously which means that people are not aware of the values they hold. Thus value is deep inside culture but is also enduring stable and limited by culture. They do not change a lot and as a consequence they bring stability to an individual’s and a market’s attitudes and behaviour. This makes them essential in segmenting and targeting consumers
47 48

Li (2001), page 38 Li (2001), page 42

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but an understanding of consumer values are also important when a company is choosing values to add to their brand.49 As for the project, this chapter has implied that branding can be seen as a communication process and culture is a key determinant in communicating in a meaningful and productive way. In addition to this branding should encompass both tangible and intangible assets of the brand and all should be adapted to consumer values. As for the discussion of global branding it is believed that a global company has to mix the beliefs of Globalists and Localists. The company can have a generally consistent brand across culturally diverse markets, but it has to diverge in its substance and the branding should be convergent with local conditions and culture. As an example the local Chinese brand should diverge in its contents from the brand of European countries. However the diverging from the general global brand should be considered at each market and it should only diverge to the extent that it is relevant. This implies that a Chinese branch of a global company should consider its branding on this market compared to its branding on other markets. In order to do this it has to have knowledge about culture and situation on the Chinese market but also in the company and about the companies brand in other markets. In this project this is the aim of coming chapters.

49

Li (2001), page 42-43

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5. Retailing market analysis
This chapter provides a picture of the conditions surrounding the Chinese market. The structure of the chapter consists of two parts. First a broad macro environment view of China is made through the use of PESTEL analysis. Then a micro analysis of the retail industry is discussed through Porter’s five forces model. The aim of this chapter is to provide knowledge about issues influencing the branding process in China. Chinese culture and business behaviour are hard to understand for European companies and as a consequence they need to have an overview of the market in order to be successful. Therefore this chapter is meant to provide the fundamental basis for the analysis of Tesco and its past and future actions on the Chinese market.

5.1 The PESTEL analysis
The PESTEL analysis stands for political, economic, socio-cultural, technological, environmental and legal analysis of forces that impact the business environment. It will be utilized to find the circumstances surrounding the market and as an instrument for understanding the market situation such as market growth/decline, business position, market potential and the direction of a company’s operations. It is very important for a company to consider its environment before starting to perform activities. As a first step on the way to enter and perform successfully on the Chinese market, knowledge about the macro environment will have to be created.50 In the following the six parts of the PESTEL analysis will be presented with reference to the conditions on the Chinese market effecting branding.

5.1.1 Political
The political situation has a huge influence upon the regulation of the economy, and the spending power of consumers and companies. Consequently areas such as political stability and trading agreements must be considered.51 Through the last decades China has evolved from being a totalitarian communistic regime with a centrally governed economical system to a more open market economy with wider economic and social freedom for its citizens. The Communist Party of China (CPC) still has an absolute power monopoly and an actual liberalization of the political area is not taking place.52
50 51

Marketing Teacher Ltd - www.marketingteacher.com Value Based Management.net 52 Ministry of Foreign Affairs of Denmark - A – www.um.dk

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The Chinese administration has also shown signs of more openness and transparency and the judicial system and legislation is starting to build a constitutional state founded on the rule of law. It has for example been decided to implement the right to private property in the constitution. As a consequence private initiative has become more important in the Chinese society.53 Following the rapid economic development and inequality corruption has become a big and growing problem. China is number 72 of 179 countries on Transparency Internationals Corruption Perception Index, and is given 3.5 points on a scale from 0-10, where 0 represents the most corrupt country.54 The government is trying to solve it by issuing severe punishments for committing the crime. The political development has been positive, especially concerning individual rights, but still problems needs to be addressed when it comes to human rights. Death penalty, torture and detention without charges or conviction are still widely applied, and in spite of more openness in many areas freedom of speech is still reduced and censorship is used.55 From this it can be said that China has a stabile political situation with the one-party system. The system is opening up and there is no opposition trying to destabilize the country thus the development can be expected to continue in the coming years. The government’s policy on the economy is favourable for the business life. First of all China has been made a market economy and there is a strong political will to make China an important player in the world economy. The membership of World Trade Organization (WTO) in 2001 had huge consequences, opening China’s economy to the world, and making the country a very active player in foreign trade.

5.1.2 Economical
The Chinese economy has gone through an intense restructuring from being a state governed planned economy to an economy more or less controlled by market forces. Parallel with the economical reform process, China has experienced exceptionally high growth rates on approximately 9% a year.56 This has had an immense effect on the Gross Domestic Product. As shown in figure 1 in the introduction, it has been raised to a level 12 times higher from 1978-2005.

53 54

Ministry of Foreign Affairs of Denmark - A – www.um.dk Transparency International – www.transparency.dk 55 Ministry of Foreign Affairs of Denmark - A – www.um.dk 56 Ministry of Foreign Affairs of Denmark - B – www.um.dk

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With reference to the same figure, GDP per capita has moved up in a little lower pace but has still been increased nine fold. Hence China has an incredibly big population and people have got more money. This development has led China to be one of the most important economical powers worldwide, with a big potential due to the large population and the high growth rates. An interesting forecast is made on China, saying that China in 2015 is expected to surpass the United States as the largest economy in the world.57 The purchasing power of the Chinese population is an important measure, when looking at the attractiveness of the market for foreign companies. An attempted determination of this can be made by comparing the development in GDP with the development in the consumer price index (CPI) which reveals the changes in consumer prices over a period. For making the comparison possible the same period of time is used.

Figure 5.1.2 Consumer buying Power
1000,0 900,0 800,0 700,0 600,0 500,0 400,0 300,0 200,0 100,0
19 85 19 78

Index(1978=100

Consumer price index GDP per capita d s

19 94

19 98

19 90

19 92

Source: http://www.stats.gov.cn/tjsj/ndsj/2006/indexeh.htm - Statistical yearbook of China table 9.2

As shown the consumer prices have increased approximately 4.5 times since 1978. Compared to a GDP per capita increased 9 times and a GDP total increased 12 times, it is giving a picture of improved purchasing power in China. This makes China an interesting market for foreign companies, as it has a growing purchasing power in the vast population. Especially when the high growth rate is considered, this gives even more positive promises for the future.

57

KPMG (2005), page 4

19 96

Year

20 00

20 02

20 04

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China is the country receiving most foreign direct investments in the world. Through the nineties a growing part of foreign trade was handled by foreign owned production companies and in 2003 more than half of the foreign trade was coming from this source. This reflects that China’s major international competitive advantage is a practically inexhaustible resource of cheap labour which takes care of production activities with an increasing degree of specialization.58

The membership of WTO has meant that China has agreed to bind and gradually reduce all tariffs. Even though the general tariff level is decreasing, it is still high. On top of the tariffs both foreign and domestic companies pay value-added taxes (VAT) and business taxes. China is now bound by WTO to offer identical tax treatment for domestic and imported products. The general VAT rate is 17 % but a variety of tax incentives are offered. China intends to phase out this two-tier income tax system for domestic and foreign enterprises and move towards national treatment that will mean a gradual elimination of special tax breaks for foreign investors.59 The income tax rate for foreign companies will rise in stages ending in 5 years at the same level as for domestic companies, which is a tax rate of 25 %.60 To comparison the main rate for company taxes in UK is 30 %.61

5.1.3 Socio-cultural
Socio-cultural factors are a combination of cultural aspects, such as traditions and values, and social aspects, such as population growth rate and age distribution.62 Socio-cultural values are unique in each country. Typically, Chinese socio-culture is hard to understand for foreigners. China has the biggest population in the world with 1.3 billion people, which is about 22% of the world’s total. The population density is strongest in the coastal regions while the hinterland and western parts are more sparsely populated.63 From being a relatively poor country, China is becoming one of the world largest luxury goods markets. People are purchasing well known brands instead of the fake brands.64 Through the last two decades the political and economical changes has made a significant influence on the society and consequently changed the Chinese lifestyle. For much of the population, the life quality and living standards have improved dramatically leading to an increase in consumption.
58 59

Ministry of Foreign Affairs of Denmark - B – www.um.dk Ministry of Foreign Affairs of Denmark - C – www.um.dk 60 China.org.cn 61 www.companies-limited.co.uk 62 Kotler & Keller (2006), page 87-91 63 CIA - The World Factbook – China 64 National Bureau of Statistics of China – www.stats.gov.cn

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The life attitudes in China varies, but are mainly diversified by religion and education. The most common religions are Daoist (Taoist), Buddhist, Christian, Muslim and atheist. Confucianism is an ancient but still influential social philosophy. Confucianism gives concrete suggestions to how to live your life. It emphasise four moral views: loyalty, respect for age, good will (kindness) and justice. Confucianism is still a basic starting point for Chinese thinking.65 For doing business in China, there are some business cultures that companies have to be aware of. Guanxi is a term used everywhere in everyday China, but in the business world it refers to a kind of network between individuals. It appears between people having common motives and interests. It can be understood as an act of friendship but from a western perspective it might border on bribery. It involves gifts or services given or conducted for the other part. Thus money is not directly involved in the matter rather it is concealed as a dinner offer or the like.66 Another essential term is “face”. Face means social capital and is widely used in various social relations, like comparing how deep the relationship is between the two company representatives, and in order to gain respect. Face can be divided in two kinds “mianzi” and “Lian”. In Lian the individual itself is the reason to the change in face when in mianzi the change in face is caused by other persons. Both are as weighty to a Chinese. In business terms these concepts are important, as due to mianzi it is possible to strengthen or weaken another person’s face. If a Chinese person’s face is weakened, due to for example a negotiating situation, it will ruin the negotiating process. Respect between the two parts will be lost and it takes a long time to recreate it.67 The rules of face are to a large extent set by the concepts of Confucianism and Guanxi.

