BUSM 3311 – International Business Assignment

RMIT International University Vietnam
BUSM 3311 – International Business
A2
Subject Code: BUSM-3311 / 4626
Subject Name: International Business
Location & Campus RMIT Vietnam , Hanoi
Class Group Number: 1
Student Name: Ha Quynh Trang
Student Number: S3821868
Your Teacher: Quyen Dang Thao
Word Count: 1318

Tesco’s failure in China market
I. Introduction:
Tesco-is-a-British-multinational-grocery-and-general-merchandising-supermarket-chain-with
its-headquarter-in-Cheshunt,UK.In-July-2004,Tesco-entered-China-with-the-140 purchase of-a-
50-per-centstake-in-Chinese-hypermarket-chain-Hymall. However, since its launch in 2004,
Tesco has struggled to make money in China, as it faced competition and struggled to expand.
Therefore, Tesco sold 80% of its stake to China Resources Holdings (CRH), in which Tesco’s
131 stores-would-be merged with CRE’s 3000 stores under the brand Vanguard (Lawson, A
2014). In 2020, Tesco completes China exit by the $357 sale of its remained 20% joint venture
stake to CRH. This paper will take Walmart and Carrefour- successful transnationals firm while
operating in China to define and analyze the issue of Tesco, shed light on the reasons why Tesco
was forced to withdraw from China regarding timing of entry, cultural factors and international
human resource management. Moreover, relevant solutions will be come up with.
II. Analysis
1. Timing of entry:
Tesco entered China in 2004, which was very late compared Wal-Mart entry from 1995 to
1997, which was on the second phase-among four major phases of government policies’
alternation-affecting-foreign retailers’ expansion process. Therefore, Wal-Mart was the first-
mover. According to Kerin, Varadarajan and Peterson (1992), the first mover will achieve a
spatial preemption advantage-by selecting the most attractive geographic space, perceptual
space, distribution-space-and-market-segments. A first mover can be in a position to restrict the
amount of space available and reduce the spatial options available to later entrants. Walmart
achieved several benefits, comprising shop venue’s choice, relatively low land costs, premium
retail positioning in major cities (Wang, Q 2013). Therefore, as a latecomer, Tesco failed to
obtain space in prime locations and had a minimal base of marketing intermediaries, specifically
dedicated suppliers (Kris, 2020). In short, latecomer like Tesco was unable to use ‘first-mover
advantages’ to-select-the-location-of a-better-and-cheaper-price-store.
2. Culture factors:

National culture implies factors such as common values, ideals, and expectations that govern
a society's lifestyle as according to Parboteeah and Cullen (2009).
Hofstede’s cultural dimensions is applied to evaluate China’s cultural perspectives. Table
1(Appendix) depicts that there is large culture distance in terms of PDI, IDV, LTO and IVR.
Cultural distance is undeniably one of the largest issue of Tesco. China has a low Individualism
(IDV) ranking (20). The score indicates the society is Collectivists as compared to Individualist.
Chinese culture’s collectivism structure is reflected in the nature of relational webs prioritizing
relationships groups, which is recognized as a guanxi (Banfe, 2008). The guanxi syndrome
includes a total of cultural rules strongly affecting business behaviors and most foreign
executives consider guanxi as a principle of operating business in China (Paulet and Rowley,
2017). Business opportunities to expand can be obtained through guanxi network (Paulet and
Rowley, 2017). However, in Tesco’s case, the rival Carrefour was quicker to consider guanxi
concept by developing good ties with the municipal authorities in a manner allowing it to gain
local government approval immediately without waiting for central government permission
(Woohyoung, Kim and Hwang, 2020). Thus, Tesco was on the debit site in terms of the guanxi
network.
Another issue is that Tesco had low-performed localization process, which was difficult due
to frequent management changes. Tesco has consistently stayed with a foreign (British)
managing director for China's Tesco headquarters, and seniority has often been substituted (Shin,
Kim and Kim, 2020). Any-newcomer-is a complete-stranger to China’s-culture-and-national-
conditions and when-they-are-quite-acquainted-with-the-scenario, they were replaced again as
for deficient- performance (Zhong, 2014). One out of three indicators of foreign retailers’
localization is retaining a local customer orientation, which is lack of responsiveness by Tesco
(Siebers, 2012).
Firstly, Tesco’s failure lies on not selling products meeting Chinese tastes and not
recognizing Chinese consumers’ habit. Specifically, customers-in-different-parts-of-China-have-
different preferences for goods and tastes due to cultural differences across the country, and
Tesco failed to adjust its policies to deliver a mix of standard and regional products in different
stores across China. Tesco had far less local commodity inventories than its competitors. Many
of its items have low sales due to their failure to adapt to local preferences (Zhong, 2014).

