Management Report: Tesco's International Expansion in Emerging Markets

This report examines Tesco's potential expansion into the emerging markets of Brazil and Vietnam. It begins with an introduction to the challenges faced by contemporary businesses in a competitive global environment and the strategy of internationalization. The report then analyzes the industry and market attractiveness of both countries, considering factors such as population, GDP, credit rating, inflation, and problematic factors. A CAGE framework (Cultural, Administrative, Geographical, and Economic distance) is employed to assess the distance between the United Kingdom and each host country. The analysis includes Hofstede's cultural dimensions, administrative structures, geographical distances, and economic indicators. Furthermore, the report evaluates the industry-level attractiveness of both Brazil and Vietnam, considering factors like the threat of entry, substitutes, bargaining power of buyers and suppliers, and industry rivalry. Finally, the report recommends Vietnam as a more suitable market for Tesco, citing its higher economic growth, untapped market potential, and less intense competition compared to Brazil, supported by the CAGE framework and market analysis. The document is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

Running head: MANAGEMENT – EMERGING MARKET
Management – emerging market
Name of the student
Name of the university
Author note

1MANAGEMENT – EMERGING MARKET
Introduction
The current business scenario poses huge challenges for the contemporary business
organizations due to the reason that competition is much intense in the current time with the
presence of huge number of players. Thus, it is important for the business organizations to look
out for new markets in order to cut off the intensity of the competition in the local market and to
enhance the customer base in the global market. Contemporary business organizations initiate
the strategy of internationalization in order to enter in the foreign markets and enhance the
customer base (Cavusgil and Knight 2015). In the recent time, developing economies are being
targeted by the business organizations in order to tap the growing opportunities in these markets.
Moreover, developing markets are having higher growth rate compared to the growth rate of the
developed countries. Thus, the business opportunities are more for the business organizations in
the developing countries.
Tesco is one of the leading chains of supermarkets based in the United Kingdom. They
are one of the major retailers in the European regions and have their market base in the Asian
region (www.tescoplc.co 2018). However, in the recent time, they are in the urgent need of
developing new markets to enhance the customer base. They are targeting Brazil and Vietnam as
new market to enter. Both these markets are showing huge market growth in the recent time.
However, prior to entering in these markets, it is important to determine the various aspects of
these markets. This essay will discuss about the industry and market attractiveness of these
countries. In addition, the distance between the United Kingdom and the host countries will also
be discussed. Recommended country and entry mode will also be discussed.

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Overall attractiveness of Brazil
Figure: 1
Overview of Brazil
Source: (Www3.weforum.org 2018)
Figure: 2
Growth rate of Brazil
Source: (Www3.weforum.org 2018)

3MANAGEMENT – EMERGING MARKET
According to the Global Competitiveness Report, Brazil is having the ranking of 6 in
terms of domestic size. This is due to the reason that they are having the total population of 198.3
millions. Thus, Tesco will have huge market opportunities in the Brazilian market. Moreover, in
terms of the GDP, Brazil is having the ranking of 7 and GDP per capita currently stands at US$
11,311. Thus, economy is having favorable position in Brazil and it will help in having favorable
business environment for Tesco.
Figure: 3
Macro-environment of Brazil
Source: (Www3.weforum.org 2018)
According to global competitive index, Brazil stands at 38 in terms of country credit
rating. Thus, it will less risky affairs for Tesco to invest in this country. Moreover, Brazil is
having the ranking of 110 in terms of the inflation, which is quite favorable compared to some
other countries.

4MANAGEMENT – EMERGING MARKET
Figure: 4
Problematic factors for Brazil
Source: (Www3.weforum.org 2018)
However, there will have some negative factors that to be faced by Tesco in entering in
Brazil. The most problematic factor in Brazil will be the tax regulations. Tesco will face the
challenge of higher rate of tax and complex taxation process. In addition, inadequate supply of
infrastructure is also one of the major issues in Brazil. This is another area of concern for Tesco
in entering in Brazil.

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Overall attractiveness of Vietnam
Figure: 5
Overview of Vietnam
Source: (Www3.weforum.org 2018)
Figure: 6
Economic growth of Vietnam
Source: (Www3.weforum.org 2018)

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Vietnam is having less population compared to Brazil. Thus, the potential market size for
them will also be lower compared in Brazil. Moreover, the GDP per capita is also lower for
Vietnam compared to the Brazil. However, it is also should be noted that economy of Vietnam is
also growing at a positive rate.
Figure: 7
Macro environment of Vietnam
Source: (Www3.weforum.org 2018)
According to the reports, Vietnam is having credit ranking of 72 in terms of credit rating.
Thus, the investment in Vietnam will be mote risk affair for Tesco compared to investing in
Brazil. However, the ranking of inflation is similar between the two countries. In this case, Tesco
will find similar level of impact on both the countries.