5.1.5 Technological
The aim of this part is to know more about the advancement of technology in China. This part will particularly focus on the spread of internet on the market, as it seems to be the more relevant technological subject to deal with the retailing market. In fact, a recent development of retailing is made through internet and online shopping and it is interesting to know at what stage China is in its technology development.

China became online in 1994 and now has become the second world largest online population after The United States68. From the end of 2002 to April 2006, the number of internet-connected

65 66

Worm (1997), page 34-36 Worm (1997), page 124-129 67 Worm (1997), page 158-163 68 BBC News – news.bbc.co.uk

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computers has more than doubled, reaching 45.6 millions. In the same period the number of internet users has risen by 75% with about 111 millions internet users.69 The great economic growth of the past years has permitted the development of the middle-class population, which see internet as an aid to inform themselves and communicate. A lot of students can now afford laptops. Internet cafés are spread and cheap even in remote towns, but it is still unusual to have internet access in rural homes.70 However, the use of internet in China is not similar to the use in Western countries because of censure and of the so-called Great Firewall of China which controls what people can see on the internet. In fact China’s government tries to sanitise what people see online, but many reports shows that China’s net users know how to get around these restrictions.71

Concerning the online shopping, it is increasing each year. All the 100 millions internet users are potential online customers and they would probably enjoy the advantages which online shopping provides in term of time-saving and efficiency. Online payment, which is considered to be a factor hindering e-shopping development, has been improved and online payment are now considered by Chinese banks including the main ones like Bank of China and Merchants Bank. However people feel still unsecured regarding to this issue. A survey made by Computer and Microelectronics Industry Development Research Centre and CCIDNET Consulting shows that only 20.3% of Internet users have on-line shopping experience, and only 40% of them are satisfied with on-line transactions. Moreover, more than 80% of Chinese Internet users worry about the security of on-line transactions.72

As a consequence, making e-retailing in China seems to be a great challenge and the success difficult to achieve. But the situation is improving, for instance the Ministry of Information Industry is working at promulgating the basic framework for the development of e-commerce and related laws and regulations. Hence, internet has a great potential for a company which wants to extend its business on the Chinese market, because even if at the moment e-shopping is not broadly diffused, in the next years and after improving of the e-shopping legal and technical environment, it will become a gold-mine.

69 70

Economist.com, China and the internet Economist.com, China and the internet 71 BBC News – news.bbc.co.uk 72 People’s Daily – www.peopledaily.com.cn

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5.1.6 Environmental
The short-term priority of China for many years has been the economic growth. In June 2007 the Organisation for Economic Co-operation and Development (OECD) warned China about the pollution of the country. In fact China has become the third economic leader in the world but also the most polluted country in the world. China's spectacular economic growth of the last three decades has come at a heavy price to its environment. 73 China’s problem is that economic issues are of utmost importance compared to environmental issues. There are environmental laws, but the level of local application of them is missing, due to local governments being judged only regarding to their economic performances.74 However, recently China has begun to worry about the environment. In fact China's environmental law stipulates that companies must design, build, and use pollution control facilities.75 Government has also adopted the “green credit policy” in cooperation with the Central Bank, to cut loans to the companies, which are not respecting environmental rules. Moreover the authorities plan to increase financial penalties for rule breakers and force firms to pay more towards the cost of emissions.76 By June 2007, the environmental behaviour of 220,000 firms has been inspected and more than 8,000 companies and 170 people punished for illegal practices.77

In China, the environment is a very sensitive topic. However, under international pressure from governmental and non-governmental organisations, environmental preoccupations in China began to occur. A company entering China must be very careful to its environmental policy, because one of China’s aims is actually to fight pollution emission of companies, and the controls regarding environmental practices of companies become more and more regular.

5.1.7 Legal
In China, foreign firms investing must be aware of China’s general lack of codified laws and the regional diversity of “legal systems” and practices.78 An anti-monopoly law will become effective in August 2008. This law stipulates that foreign mergers and acquisitions of Chinese companies should go through national security checks.
73 74

China Trade Winds - www.leventdelachine.com radio86 – Tout Sur La Chine 75 China.org.cn – B 76 BBC News B – news.bbc.co.uk 77 China.org.cn – B 78 Goliath – goliath.ecnext.com

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Moreover a special anti-monopoly commission will be set up to deal with anti-monopoly issues. 79 These anti-monopoly laws exclusively concerns foreign investments and non local businesses. Chinese authorities classify the foreign investments in four categories: encouraged, permitted, restricted and prohibited regarding to the sector in question. In key sectors, such as energy, or if foreign investments can affect national economic security, the Ministry Of Commerce will have to give foreign companies an approval.80 There are also laws which regulates the entry of the foreign companies, as for example the one concerning JV which stipulated that the Chinese partner had to own the majority of the JV. However from 2004 this law is no more in application and as a consequence the entry of the market is still easier.81 In China, the Law of the People's Republic of China on Protection of the Rights and Interests of the Consumers of 1994 enumerates consumer rights and the obligations of business dealers.82 To protect consumers there are government agencies involved in food and product safety, including work on new laws and regulations. The SAIC (State Administration of Industry and Commerce) for instance, regulates and inspects “market circulation” which means the entire process of food from the producer to the consumer. This includes logistic, distribution and retail.83

Piracy of intellectual property is everywhere in China and it has been a major source of contention between China and foreign investors. However, its protection has been one of the priority of the Chinese government since it adhesion to the WTO in 2001. In the past years China has taken great strides to develop the intellectual property rights but there is still a lack of local enforcement.84 In consequence, companies doing business in China have to prevent themselves from having their intellectual property stolen. The best way of preventing this is to have a limited number of employees with access to confidential information and to visit trade fairs to make sure that products are not copied.85

5.1.8 Macro environment of the Chinese market
The below figure is aiming to summarize the main findings of the PESTEL analysis highlighting the opportunities and threats which can affect retailing in China.
79 80

www.chinadaily.com.cn – B, www.chinaview.cn www.missioneco.org 81 Kinsey and Xue (2005), page 2 82 Consumers International – www.ciroap.org 83 The US-China Business Council – www.uschina.org 84 www.oecd.org 85 www.kiplinger.com

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Figure 5.1.8 PESTEL

Source: Own creation

Concerning retailing in China the PESTEL model highlights some interesting opportunities. The political situation reveals a positive development with more open markets, a stable political situation and not least the adhesion to WTO. This is underlining an explosive and stabile economic growth in the last decades which seems to continue in future years. Combined with large population size and growing purchasing power it provides great possibilities for the retail industry. The increasing use of internet is a matter of interest in the future but difficulties are still present. Also the socio-cultural environment accounts for obstacles that need to be addressed. The environmental area has long been almost forgotten but is of increasing interest to Chinese consumers. Overall it has become easier to enter and do business in China as a foreign retailer, but in order to be successful many issues needs to be considered.

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5.2 Porter’s five forces
This part analyses the retail market and specifically the supermarket industry in China. The purpose is to create knowledge about the supermarket industry, which is used later in the project as a background for making a beneficial branding strategy for Tesco in China. The analysis is made from the basis of Porters five forces, wherein threats of substitute concepts, threats of new entrants, intensity of industry rivalry, bargaining power of suppliers and bargaining power of customers are included. However, not all forces will be discussed due to relevance for the problem formulation. Bargaining power of suppliers will not be discussed as this has very little influence on the branding strategy directed at customers.

