Tesco's Globalization Strategies and its Success in South Korea
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Case Code: BSTR242 Case Length: 20 Pages Period: 1995-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Tesco Industry: Retail Countries: South Korea Themes: Globalization, International Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Tesco's Global Operations
Tesco entered Ireland in 1979, when it acquired a 51% equity stake in 3 Guys stores owned by Albert Gubay. In 1986, Tesco divested itself of the store when it found itself unable to sustain its operations in the country as customers were rejecting the British products that it sold in its stores. During the late 1980s and the early 1990s, Tesco examined the options available in the US and European countries, after the government's regulations regarding the out of town stores.
In December 1992, Tesco entered France by acquiring an 85% equity holding in Catteau supermarkets, which operated under the Cedico brand with 72 superstores, 7 hypermarkets, and 24 small stores.
However, Tesco failed to sustain itself in the market due to competition from French retailers like Carrefour and Promodès. In 1995, a law was passed in France which prohibited the opening of new large retail stores...
International Strategy
Tesco had learnt some lessons on globalization from its bitter experiences in France and also from other companies like Marks & Spencer , the UK-based clothing retailer. Its experiences in France gave it an insight about the functioning of different markets. Tesco realized that business strategies that were successful in the UK would work in the other markets only if they were given a local flavor. The company also learnt that it was important to hire local staff and use personnel from the UK to spread knowledge about the company.
In the case of Marks & Spencer, the company tried to offer typically British products to customers in other countries. It opened its first store in France in 1975 and the next store in 1977. In France, sophisticated and fashionable customers did not like the garments styled in a typically British manner. In other European countries, shoppers found that they could obtain better quality products at lower prices locally. Marks and Spencer also ventured into Canada in the early 1970s, but it was considered to be a store for senior citizens...
Tesco's Strategies in South Korea
Entry and Expansion Strategies
In the early 1990s, consumers' demand for a modern shopping experience in South Korea was increasing owing to rapid economic growth and increasing disposable incomes. The government had adopted protectionist policies and the retail sector was not open for foreign direct investment.
The retail sector was dominated by mom-and-pop stores , which accounted for about 80% of the total retail sales in the country at that time. By 1996, the regulations governing the retail industry had been eased, but South Korea still did not have a conducive business environment to operate in, especially where foreign retailers were concerned (Refer to Exhibit IV for a note on retail industry in South Korea).
In the aftermath of the East Asian Financial Crisis , the South Korean government eased regulations pertaining to FDI in order to attract foreign direct investment (FDI) into the country...
Looking Ahead
Initially, Tesco did not have any hypermarkets in the UK and it expanded its international operations by opening hypermarkets abroad. This proved to be an advantage, as Tesco did not try to replicate its standard practices in the UK in other countries and instead started afresh according to the local needs and demands. When Tesco began opening hypermarkets in the UK, its international experience was very useful. Tesco's lessons in localization helped it serve its customers better. For example, in Britain, where there was a high concentration of immigrants, Tesco's stores offered specific products to cater to their needs...
Exhibits
Exhibit I: Tesco's Turnover & Operating Profit (1995-2006)
Exhibit II: The Tesco Way
Exhibit III: Tesco - International Operations
Exhibit IV: Retail Industry in South Korea
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