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Figure: 8
Problematic factors in Vietnam
Source: (Www3.weforum.org 2018)
According to the reports, the major issue that will be faced by Tesco in entering in
Vietnam is the access to the financing. Thus, they will face the challenge of garnering finance for
business operation in Vietnam. Another issue to be faced is the corruption. This will have serious
implications on the business operation of Tesco in Vietnam in the long run.
CAGE framework
This framework will help to identify the distance between the home and host county of
Tesco in terms of different elements. This is important due to the reason that the less will be the
distance between the home and host country, the more will be the business potentiality for the
business organizations.

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Cultural distance
Figure: 9
Hofstede’s dimension of United Kingdom and Brazil
Source: (Hofstede Insights 2018)
From the above cultural analysis, it is seen that majority of the dimensions are having
more or less similar ratings. However, dimensions such as the power distance, individualism and
uncertainty avoidance are having larger differences (Dikova and Sahib 2013). Thus, inequality is
more in Brazil compared to the United Kingdom. In addition, Tesco should strongly adhere to
the social rules in Brazil compared in the United Kingdom. In terms of the languages, major
language of Brazil is Portuguese and the United Kingdom is having English as dominant

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language (Beugelsdijk et al. 2014). Thus, gap is their between the two countries in terms of
language. However, English speaking population is rapidly increasing in Brazil reducing the gap.
Figure: 10
Hofstede’s dimension of the United Kingdom and Vietnam
Source: (Hofstede Insights 2018)
Cultural gap between the United Kingdom and Vietnam is more compared to the Brazil.
According to the above data, majority of the dimensions are having huge gap between the two
countries (Zhang 2013). Vietnam is more conservative compared to the United Kingdom. Thus,
the business approach should be different for Tesco in Vietnam. Majority of the population has
Vietnamese as their official language and number of English speaking population is also less
compared to Brazil.

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Administrative distance
Brazil and Vietnam are having democratic government but the approach is different. This
is due to the reason that Brazil follows more fundamental and capitalist style of government,
while Vietnam is having communist style of government. In comparison to the government of
the United Kingdom, Brazilian administration is having fewer gaps compared to the Vietnam.
United Kingdom and Vietnam are having agreement of double taxation between them. On the
other hand, agreements between Brazil and the United Kingdom are more diverse and cover
more trading aspects (Zhou and Guillen 2015). Thus, the administrative gap between Brazil and
the United Kingdom is less compared to the United Kingdom and Vietnam.
Geographical distance
Brazil is located in Latin America and Vietnam is in the eastern Asian region. However,
the distance between the host countries and the United Kingdom is having less difference.
Distance between Brazil and the United Kingdom is 5,568 miles, while distance between
Vietnam and the United Kingdom is 6230 miles. Thus, the distance gap is not more. However,
for Tesco the distance to both the host countries is huge and time consuming (Burgoon,
Henderson and Wakslak 2013).
Economic distance
United Kingdom Vietnam Brazil
Economy (GDP) $2.565 trillion $214.02 billion $2.080 trillion
GDP growth 0.4 % 6.81 % 1.1 %

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Economic gap is less between the United Kingdom and Brazil compared to the United
Kingdom and Vietnam.
Industry level attractiveness of Brazil
Figure: 11
Retail sales trend of Brazil
Source: (www.focus-economics.com 2018)
According to the reports, Brazil is growing through rough phase of retail sales mainly due
to the higher rate of unemployment and economic recession. This is causing dent in the retail
industry. However, from the starting of 2017, the market is rebounding and showing positive
growth after the steps taken by the government in attracting investments and employment
opportunities.

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Industrial competitiveness in Brazil
Threat of entry  Threat of entry is moderate due to the investment incentives
of the government and huge capital required for investments
(Hochstetler and Montero 2013).
 Legal barriers will further restrict the entry of small players.
Threat of substitutes  American retailers such as Wal-Mart are having their presence
in Brazil along with Carrefour.
 Thus, threat of substitutes is higher.
Bargaining power of
buyers
 Brand value of Tesco will help retain the customer loyalty.
 However, boom in the online market will take a toll for Tesco.
Bargaining power of the
suppliers
 Suppliers will have less power due to the reason that Tesco is
having global suppliers for all their global operations.
 They will be less dependent on the local suppliers.
Industry rivalry  Presence of number of global and local retailers will cause
higher industry rivalry.
 Aggressive marketing and promotional strategies are
important to stay in the competition.

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Industry level attractiveness of Vietnam
Figure: 12
Global retail index
Source: (Aseantoday.com 2018)
According to the reports, Vietnam stands at rank 6 in terms of potentiality of global
retailing. Thus, they are having huge potentiality for the retail business organizations such as
Tesco. It is estimated that the retail sales value of Vietnam will stands at US$ 180 billion by
2020.
Industrial competitiveness in Vietnam
Threat of entry  Threat of entry is low due to stringent government
regulations in this communist country.