5.2.1 Threats of substitute concepts
When supermarkets were introduced in the beginning of the 90’s the concept was totally different to the Chinese population from the traditional retail stores and obviously from the roadside markets. Traditional retail stores can be considered as a substitute concept. If the consumer appreciate the human contact that he can have while choosing its products, together with the advices he can get from the owner of the store or employees they can be competitive. However, many Chinese customers like and prefer the supermarket style, substantiated by enough time for reading labels on groceries and enough time to make the buying decisions. The supermarkets provide a self-service shopping style while in a traditional retail stores, the customers have to ask the sales person to pick the merchandise. Another substitute concept is the roadside markets, which are still preferred among most of the population, because customers are able to see exactly what they are buying, which is of high preference of Chinese customers. Therefore foreign supermarkets for example have to adjust their packaging if they want to succeed on that market, because closed packaging simply is not saleable in China.86 However local government’s structure plans for the cities has helped the development for foreign supermarkets and urged closure of local markets.87

E-shopping can be seen as a third substitute. As seen in the previous part about Technology in the PESTEL analysis, internet spread is high in China like in a lot of Western countries and so eshopping is. Online shopping has some advantages as efficiency, but also drawbacks as the security of payment. Moreover the fact that the consumer cannot touch the product can prevent internet from
86 87

Landbrugsrådet (2006), Page 23 Landbrugsrådet (2006), Page 21-23

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being a big threat for retailers in China. However habits are evolving and Chinese people may soon be used to this kind of shopping.

The Chinese customers still buy Chinese food when they shop, but the foreign goods are becoming more and more accepted with the growth of foreign retailers’ knowledge of the specific needs of Chinese customers.88 Moreover, a survey completed in 2005 covering respondents in the age between 25-65 years in seven major cities (Beijing, Chengdu, Guangzhou, Harbin, Shanghai, Shenzhen, and Wuhan), showed a changed behaviour pattern among the Chinese customers. The survey showed that they were getting even more used to shop in supermarkets, given that they spend even more time and money in it.89 This survey confirms that the Chinese population is ready for the concept of supermarkets. Chinese customers are aware of supermarkets’ advantages as the sanitation which is better, a guarantee is provided, customer service is always available, there is a return service if the customer is not satisfied, and products from foreign countries are always first introduced in supermarkets.90 Even though roadside markets and traditional stores are considered as substitutes and threats to supermarkets, the competition between them is no longer as fierce as earlier. Concerning eshopping, retailers have to be aware consumer habits, which can evolve and adapt their branding to that.

5.2.2 Threats of new entrants
The number of supermarkets has grown rapidly during the last 20 years in China. In 1990 there was only one supermarket and in 2003 there were over 60,000 stores. Ownership of retail food sales has also changed a lot. Until the economic revolution in 1979 the industry was owned by the Chinese Government, but changed to Chinese owned supermarkets in the early nineties and to partially foreign owned supermarkets in 1995, finally in 2004 it was possible to have a wholly foreign owned supermarket.91 In China the supermarket sales went from zero to billions of dollars from 1990 to 1995. The annual sales growth in 1995 reached 167 percent and the year after 275 percent. However between 1999 and 2002 the annual sales growth fell and became stabilized around 40 to 50 percent.92 The following table 5.2.2 shows the development of supermarkets in China from 1994 to 2002.
88 89

Landbrugsrådet (2006), Page 23 KPMG (2005), page 20 90 Kinsey and Xue (2005), page 4 91 Kinsey and Xue (2005), page 2 92 Kinsey and Xue (2005), page 5

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Table 5.2.2 The development of supermarkets in China between 1994-2002

Stores
Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 Number 2500 6000 10000 15000 21000 26000 32000 40500 53100 Annual increase (%) 140 66.7 50 40 23.8 23.1 26.6 31.1

Sales
Billion of US Dollars 0.38 0.96 3.61 5.06 12.05 18.07 26.51 37.11 55.13 Annual increase (%) 167 275 40 138 50 47 40 49

Source: Report: Jean Kinsey and Min Xue(2005), Supermarket Development in China, page 5

However, foreign-invest enterprises now cover more than 50% of the total business volume of emerging business mode in Beijing, Guangzhou, Shanghai, and Shenzhen. The political situation in China means that it is possible for foreign or new local companies to enter the market and the economic situation and development in the supermarket industry makes it very interesting to invest in this market. However, the competitive situation including big and aggressive local and foreign companies creates a hostile environment for newcomers making it hard to achieve a good and competitive market position. In spite of the rapid increase in the number of supermarket stores, the market is not covered. Mainly the coastal regions have supermarkets while the hinterlands and western regions are left open. Moreover the explosive growth in supermarket sales makes it easier for newcomers to achieve a share of the market. In all, the Chinese retail market is ready to accept and absorb newcomers, but they will have to find a gap in the market in order to avoid the tough competition from existing companies.

5.2.3 Intensity of industry rivalry
The competitors are divided into two groups, one with the Chinese supermarkets and the other including the foreign supermarkets in China. The supermarkets discussed below are considered as Tesco’s largest competitors in China because their considerable size and concepts similar to Tesco’s.

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5.2.3.1 Chinese supermarkets
In 1990’s LianHua, Hualian and Nong-Gong-Shang emerged in the larger cities in the east, Shanghai, Beijing and Guangzhou.93 Among these three supermarkets, Shanghai-based Hualian Group Co Ltd had the largest sales in 2002. In the same year, LianHua Supermarket Shareholding Co Ltd had the largest number of chain stores. From 2001 to 2002 LianHua’s number of stores went up by 57% and reached a number of 1921 stores, compared to Shanghai Hualian’s 1541 stores, which had increased with 48% in the same period.94 There is a tendency that domestic supermarkets’ are moving from the urban areas on the east coast to more rural areas in the middle and western parts of the country. Furthermore the domestic supermarkets are growing rapidly. The number of supermarkets increased 293% between 2002 and 2003 and total sales increased 562%.95 The local competition in the retail industry among supermarkets is fierce, and is growing rapidly. Especially the local competition is strong on the market and is not to be underestimated, which also is known by foreign supermarkets already in China. The locals are very fast to pick up successful strategies from other companies and conduct them.96

5.2.3.2 Foreign Supermarkets in China
China started to allow foreign retail companies to do business in Shanghai, Beijing, Tianjing, GuangZhou, DaLian, QinDao, ShenZhen and XiaMen. However, the number of supermarkets in each city was limited to only two. Furthermore the foreign companies had to find a Chinese partner, who at least should own a 51% share of the foreign company in China, meaning the only way to enter the Chinese market was through JVs. In 1990 almost all Chinese cities were opened to foreign retail supermarkets. At the same time, the rule of ownership changed and allowed a foreign company to own up to 65% shares of the retail supermarket. Finally, in 2004 the law was totally abandoned and foreign retailers could have wholly owned operations in China.97 Tesco’s largest foreign competitors, the Western supermarkets, Wal-Mart, Carrefour and Metro moved to China in 1995 and 1996. In 2007 Wal-Mart had 86 stores in China and is the largest retailer in the world.98 However, Carrefour, the second largest retailer in the world, holds the leading position of foreign
93 94

Kinsey and Xue (2005), page 2 Kinsey and Xue (2005), page 10 95 Kinsey and Xue (2005), page 10 96 KPMG (2005), page 3 97 Kinsey and Xue (2005), page 11 98 Wal-Mart – www.wal-martchina.com

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supermarkets in China with a number of 345 shops. Metro was the first joint-venture to gain permission from the Chinese government to set up chain stores in all major cities in China. In 2007 Metro has 34 stores in China, but plans to open 40 more in the next three to five years.99 All three supermarket chains are placed in separate territories in China, and do so far not compete directly for market shares.100 Carrefour is known as providing customers with large shopping areas, low prices and efficient commodity flow. Carrefour has a business of localization, meaning they believe their retail store is the microcosm of its local environment and therefore should complement the local cultural atmosphere.101 Wal-Mart has a strategy of “every day low price” and “satisfactory service”, but compared to Carrefour they seem to have been more conservative, by not opening a large number of stores.102 Metro tries to avoid fierce competition with Wal-Mart and Carrefour and mainly focus its sales strategy on small- and medium-sized stores.103

Foreign supermarkets need to adapt to Chinese culture in many ways in order to have success. The Chinese people like to eat fresh, therefore as an example Carrefour in their daily counter has hundreds of different ready-to-eat fresh cooked foods in Chinese style. Further on, Carrefour is selling street style food like little dumplings and rice cakes.104 Carrefour also does a lot to make their customers feel comfortable while shopping. On the first floor rent out space is available for a known brand such as a furniture company or a food corner like McDonalds. This gives customers, who have preferences for one brand in particular, the opportunity to find their brand in only one shop. A large bag check is also available for customers to store their shopping bags.105 Tesco therefore has some very tough competitors to deal with in China, which already are doing very well and are highly respected both by the Chinese population and the government.

