Research on Tesco

Tesco plc is a British international groceries and general merchandise retailer, which headquarter is located in England. It’s the third-largest retailer in the world and operating across Europe and Asia. It has expanded its business to other fields such as retailing of books, electronics, furniture, toys, software, petrol, clothing, financial services, internet services and telecoms. Tesco was founded in 1919 by Jack Cohen in London, and the first own-brand was Tesco Tea. Afterward, the company was named as Tesco, which was the combination of tea leaf suppliers’ surnames, TE Stockwell and CO from Jack (the founder). By years, during 1990s, Tesco started to open shops globally and it now operating in 12 countries all over the world, with employs over 470 thousands people and serves tens millions of customers every week. Tesco is listed on the London Stock Exchange and is a constituent of the FTSE 100 index which means it is well capitalized. Tesco positions itself as “down-market high-volume low-cost retailer” whose core value is “low-pricing”. However, after the scandal of overstating the profit in 2014, the brand hit a real low point on its financial performance. After that, Tesco works hard to regain its own prospective in old days. Now it has risen above where it was before the scandal and is closing the gap between the “big four” (Tesco, Sainsbury, Asda and Morrisons) supermarkets.

There is a growing number of attentions has been raised as the evolution of retail industry shifted towards Asia region as a part of firms’ international expansion strategy. Firms internal strategies, as well as in-depth analysis of external environment factors should be taken into considerations. Hence, preparing on stepping into a foreign market, especially those regions who have completely different culture and market condition, is time and money consuming as it required a lot of preparation, i.e. market analysis, local customer taste, preferences, law and regulations, and etc., before the final decision being made. According to investigation released by PricewaterhouseCoopers (2012), foreign trade is considered as one of Korea’s economy pillars, therefore, makes it become one of the world’s most dynamic economies. This, therefore, has provoked two big multinational retail companies to turned their attention into the Ginseng country.

This paper introduces the cases of two companies both operating in the retail industry that are originated from American and British country and expanded their operations into Asia-Pacific region. The first company, Tesco, gained their success entering Korean market by joint-venture with local company. On the other hand, Walmart, not as lucky as when they were entered Thailand market, had to back off from Korean market after 10 years of operations. The aim of this paper is to identify the internal and external reasons for their success and failure when entering Asia-Pacific country, particularly in Korean market.

The paper is structured as follows: The second chapter will introduce the success case of Tesco by first introducing the company’s short background, and followed by the discussions of its success background when entering Korean market. The third chapter will deal with the failure case of Walmart and examines the reasons for its failure in Korea. The fourth chapter summarizes the main findings and offers concluding remarks.

To obtain this achievement, they are not only building up their “low-price” brand image as their advantage but also add another thing— “exclusive”, which means the products and services can be cheaper than other competitors, but “only” in Tesco that the customers can get such a price. Nowadays, the competition among the supermarkets all over the world will be much fiercer than ever before due to cost-down situation as they are all trying to maintain their market share, but it still fluctuates frequently. That can explain why Tesco has to diversify and expand its business to other industry and countries to offer a one-stop purchase as well as increasing the customer loyalty.

Not long after its new operation, the 1997-98 Asian financial crisis signaled a serious difficulty which then led them to start seeking foreign investment. At the same time, Tesco was actively implementing their strategies to expand internationally after its successful acquisition Thailand’s Lotus in May 1998. Korea is long known for its culture of “Guanxi” proven by only big enterprises can sustain in the industry for a long time because it has the government backing (also Korean have strong connection with big enterprise due to history background). From that situation, it was a challenge for Tesco to enter Korea “alone” due to good relationship requirement with government is necessary. That’s why, Tesco then entered South Korean market by forming a joint venture with Samsung C&T Corporation called “Samsung Tesco”, which cooperated the brand “Homeplus” under Samsung Co. Due to this, Korea was the only country where the stores did not operate under the TESCO brand, instead, they were simply called “Homeplus”. Samsung provided two existing Homeplus stores, most of its small retail operation, and the key distribution business, while Tesco invested EUR 142m in the joint venture.

It expanded rapidly afterwards by opened five stores in the next year and seven more by 2001 and 2003. As a result, it set record on hitting KRW 1 trillion mark (US$664 million) in two years’ sales after opening its first stores in 2000 and then, soon it reached new highs for shortest time sales in the discount industry for around USD 1.4 billion and USD 2 billion, respectively. As of 2008, it had 66 large off-price chain stores and 73 express supermarkets, with estimated USD 4.05 billion total sales. However, in 2015, private equity fund, MBK Partners, acquired the company and is running the business now. In September 2015, Tesco sold Homeplus for €4.2 bn to pay down debt and help revitalize its IK business. According to Dave Lewis, Chief executive of Tesco: “This sale realizes material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet”.

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