Additionally, Chinese customers tended to be provided with many product tasting/sampling
events in stores, which is also failed to be met by Tesco. Moreover, although a great number of
staffs on the shop floor are expected to be provided to support customer; in Tesco, customer
satisfaction degree about staff service was poorer than other local businesses.
Secondly, Tesco’s location strategy also indicates low sense of customer orientation.
When picking-its-sites, Tesco adopted the British way, implying-that-customers-can travel-huge
distances-to-shop-in-the-outskirts while in fact, they simply want to shop at the nearest location
(Zhong, 2014). Thus, Tesco failed to understand the cultural differences in Chinese consumer’s
behaviors.
3. International human resource management:
Tesco’s approach to managerial staffing is parent-country nationals (PCNs). It is apparent
that PCNs are always expatriates, which is an employee working and living temporarily in a
different country (Dowling, Festing and Engle 2017). According to Woohyong, Kim and Hwang
(2020), TNCs need 100 per cent comprehensive localization efforts to recognize local customers
so as to enhance their success chances. However, each expatriate is a total outsider to China’s
culture and national circumstances and when they are more conscious of the situation, they were
substituted as bad results. Therefore, the localization will collapse if the expatriate is insensitive,
cynical or incapable (Harry and Collings, 2006), especially unable to adapt to Chinese culture.
Secondly, each Tesco’s outlet enjoyed a certain individual autonomy until Tesco bought the
majority share from Hymall. However, the retailer's leadership became centralized after
incorporation. There were regional offices and outlets just to implement decisions taken by
Tesco China and the UK headquarters (Zhong, 2014). The approach to centralization
(ethnocentric) refers to whether top managers maintain the power to make a decision or are
transferred to lower organizational levels (Epstein and Roy, 2007). However, according to Zhong
(2014), this organizational framework is only suitable for Britain where regions and market’s
variation are fairly low.
III. Recommendations:
Firstly, as customers-in-different-parts-of-China-have-different preferences in products,
tastes, it-is-suggested-that Tesco-should-apply-the multi-domestic-strategy-in-the-Bartlett &

Ghoshal Model-to-adapt-to-the-local-culture. Companies pursuing a multi-domestic strategy
concentrate on national differences, typically by distinguishing their product offerings in
response to national differences in consumer tastes, market characteristics and regulatory issues
(Benito, 2005). Moreover, Woohyoung, Kim and Hwang 2020 stated that so as to increase the
success chance in overseas market, TNCs need to understand local consumers with high local
responsiveness. Specifically, Tesco should provide local products in accordance with regional
market needs with lots of sample/testing and provide large number of employees in store to
perform 1:1 services to customers.
Secondly, Tesco should change their internal control system, from Ethnocentric centralized
approach to Polycentric decentralized approach. As mentioned above, there is variation in
cultural distance between headquarters (in the UK) and subsidiary (In China). Regarding to
Williams and Triest 2009; if the cultural gap is greater, the headquarters’ uncertainty about the
subsidiary sector is higher, thus a best way of coping with the uncertainty problems is implying
decentralization approach. Moreover, since different parts of China’s consumers have tastes,
Miller (2002) stated that decentralization makes it easier to adapt local issue solutions to local
situations. Since each region is permitted to administer its own activities, solutions to local
problems can all be customized to reflect the specific circumstances or desires of particular
regions.
Finally, Tesco should emphasize on host country nationals (HCNs) foreign subsidiary
staffing instead of consistently stuck with British executive. The reason is HCNs are more
informed about local circumstances and are more capable of tackling the cultural, economic,
political and legal environments associated with local characteristics (Ando and Paik, 2012).
IV. Conclusion:
To conclude, the main issues of Tesco lies on culture factors’ lack of responsiveness and
inappropriate international human resource management. In this situation, multi-domestic
strategy and decentralization approach will help Tesco respond to different needs in different
regions so as to narrow the cultural gap. Moreover, host country nationals (HCNs) should also be
recruited as they are more informed about local circumstances.
V. Appendix:

Table 1: Comparison of Hofstede dimension in China and United Kingdom (hofstede-
insights.com)
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