5.2.4 Bargaining power of customers
The customers of the retail industry are a big and rapidly growing group with increasing buying power. The recent change in the political and economic situation has lead to an increase in living standards for the Chinese people, and this has also affected their demands towards the products and
99

Metro - A – www.metro.com.cn & Metro - B – www.metro.com.cn Kinsey and Xue (2005), page 11 101 Kinsey and Xue (2005), page 12 102 Kinsey and Xue (2005), page 13 103 Kinsey and Xue (2005), page 13 104 Kinsey and Xue (2005), page 14 105 Kinsey and Xue (2005), page 14
100

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goods that they buy. The customers have become a group with high aspirations. They have become more demanding and expect to receive a quality product.106 This is actually the same development that has changed the customer behaviour from buying on traditional market places to buy in supermarkets. With the increase in living standard and wealth customers have become more conscious consumers. Now they do not just want only their basic needs to be fulfilled. They want the products to have some added value giving it some extra quality. The Chinese consumers are though also willing to pay for the quality. They are increasingly buying big and luxury products such as cars and private schooling. This also indicates that the market for luxury products in the supermarket industry is attractive. In spite of the alteration on the market many Chinese consumers mainly focus on price. They largely emphasize the economic part of the buying situation and are very much interested in saving money. However as it is hard to compete with Chinese competitors on price foreign companies, in the past, have had success, focusing on quality and innovation. 107 Apart from the customers’ own development, the situation in the supermarket industry is also empowering the customers. There is a fierce competition between players in the market, big multinational companies trying to enter and local companies striving to retain their leading position. This puts the customers into an ideal position where several players are fighting to win their favour. Carrefour has for example made several services to satisfy customers. As an example Carrefour has a bus set in to pick up customers and drive them home after doing their shopping.108 This is an extreme focus on customer satisfaction showing a high level of customer bargaining power.

5.2.5 Environment of the retail industry
The following model will be an illustration of the findings in the Porter’s five forces. The most relevant issues concerning Tesco’s situation on the Chinese market are highlighted.

106 107

KPMG (2005), page 11 KPMG (2005), page 12 108 Kinsey and Xue (2005), page 14

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Figure 5.2.5 Porter’s five forces Threat of new entrants

• Low barriers to enter, political incentives

• High attractiveness and potential of Chinese market

Intensity of industry rivalry
Local competitors: • Aggressive • Knowledge Foreign competitors: • 10years experience in China • Skills

Bargaining power of customers
• Exigent toward quality • Price sensitive • Low switching costs

Bargaining power of suppliers

Threat of substitute concepts
• Traditional retail stores • Roadside markets • E-shopping

Source: Own creation

In general the competition is fierce in the retail industry. This is underlined by both threat of new entrants, threat of substitute concepts and not least the intensity of rivalry in the industry. A lot of strong competitors are present at the market and they seem to have advantages compared to Tesco. Foreign competitors have more experience at the market and local competitors have more local knowledge. Moreover Chinese consumers seem to have other preferences than the European consumers that Tesco normally is dealing with. They come from a market where traditional marketplaces and roadside markets has been the normal place for shopping but they increasingly prefer supermarkets. The consumers bargaining power is high but their preferences are split. They are price sensitive but they also value convenience and quality. When the PESTEL and Porter’s five forces are combined it describes a very attractive but also challenging market to enter and act in. It is easy to understand why Tesco chose to enter due to the 46

vast potential and the fact that it is still not saturated. A newcomer still has the possibility to conquer a big market share and even gain market leadership. However, to reach this will claim a significant investment and not least a comprehensive understanding of the market and Chinese consumers. The coming chapter will look deeper into how the knowledge made in this chapter can be used in the attempt to fit a branding campaign to the Chinese retail sector.

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6. Branding analysis
This chapter aims to discuss the terms of brand and branding, how they can be used in the retail industry in general and by Tesco in specific. It is assumed that branding of Tesco can help the company to become accepted and thus successful on the Chinese market. This chapter also intends to explore how this can come to pass in practice, what tools and activities Tesco needs to apply and perform. The structure of the chapter is an interplay between theories found practical and beneficial in order to work with the branding issues and the knowledge and practical information that have been found and created in the first parts of the project. By combining these two factors it is believed that a productive and true picture of the branding system covering Tesco and the Chinese market can be completed.

6.2 Branding in Tesco and the retail Industry
This part is aiming at providing knowledge about issues related to the branding situation in the retail industry. It differs from other industries as the challenge is that the company’s customers experience the products directly. What is experienced in the store is the brand thus branding has to be internally and externally coherent. The way a brand is advertised externally should reflect the way it works internally. This is a main issue in retailing and it is underlining some branding topics in the industry. These will be described in the following parts.

6.2.1 Private labels
Private labelling is well diffused in Northern Europe, especially in the UK. For instance Marks & Spencer sells only own-labelled products and other retailers as Sainsbury have their own label on some products, but they represent the main part of their turnover.109 The advantage for retailers to have their own label is to gain customer loyalty to their chain of shops through their own quality products. Tesco has several product brands to cover several segments on the retail market. Every brand has different specifics such as price, quality and packaging design.

109

Kotler & Keller (2006), page 470

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Figure 6.2.1 Types of Tesco product lines

Source: Coriolis Research, 2004, TESCO: A case study in supermarket excellence, page 15

As it is visible from the figure above, Tesco is using six different brands. Four of them are differentiated according to price and quality and the other two in terms of interest or age. The most expensive and best quality products are branded as Tesco Finest. It contains around 1.200 items which are produced for the segment of customers who want to buy the best possible products on the market. Tesco organic includes products produced environmentally friendly and are more healthy substitutes offered to upper market customers. The middle class brand is called Tesco and provides 8.000 products. The main aim is to offer fully branded Tesco products for all market segments. The quality of Tesco products has to be middle or high quality products in order not to damage Tesco’s corporate brand. The last brand is named Tesco value and as the brand expresses, products branded with this mark provides value for very low prices. It covers around 1.200 items. As mentioned there are two brands not segmenting customers in terms of quality and price, but in terms of interest and age. Tesco Healthy is for customers with healthy life style and sport preference. The second is Tesco Kids and consists of products for children such as toys, sweets and fruits in nice child packages.

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These product lines had an important role in changing Tesco from just being a retailer to becoming a brand. In the UK market and other markets where Tesco has existed for years, the brand is accepted by customers and they understand the different value offer of each product line. However, in the Chinese market only parts of the product lines has been introduced and it has only happened recently. As a consequence Tesco will have to make Chinese consumers aware of the value offer of the product lines and it will be a challenge to adapt the products offered in each line to the Chinese market and taste. Private labels offer a big potential to retail branding, both in terms of name recognition and retention of customers. If consumers prefer a Tesco product they will have to shop in a Tesco store as the product will not be available in any other store. Furthermore this will increase the consumers liking of that specific brand and thereby make the customer more loyal to the brand. That will have a spill-over effect to other products as customers will have a generally better feeling about the brand.

6.2.2 Corporate branding
Retailers are more and more searching to perform in a “bundle” of activities and services to add value to their brand in the eyes of the customers. Thus, private labelling has evolved and has become just one of the components making up a corporate brand. Table 6.2.2.1 From Private label to corporate brand 1st generation Private-label Unsupported own brand Low price copy Increase margin, reduce manufacturers’ power, provide better value product (quality/price) Basic lines with a large volume 2nd generation 3rd generation Segmented retail brands Corporate brand Value-added Increase and retain the customer base, improve image, differentiation

Branding form Strategy Objective

Corporate positioning Produce strong positive identity, first choice for consumer, satisfy stakeholders Image-forming products The corporation and Product groups its tangible and intangible attributes Quality and Quality/image Medium quality perceived as Same or better than lower than leading brand leader, innovative consistency manufacturers’ brands and different throughout the organization Equal or higher than Focus on delivering Price position 10-20% below known brands value Better and unique Trust Consumer’s Price is still important products motivation to buy
Source: Inspired by Burt and Sparks(2002), Corporate Branding, Retailing, and Retail Internationalization, page 198

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Private labelling started as a mean of differentiating one tangible good from another on the market place, and has now evolved into a reduced number of extremely dominant corporate brands. The private labelling described in the previous part is 1st generation branding. Today the most successful retailers take much more advanced techniques in use while branding their company. Tesco is a 3rd generation company thus private labelling is only one component, although an important one, of the corporate branding strategy. Retailers are also increasingly investing in activities allowing them to become corporate brands. An overall brand identity is made, which provides a degree of differentiation in the marketplace. Instead of just selling one products they aim to deliver a service which provide added value in the eyes of customers.110

The corporate brand is the company name, strategy, mission, image and activities and this allows it to distinguish itself from the competitors. Corporate branding is an alignment of vision, culture and image of the company. Vision is the managers’ aspirations for the company. Culture is referring to the organisation’s value and the attitudes of the employees. Finally image is how the firm is perceived by all stakeholders including customers, shareholders, media and public. 111 Corporate brand for a retailer is different from a manufacturer’s and is not raising the same issues. Retailing differs in its regular interaction between staff and consumers and in its selling of other manufacturer’s brands. The nature of retailing is different, as the company has to manage a mixture of store, products and corporate loyalty. Thus, as retailers are between production and consumption, they have a key role in the relationship with consumers to deliver the right message through their activities and services and through the employees of the store. Concerning the employees of the store, they have a key role and their values and behaviours have to be coherent with the corporate identity. The retailer has to maintain coherence of the brand inside and outside of the store. Internally it is related to culture management, and externally to customer relationship management.112 In the case of Tesco, the company has been transformed in the last decades into a 3rd generation company using several and sophisticated branding tools. It can be looked upon as a corporate brand due to its distinct positioning with the brand providing meaning and values internally and externally. The overall aim is to create value for the customer in order to earn their lifetime loyalty. The tool for reaching this goal is a coherent branding strategy. The components in this strategy are first of all the private labels discussed in the last part. These private labels are sold in corporately

110 111

Burt and Sparks (2002), page 199 Burt and Sparks (2002), page 196 112 Burt and Sparks (2002), page 196

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branded and appropriate store formats.113 Tesco uses four types of stores of differentiated size and product mix.

Figure 6.2.2.2 Types of Tesco stores

Source: Coriolis Research, 2004, TESCO: A case study in supermarket excellence, page 33 The first type of store is called Tesco Express and its purpose is to make shopping as fast as possible. It consists of a petrol station and small sized store full of Tesco branded products. The average sales area is around 200 square meters.114 Tesco Metro is a type of store which is situated in centres of large cities and provides an opportunity to buy Tesco products for good prices, just a bit higher than in the next two types of stores. It is caused by the location of the stores which is convenient for many people working and living in surrounding areas. The average sales area is more than 1.000 square meters.115 Tesco Superstore is the first store fully taking advantage of Tesco corporate strategy which is connected with economies of scale. The purpose of this store size is to make big shopping, to save people’s time. The average sales area is more than 3.600 square meters.116 The last and biggest store is called Tesco Extra. This type of store provides every item sold by Tesco such as food and non-food Tesco branded products. The average sales area is more than

113 114

Burt and Sparks (2002), page 203 Coriolis Research (2004), pages 36&37 115 Coriolis Research (2004), pages 35&37 116 Coriolis Research (2004), page 37

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7.500 square meters which is twice as big as the previous type.117 Together the private labels and store formats make a consistent view of the company but a crucial component of the corporate branding is the customer relationship developments Tesco have undertaken. Many of these depend on staff projecting corporate values consistently and they have proven successful for creating customer loyalty and trust across product and service categories. Tesco has a variety of activities in customer relations.

Table 6.2.2.3 Corporate brand consumer relationship extension Activity Building transaction and information linkages Personal / face to face links Service and expertise links Cementing financial links Building emotional links Event links Media communication links Distribution and availability links Tesco example Tesco clubcard, location maps Service areas as butchers, customer service desk Baby club, wine club, pharmacy, recipe cards Tesco personal finance, including insurance, pensions, credit cards and Tesco banking Television advertising, computers for schools, For sale wall, local event details in store, sponsorships Tesco.com, active media management Tesco catalogues, Tesco specialist magazines, internet cafes in store

Source: Inspired by Burt and Sparks(2002), Corporate Branding, Retailing, and Retail Internationalization, page 200.

Through these activities Tesco is creating a unique brand and relationship to its customers. The activities are benefiting both parties as the customers receive some added value and Tesco retain the customer. In general Tesco can be described as having a very active approach to its corporate branding. Their performance embraces a lot of stakeholders ranging from the press, commercials and academic reports to the single individual customer. In all, it shapes the outside world’s view of Tesco and it has been a significant factor in the success experienced by the company in recent years.118

117 118

Coriolis Research (2004), pages 34&37 Burt and Sparks (2002), page 203

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6.2.3 Corporate branding and internationalisation
Many retailers internationalized their activities and so should consider how it can affect their corporate branding. It is assumed that internationalization complicates corporate branding, as there are barriers on the foreign markets which can add difficulties in transferring the retail brand identity. These barriers exist by means of the macro-environment, which can be different due to consumers’ characteristics and way of behaving but also through the local competition or the legislative infrastructure. The organizational environment can also represent a barrier as for instance the management styles and cultures.119 Entering a foreign market with a different culture and perceptions may influence the strategy of the company to give the desired corporate brand identity. A standardized approach may not be successful on certain markets. Consequently a strategy to get the right store identity and image has to be developed before market entry. It should take into account the particularities of the foreign market and of the non-domestic consumers. An international retailer trying to understand how to act in a foreign market would seem to require a clear view of the main characteristics of the company. The true source of the company’s competitive advantage and added value should be known but this is not necessarily enough. The private labels and corporate brand of a company can both be a facilitator and a constraint in internationalisation. It depends on how the new market perceives the brands and this can necessitate a new branding strategy adapted to this market. Such differences can complicate corporate branding as it is made difficult to maintain consistency and coherence of the brand.120 In the case of retailing, brand identity is derived from a vast number of aspects meaning that a standard identity on international markets is hard to achieve. Furthermore customers attribute a range of meanings to tangible and intangible characteristics of the service depending on their values, culture and frame of mind. If marketer and consumer do not have the same frame of understanding, misunderstandings and conflicts can occur. This means that the corporate and product branding may fail if tried implemented in diverse international markets.121

The internationalization of Tesco has not been uncomplicated and especially in the early years of the process a lot of problems occurred. However, as it has been shown in this project, that Tesco has got it right and has spread to a variety of markets in both Europe and Asia. In each case Tesco has

119 120

Burt and Sparks (2002), Page 201 Burt and Sparks (2002), Page 197 121 Burt and Sparks (2002), Page 202

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exported its core corporate brand position and values, and visually the stores are strongly branded as Tesco.122 However, this is still not the case in China. Here Tesco entered as a JV and most stores are still branded as Le Gou stores. Recently the company has tried to introduce the Tesco name and product brands to the stores, but it is a newly started process. It makes up one of the greatest challenges for Tesco on the Chinese market in the future as the vision, culture and image must be made consistent. Fundamentally, Tesco is internationalizing its brand by selecting appropriate components of the overall corporate brand and adding some country specific brand components.

6.2.4 Customer thinking and motivation
The concept of branding is linked to the one of identification. Branding permits the customer to recognise the company’s product and to link it to the producer. For that reason, brand names are usually the owner’s brand name. Concerning identification of the brand in retailing sector, the shop names and signage are the identifier of the brand.

As competition grew harder, companies and brand owners began to create brand portfolio. That means differentiation of brand names for different ranges of products. Because of the tough competition, the brand needed to differentiate itself from the others. Differentiation was first functional or rational, like price, quality, and packaging. Then, increasingly, the conception of brand included also intangible aspects like service. In retailing industry a lot of factors tangible or not can differentiate a brand from another, for instance the product quality, but also the service, the personality of the owner or the atmosphere of the store can provide the differentiation. The differentiation through the price is specific to the big retailing companies which can compete on the price because of their economies of scale. The differentiation through service is becoming an important aspect of branding. In fact the retailers, and especially the small ones which cannot compete on price, can use service as a mean of brand success.

Branding is not only differentiation but also personification. Branding can be described as the “attribution of social and symbolic meaning to a product”. Therefore, a clear understanding of the consumers and their thinking is absolutely necessary to develop and maintain a successful brand. As a consequence, the company’s image as perceived by the consumer is really important and so is the
122

Burt and Sparks (2002), Page 204

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brand personality. The personification metaphor can be applied to brands, by attributing dimensions of personality. Another researcher suggested that consumers choose their retail store in accordance to their own personality. Hence, in order to be positioned in the consumer’s mind, the company must have a clear brand personality. This ends up with a question of how to influence the personality of a brand. It can be in a voluntary way or not. The personality of the CEO can often influence a corporate personality.123 Another technique can be to have a whole brand strategy management in order to give the brand the wanted personality, and find tools to manage it. For instance the retail company can use public relations and set up social responsibility programs to promote the corporate brand and give it a specific image.

Personification leads to brand equity which is the value that consumers and prospects perceive in a brand beyond the physical assets associated with it manufacture.124 A definition of brand equity is: “A set of brand assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm’s customers.”125 This is made up from elements such as brand name, awareness, brand loyalty, perceived quality and brand associations. They are part of what is called brand knowledge, which is the source of brand equity.126 Different kind of information is perceived by consumers and leads to a different brand knowledge for each one. The three terms of differentiation, identification and personification are applied later in the project for concrete recommendations to Tesco. These proposals are making a more suitable branding campaign and thereby creating brand equity for Tesco.

Tesco is making use of customer thinking and motivation both by tangible and intangible components. Examples of tangible tools are differentiating and personalizing Tesco’s products, stores and services. As shown in the previous parts Tesco offers a diversity of different product brands each targeting a certain costumer group. Tesco finest is directed at luxury consumers who want a supreme product of high quality while Tesco value is for consumers who want to save money. The products in Tesco stores are strongly branded as Tesco products127 and consumers buying these will have a relationship to the company through experiences with the product. This will make up feelings and an attitude towards the company. The product differentiation will divide

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consumers into segments and in that way create meaning for the single consumer. It gives Tesco a logical and consistent product range and individual persons will personalize with a product brand. Intangible tools for delivering added value to customers could be illustrated by Tesco’s corporate responsibility policy. Tesco has plans for several areas important to consumers such as waste, packaging and recycling where they for instance try to reuse more of their waste and make costumers bring back carrier bags. They have a policy about the climate changes as they try to reduce their energy consumption by making “green” environment friendly supermarkets. Also ethical trade and developing countries are considered. The overriding principals are fair trade with suppliers in Tesco’s supply chain and sustainable environmental impact in regions where Tesco buy from.128 Tesco has a lot of examples of this and they make up a good perception of the company in consumer’s mind. Subsequently consumers trust Tesco to be an ethically acceptable company thereby motivating them to shop in these stores. The final brand equity which adds value to Tesco’s products is made up by both tangible and intangible components which provide specific brand knowledge to the consumer. Therefore the amount of brand equity Tesco is able to add is a key determinant in attracting and retaining customers.

6.2.5 Culture of Chinese consumers
The term of culture has been defined and discussed earlier in the project and so has its influence on the branding activities of a company. In this chapter it is aimed to provide an overview of the Chinese consumers’ culture in a buying context. It will be a discussion of what parts of the Chinese culture that the company has to take into consideration while creating a branding campaign. Thus this chapter should provide the knowledge needed to understand the culture of Chinese consumers.

6.2.5.1 Consumer culture and branding
The overall theme in Chinese culture is collectivism which generally means that individual interests are subordinated to the interest and will of a group. However collectivism has several aspects and can be divided into some subgroups influencing branding and consumer behaviour in related but different ways. These subgroups are examined in the following. First of all, collectivism means minimizing self. This involves not to reveal personal interests, will or passions and advises everyone not to go their own way but to be supported by others. This include
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not to express own meaning if it is not agreed to or accepted by others, not expecting to be accepted by a group unless being a senior member and being sensitive to codes of behaviour in order to adapt own conduct. This minimizing of self is rooted in ancient Chinese history but is still dominant in today’s China.129 In consumer behaviour this means that customers are not expected to express individual ideas, attitudes and likings while in public. This makes for a collective buying behaviour and when choosing brands Chinese are used to think about what their leaders, parents or friends use. Marketers can exploit this trend to invest in advertisements demonstrating product usage. The minimizing of self leads to two other issues. First, Chinese are used to making collective decisions and second Chinese are often reluctant to bear responsibility. This means that consumers wait for a collective decision or a leader’s conclusion.130 In terms of branding this suggest that products used by the majority of people will be the number one choice or that using persons thought of as a pioneer, leader or famous person in branding will lead to liking and use of the brand. In this relation the family is still a very useful symbol in China. The family is crucial, active and influential in Chinese social life. It is an important building block in the society as “the Chinese society is hierarchical, and its model is the Chinese extended family.”131 Thus this is underlining the concept of the hierarchy. Chinese people accept and respect power distance and people of power is seen as examples to follow. In the family not all members have the same status and the hierarchy influences the consumer behaviour this will be discussed deeper later in this chapter. Collectivism means following others. To be an insider is significant in a collectivist culture and once you have joined a group you must follow its rules and orders. When no clear rules are stated the thing to do is to follow the other members’ behaviour. This influences buying behaviour as Chinese follow the phrase the more famous the better. Therefore being well-known means leading the main stream and guaranties market leadership. Chinese are very concerned about company image. They pay attention to company size, industrial ranking and visibility. They choose the company with the best image in order to earn “face” among family, friends and surrounding society.132 This means that the concept of fashion is different in China than in Europe. In China fashion is “what you can see in the streets, what is realized among others and what is different from last year.”133 Chinese people are very unwilling to have anything different from the fashion. In terms of fashion it is important to consider the conflict between country and city. Along with urbanization, city residents have started to look down upon country people and their habits. Country people on the other hand
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have started to attempt being urbanized but have little self-confidence. As a result, when making purchase decisions urban people will consider whether country people will buy it as well and avoid doing it if that is the case. Furthermore Chinese do not like to be alone. Family and the group are more valued than individuality. Consumers are observing others and trying to be like them. Consequently millions of consumers can be seen buying the same goods and giving up last year’s fashion together. 134 Collectivism means respect. As mentioned before the group is hierarchical with big power distance and respect for the leaders. This makes status symbols very important because everyone should know his/her position, the position of others and the organization hierarchy. This makes country-oforigin important in branding. This states the identity of a brand and it is vital to introduce and emphasize. Western countries are viewed as more advanced than China and consequently everything from the West is better. The hierarchical construction of the Chinese society reflects the consumers’ mind. The life goal of a Chinese is to reach the top or at least get as high as possible. This forms a want for status symbols by Chinese costumers. Some products are bought primarily for their symbolic value. They can symbolize a specific class, position or status. To a Chinese it is important to consider what other people might think of the brand. The considerations are also including the situation of use. Publicly consumed products are seen by others while privately consumed are not. The exposition of the brand should therefore influence a marketer’s branding choice. As mentioned, the people setting the main trends are authorities and powerful celebrities, in other words, the ones in top of the hierarchy. A study concerning people who influence consumer behaviour and buying patterns came up with four types: Elders, the modern tycoon, the athlete and Chinese children without siblings. While the three first can be seen in accordance with the traditional Chinese hierarchy, the child must be viewed as a consequence of the one child policy. In China, an only child is known as a “little emperor”, and as the word insinuates, these are given a lot of attention and power by family members. Apart from this the elders and children point to the Chinese family orientation while the rich tycoon and strong athlete point to the respect for power. Chinese hierarchical collectivism means that Chinese are used to respect everything more advanced, developed and higher than them.135 The collective thinking also means that Chinese assumes that every product and brand must be from some kind of family and place. Only when knowing this and the values of these Chinese believe and trust the brand and can then become loyal to it. A brand without place-of-origin and family name is

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suspicious and does not seem trustworthy. This is a vital fact in branding directed at Chinese consumers. Collectivism means harmonizing. As Chinese are subordinated to the overall interests of the group, harmony is a collective value. This means that people avoid conflicts, critiques and insults, and harmony both inside and between groups are stressed. The concept of Guanxi, which is described earlier, is the Chinese culture of relationships and the reason for emphasizing harmony. In relation to consumer behaviour Guanxi result that consumers think of the relation between their purchase and the choice of their immediate group. In this context they prefer to buy the favourite brand of the group in order to maintain in-group harmony and Guanxi. In summary Chinese culture can be described as hierarchically harmonious collectivism with big power distance.136 Furthermore it has been discussed and proven that the culture has an important influence on consumer buying behaviour and that it is vital for all branding to consider this effect in order to target customers’ in the right manner. Cultures influence is mainly in three aspects: Chinese consume brands for the social status they present, the Chinese admire symbols, brands and signs of authority and Chinese consumers’ follow the mainstream.137 These are the three central aspects one has to consider while working with Chinese consumers and their brand behaviour.

6.3 How Tesco should be branded on the Chinese market
In part 6.2 branding in general and specific issues for branding in the retail sector were discussed. Now it is the aim to focus the subject even deeper and discuss the issues for Tesco’s branding on the Chinese market. For that a model of own creation is made. The model contains techniques to use in the development of brand equity and issues to be aware of. The model is focusing on specific characteristics of both country and company that influence the process of branding. It is formed by the theory discussed in the last chapter and is therefore contains key terms from this part.

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Figure 6.3 Creation of Brand equity Company Culture Personifi cation Brand Differen tiation Identifi cation Values Market Vision

Brand Equity

Image

Source: Own creation

The starting point of the model is the brand and the overall purpose of the model is to make the brand stronger and extend its penetration of the market. It is assumed that this is done through brand equity which is the value that consumers and prospects perceive in a brand beyond the physical assets associated with its manufacture. In other words brand equity is the value that a company is able to create through its branding. The middle part of the model represents different ways of creating brand equity. This is the actual branding tools of the model. Through identification, personification and differentiation of for example products, services or brand name, it is possible to ascribe certain meanings to these, thereby adding value to their worth. In the consumer’s mind identification, personification and differentiation should make the company’s brand more attractive and increase the demand. To attain a meaningful differentiation, the company has to take both the company situation and market situation into account. It has to have knowledge about these situations in order to understand them and be able to relate to them in the right manner. The situation in respectively the company and the market is made up of their culture, values, image and vision. These four parameters constitute the characteristics of this specific system and tell us about what its members appreciate, like and perceive as desirable. Culture and values are both present inside the company and the market, and they strongly influence the nature of the system and thereby how it is functioning. 61

Vision is how the system is supposed to develop in the future. In the company it is defined by company management. It can be argued that vision is best and most consequential practiced in companies as it is hard to put up a vision for a state. However, a market can also be controlled by government thoughts and plans for the future development. Image is the picture that the two interacting parties have of each other. Since the market will view the company in a specific way the company will also imbue the market with certain characteristics. In a branding context the four parameters need to be convergent with each other. The company’s task is to get a correct understanding of the market and use this understanding to create a beneficial branding campaign to generate brand equity. It requires an interacting process between the company and the market where a system model is created. If the interaction is successful, an understandable and productive new system model is made, which means that the company has the basis for creating an effective branding campaign fitted for that market.

In the coming part a branding campaign for Tesco is made according to this model. The purpose is to create brand equity in Chinese consumers’ minds thereby attracting and retaining more customers to Tesco stores. The key areas in creating brand equity are found on the basis of figure 4.3 in chapter 4 and our branding theory. The figure shows that the product and in Tesco’s case also the services, are the core in branding. Hereafter company/product name and the creation of values are important elements. Values are developed through communication from the company to consumers and occur primarily in shape of advertising. In coming parts these three areas will be discussed.

6.3.1 Tesco Products and services
With reference to figure 4.3 the product is the core and start of all branding. The sale of products is the central aim of the retail industry and consequently it is essential to fit the product for the market in which they are sold. In the retail industry it can be difficult to differentiate on products. The product range will be very similar to the competitors yet, it is possible to have a broad or narrower selection in terms of price, quality and product mix. However, in China, Tesco only has very large stores like the concept of Tesco Extra and as a result Tesco sells more or less all normal daily products in various qualities and prices. The same holds for its competitors. Thus the main parameter of differentiation will be the service which is described later in this part. Tesco uses private labels, and as described they have six product lines containing several thousand different products. In China only a little more than thousand has been taken into use, but more are to be added. The product lines apply to the Chinese preference for hierarchical status as every customer can buy products fitted for the individual hierarchical position. This can have several 62

positive effects since the product lines add meaning to the products. Tesco finest will express luxury and in that sense it can address the Chinese fondness of status symbols in material goods. Tesco organic will address the growing Chinese awareness of environmental issues and the customer will experience a better conscience in relation to pollution. In this way a product name can be an added value. Even though Tesco is using its own branded products, the products have to be adjusted to fit into the Chinese food culture. The roadside market has been a very popular way to purchase in China and even though Tesco has gotten recognition from the customers and sales are growing, it is still important to develop products fit to the Chinese customer. Tesco therefore has to consider Chinese needs. As found out in the chapter of retailing market analysis, Chinese people like to eat fresh foods, therefore ready-to-eat fresh cooked foods in Chinese style should be available in Tesco stores. Another thing to be aware of is, that the Chinese customer likes to see what they are buying and they are not satisfied by only a picture of the product on the outside of the packaging. Tesco’s lines of branded product help to fulfil the different needs of the Chinese customers, but even more adjustment of the products to the Chinese food culture, could provide Tesco with even more customers. In 2006 Tesco made a clever advertisement campaign that aligns bargain-hunting with customers’ desire for quality.138 This could be a good way of combining culture of the Western supermarket with the Chinese consumers. Tesco wants to fulfil its corporate strategy which is “Better for customers, Simpler for staff and Cheaper for Tesco”.139 That is why the company uses Every-Little-Helps service which is based on feedback from customers and staff. This feedback helps Tesco managers to react to market needs. Tesco’s Clubcard program is another service which is provided by the company to retain customers. The aim of it is to persuade customers that the Tesco store is the best brand. Every customer club member gets club points whenever they buy anything from Tesco. After gaining enough club points a voucher for discount in Tesco is given.140 Even several relatives or members of family can collect club points on one account. This will appeal to the Chinese valuation of the extended and close family structure.

Another company advantage is the online store of Tesco where customers can buy what they want from home. The additional cost depends on number of items. However, the total price is very convenient, because Tesco uses the low price level and economies of scale. The opportunity of
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online shopping is a potentially essential competitive advantage for Tesco. As explained in the retail analysis China is the second largest online population in the world and the number of users is growing explosively. However Tesco should be aware of censure and “The great firewall” that occur on the Chinese internet. Tesco needs to avoid being limited by this and therefore should have a constructive dialogue with Chinese authorities. Furthermore people feel uncertain using the internet for payment of online transactions and solutions to this problem need to be found. It could be an information campaign giving Chinese consumers knowledge of the safety of using the internet. Herein the use of authorities such as banks and government certification can be a vital component due to the Chinese respect for these. It will make Chinese consumers trust the online transaction used by Tesco. The government is encouraging the use of internet means in the population, so a co-operation between Tesco and the government is considered to be possible. In all, the potential in internet shopping is so big that it cannot be overlooked and when considering Tesco’s competencies in this field, build up in the UK home market, this area holds great possibilities. Consequently Tesco is advised to invest further in internet shopping even though it can contain some difficulties and possibly deficits on the short run.

6.3.2 Tesco name
Until now we have described the situation about Tesco’s brand name. The company has recently started to introduce “Tesco” to its stores but is still using the Chinese name Le Gou. This part will aim to highlight which issues Tesco should be aware of while introducing the new name and analyse if the recent name activities have been positive in terms of branding. It will be done due to the knowledge generated in relation to Chinese culture, market, consumers and Tesco.

First of all a Western brand name needs to be translated. Chinese are not used to pure foreign brand names in Latin letters and do not read the alphabet. Some very famous brand names can be used in Latin letters but normally it is done together with a Chinese translation. To translate a name into Chinese letters you need to know about the Chinese written language. It is very complex and consists of about 100.000 characters and it is possible to translate in several ways. For instance the goal can be to achieve the same pronunciation or give the name a specific meaning.141 It is a complex process where many factors need to be considered. First of all the meaning should be reflected. Chinese names, both person and company names, normally have a specific meaning and they like to include cherished desires in the given names. Many names include words as “lucky” or “good” and most companies have tried to do this. As an example Coca-Cola changed its name into
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four characters, ke kou ke le, which mean tasty and happy. In this way Chinese consumers prefer the name to say something about the object it is linked to. They want the name to be able to identify the commodity, function or tell what kind of value it is offering. Some Chinese even believe that a name bearing positive meanings can add positive effects for the object it is connected to. Furthermore as Chinese are sensitive to hierarchy and power distance they will select a brand that expresses their social status. Of this reason it will be critical for branding to choose Chinese characters carrying positive or at least neutral meanings.142 In relation to Tesco they have chosen to follow a multiple name strategy. As many Chinese have difficulties understanding Latin letters it was a favourable decision to keep the Chinese name Le Gou in the initial stage of penetrating the market. The name’s meaning “Happy Shopping” fulfils the Chinese wants for positive meanings connected with the name. It gives concrete information of what the store is providing and can help adding positive associations to the brand. As we have discovered in the retail market analysis, it is mainly middleclass urban people who are using supermarkets and one of the main reasons, are its better quality and convenience. The name “Happy Shopping” has a good fit for these associations as it will lead customers’ thoughts to have a good experience in a relaxed and comfortable milieu compared to the traditional roadside markets. Done in the right way the introduction of the global brand name Tesco to the market can be an advantage. As explained in previous chapters, Chinese perceive Western brands as superior to Chinese. They perceive goods and brands coming from the West as better, and Tesco should use this as an advantage by presenting the brand name. Furthermore Tesco is one of the biggest retail companies in the world and enjoys success these years as the chain is spreading into new markets. This will appeal to the Chinese consumers’ liking for authorities and respect for the ones being in top of the hierarchy. Additionally the introduction of the Tesco name enables the company to introduce the company’s country and place of origin. Chinese consumers cannot trust a company, which they do not know where is coming from. They perceive it to be suspicious. Since Tesco is a company with a long history, this should be taken as an advantage to make consumers trust the company. As for the UK, it is a country widely known in the world, but as we do not know what associations the Chinese consumers have about this country, it should be examined deeper before using this to add value for the brand name. It is believed that the UK is viewed positively by Chinese, but since in the past Great Britain was a colonial power and has had activities and possessions in many regions of the world, the image can be damaged. Therefore for safety reasons and in order to avoid brand damage, a study of this issue should be conducted before using this fact.

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It is therefore seen as a strengthening of the brand name to combine the two names. It will provide the opportunity to take advantage of using a Chinese name, which has imprinted meanings and is easy to read and understand for Chinese consumers. Yet it will also be possible to use a Western name and imbue the brand with the strengths of this. However, Tesco must be alert to difficulties in combining the two names. Consumers will have values connected to the existing name Le Gou and new values stated by the Tesco name should be coherent with these. Otherwise consumers will be confused by the mix of Chinese and Western names. In all, however, it is viewed as a good idea to change the name into the global Tesco brand. As we found in our retail industry analysis China is changing fast and becoming a modern society. Additionally, the consumers of the retail industry is the educated and modern people in larger cities and in the developed areas of the country and most of these will be able to read Latin letters and then understand the Tesco name. The change from traditional roadside markets to supermarkets is connected with a liking for everything Western and modern, and a change in brand name to a well known global brand can underline this. Furthermore it will be easier for Tesco to make a consistent global brand by having the same name in all markets. The evaluation of the Chinese market and Tesco company come to that China is ready to accept and perceive a Western brand name in the retail industry and Tesco will be able to take advantage of this in its corporate strategy.

6.3.3 Tesco communication and advertising
In this part Tesco’s communication towards Chinese consumers will be discussed. The overall question is how Tesco can communicate the right values to the consumers. Connected to this, the communication model in figure 4.2.1 described in chapter 4 will be used in order to understand the communication process and how the message can be delivered fittingly. However also which values that should be communicated will be discussed. In finding these values both Tesco and Chinese culture will be analysed in order to find a suitable combination of these. In terms of channels China is still under the category of an “old media” market, which means the market is dominated by television and it is predicted to be like this for the next many years.143 Generally TV advertisement is seen as guiding the consumption in China due to following logic: TV advertising is a very expensive media and only the strongest companies can afford this branding. Chinese consumers perceive strong companies as being the most trustworthy and reliable ones and will therefore buy their brands. The strength of TV is therefore connected with the Chinese consumer culture of respect for power. In this logic high cost channels must be used if

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market leadership is wanted. Furthermore this fact means that Chinese do not like to read printed advertisements since most of them have a high admiration of TV.144 The content of the advertisements should also be adapted to Chinese consumer culture. Certainly there are several possibilities for creating positive brand value by the use of advertisement but a company needs to be very careful in choosing suitable symbols and characters presented in the advertisements. In the following characteristics creating positive value will be suggested. First of all the key substance in Chinese retailing should be found. The project has found that convenience, quality and modern trade are important issues pulling customers from traditional markets to modern supermarkets. Tesco can use these terms in advertisement by letting these principles dominates their advertising activities. Furthermore it will be possible to address the Chinese fancy for authorities and hierarchy. It will be an obvious choice to let famous and respected athletes, business people, politicians or the like advertise for Tesco’s products. In the chapter of Chinese consumer culture, it was explained that consumers are minimizing their self and they will choose what their leaders or “heroes” are using. Consumers do not like to make own choices but are following others seen as more knowing and wise. In that sense it would be of great value to have these “heroes” to speak positively about Tesco. Another possibility is to use the Chinese high opinion of family and seeking of harmony. The content in the advertisement could reflect family values and let consumers perceive Tesco as a supermarket fitted for family shopping. Basically this reflects a conflict between convenience/harmony and prestige. Chinese consumers have a liking of both but it depends on how the company wants to be positioned. The collectivistic culture of following others might also be a key characteristic to consider in an advertising campaign. If the notion that everybody is using Tesco could be given, the company could be extremely respected and accepted by Chinese consumers. The thought, that everybody really should be using Tesco, is of course not realistic in the retail industry, but the advertisements could still give the impression that it was something everyone does. The Chinese consumer culture of collectivism and following others is an advantage to big companies, which have the possibility of making big and expensive advertising campaigns. Tesco as the third largest retailer in the world has that chance, and consequently the company should make use of these culture references to reach a top position in the Chinese retail industry.

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7. Conclusion
On the basis of the retail market analysis it can be concluded that the supermarket development in China is highly correlated with political and economical development in the country. The government is making China more open to foreign entering companies and wants to spread modern food retailing across the country. Recently this has ended up with retail companies getting more or less free entrance to the Chinese markets. The general development in the society is also providing the retail industry with continuously better conditions. Growing urbanization means more potential customers for supermarkets. People are increasingly employed in the private sector and earn more money. This results in poor people moving to the middle class, and cause an increased buying power among consumers. It can also be concluded that the Chinese culture is severely different from the Western culture. In the project key customs as Guanxi, Face and Confucianism were found to influence business and branding conditions in China. Furthermore a strong connection was found between culture and branding. Branding is seen as communication and culture is an essential part of how communication is send and received by the participating parts. Therefore understanding culture is necessary for creating the right brand message and to create brand equity.

Tesco can create brand equity on the basis of product/services, name and communication as explained in the branding analysis. As shown there are several possibilities but the essential thing is to find the right combination of Tesco competencies and Chinese consumer wants. In this manner we take a combined view of Globalists and Localists in international branding. It is obvious that you cannot just transfer a branding campaign from one country and culture to another. It has to be adapted. Yet it is also crucial for a global company to take advantage of its key competencies. These should not be forgotten just because the company moves abroad. Tesco should take advantage of performing high quality activities in other countries and transfer these to the Chinese market. However, the activities need to be adapted to China, and this is the real challenge. In this process Tesco should first of all remember the project’s findings of why Chinese consumers have started to like supermarkets compared to the traditional shopping places. Convenience, quality and modern trade are stressed and should clearly be a significant part of Tesco’s branding. In accordance with figure 6.3 identification, differentiation and personification are used for attaining brand equity. Identification is making the consumer know and remember the product and producer. This is essential because Chinese consumers are collective and follow the main trends. This states that if 68

Tesco is not well known in China, the company will not be successful. Therefore a massive marketing campaign must be launched in the areas Tesco want to target. This should primarily happen through television as this is the preferred media of Chinese consumers but of course other media should also be used. Differentiation from other retail companies is of course a critical element. It should be pointed out that convenience and quality is guaranteed in Tesco stores however this will not really differentiate Tesco as other companies are doing the same. Nevertheless these are critical points of parity and activities performed in creating this service and quality can differentiate the company. Tesco is already issuing several kinds of convenience services such as clubcards and service areas as butchers and so on but it is essential that it is imbued throughout the entire company. Staff and employees must be advised and taught how to handle customers correctly in order to represent Tesco in the right manner. The private labels are also giving Tesco an opportunity to differentiate from other retail companies. This is products only available in Tesco stores, thus if customers prefer these products, a unique advantage is made. In this matter the different product categories can benefit Tesco. Different customer segments can be targeted by different product groups. In this question personalisation comes in. It has been shown that costumers choose retailer and product in accordance to their own personality. As a consequence it is important to give the Tesco brand and the single product categories a clear and distinctive expression and provide value to the customer. In this process the social and symbolic values the brands express should be considered. The product categories should be fitted for the single segment they are targeting while the Tesco brand should be more widely recognized. The specific contents of the Tesco brand can be multifarious. However, ideas can be given on the background of this project. First of all convenience, quality and modern trade must be stressed. Hereafter the findings in Chinese consumer culture can be applied. Examples to make use of could be the Chinese respect for the family, for authorities such as athletes, politicians or tycoons and for everything Western. Moreover the collective buying behaviour should not be underestimated.

Entering China Tesco chose to keep the old brand name Le Gou. This was assumed to indicate that branding and the brand name Tesco did not play a significant role in entering China. However, on the basis of this project it can now be concluded that it happened as a consequence of lack of knowledge about the Chinese market and culture. Tesco realised that it did not possess the needed insights and chose the safe solution in keeping the name Le Gou. This proves how much respect there is about cultural diversities and its immense effect on branding activities.

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In all, it can be concluded that culture and branding is two inseparable terms and it is certain that Tesco should pay close attention to the Chinese consumer culture in creating and carrying out the branding activities. However, if Tesco manage to adapt and fit the branding correctly it has great potential and will be an immense advantage making the acceptance and liking of Tesco much more prevalent and expand its market penetration.

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8. Reflections and perspectives
In this project system approach was used to get an understanding of the Chinese market and culture. For that purpose the theories of PESTEL and Porter’s five forces are applied. It is believed that these theories have provided a good and comprehensive picture and have proved to be very helpful in creating the system model 1. The applied models about culture and branding have been well suited to each other and to the project. The models’ focus on patterns and groups were well fitted for finding synergy effects between the two parts Tesco and Chinese consumers, and has in that way been useful in constructing the new system model 2. However, it could have been an interesting perspective to have included a more interactive communication with the studied parts and have been able to apply actors approach. This could have implied subjective opinions to the project making the created knowledge about this single study of Tesco and the Chinese retail market more specific. Conversely this would have made the created knowledge harder to use in general and transfer to other similar situations.

Focus in the project has been on branding and culture, mainly in a consumer perspective. An interesting reflection could also have been to turn the use of culture from consumers to employees and a human resource perspective. It could include how to attract potential employees and handle present staff. Culture is influencing all parts of the company organisation and to hire and work with Chinese employees will require a restructuring of the internal handling of employment practices. Company management must consider Chinese culture in accordance to fit company politics to employee culture. The Chinese respect for age and seniority might influence for example advancement and salary system.

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9. List of references
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