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 Entry barriers are more compared to other free trade
economies.
Threat of substitutes  Number of global convenience stores present in Vietnam
such as Circle K and Family Mart.
 Threat of substitute is high.
Bargaining power of
buyers
 Bargaining power of buyers is also high due to having more
options in the market (Pincus 2015).
 However, customers do not have the options of having
western brands such as Tesco.
Bargaining power of the
suppliers
 Bargaining power of suppliers will be low due to low
influence of the local suppliers.
 Manufacturing and sourcing facilities of Tesco is global.
Industry rivalry  Industry rivalry is more due to presence of number of
competitors.
 However, current competitors cannot match Tesco in terms
of capabilities and resources.
Recommended market to enter
The above sections evaluated and analyzed the market and business potentiality of both
Brazil and Vietnam. It is concluded that both the countries are having merits and demerits for the
business organizations such as Tesco. However, from the above discussion, it can be concluded
that Vietnam will be more effective and suitable for Tesco compared to Brazil (Vu-Thanh 2014).
This is due to the reason that economy growth of Vietnam is much more than that of the Brazil.

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Thus, the business potentiality is growing in Vietnam more rapidly than that of Brazil. Though
the total population of Brazil is much more than that of Vietnam and thus the market opportunity
will be more in Brazil but the growth is much lower than in Vietnam (Tran 2013). In addition,
Vietnam is in the developing phase and it will be an advantage for Tesco to be the first mover in
Vietnam, which they will not get to achieve in Brazil. The CAGE framework concluded that in
terms of the gaps, both the host countries are standing at same position with the United
Kingdom. Retail market of Brazil is more saturated compared to that of Vietnam. Thus Tesco
will be able to have more untapped market compared to Brazil. The intensity of competition is
also less in Vietnam than in Brazil (Thi Hong Nguyen, Wood and Wrigley 2013). Thus, Vietnam
will be more applicable for Tesco to enter.
Another advantage identified for Vietnam over Brazil is the non existence of western
brands. This is due to the reason that in the above analysis, it is found that Brazil is already
having the retail brands such as Carrefour and Wal-Mart, but Vietnam is majorly having
Japanese brands of retail chains. Thus, the concept of the western retail chains will be new in
Vietnam. This will provide huge comparative advantage for Tesco in operating in Vietnam
(Evangelista and Thuy 2013). In addition, entering in Vietnam will help Tesco to also target the
South East Asian countries or the ASEAN countries. Vietnam will act as their gateway to the
ASEAN regions. These regions are currently having leading developing countries.
Recommended entry mode
It is recommended that Tesco should go for direct investments in Vietnam. This is due to
the reason that Vietnam is currently not having any local retail brands, with whom Tesco can go
in to joint venture. On the other hand, majority of the retail business in Vietnam is controlled by

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the foreign companies. Thus, it will be much better option for Tesco to directly invest in
Vietnam. It will also help them to gain the government incentives for direct investments, which
Vietnam started after joining WTO in 2015. Having the direct investment in Vietnam will help
Tesco to leverage their brand value more effectively. This will also help them to cater the market
according to the local requirements and preferences (Samiee 2013). Associated risk with the
direct investment will be less due to the reason that major portion of the retail sector in Vietnam
is controlled by the foreign brands.
Timing of entry
Tesco should enter the Vietnamese market in minimal time possible. This is due to the
reason that it will help them to gain the advantage of first mover in the Vietnamese market.
Tesco will be able to be the first western retail chain to enter in Vietnam. Thus they will be able
to have an added competitive advantage in the market of Vietnam.
Location
It is recommended that Tesco should first open their stores in HO Chi Minh city, the
financial hub of Vietnam. This city being the financial hub is having huge business opportunity,
favorable infrastructure and diverse population. Thus, entering in this city will be more option
for Tesco. Afterwards they can enter in other metro cities followed by the tier II cities. Phased
process of entering will ensure minimum risk associated with Tesco.

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Conclusion
This essay discussed about the market and business potentiality to be faced by Tesco in
entering in Brazil or Vietnam. Both these countries are being targeted by Tesco to expand their
global operation. These countries are being shortlisted due to the reason that both these countries
are witnessing huge economical growth in the recent time and both these countries are
developing at a faster rate. This essay evaluated the effectiveness of both these markets by using
different concepts such as CAGE framework, Porter five forces and Hofstede’s cultural
dimensions. In addition, the date from the global competitive index is also being used to
determine the business environment of Vietnam and Brazil. This report concludes that Vietnam
will be more effective and applicable for Tesco to enter compared to the Brazil. This is due to the
reason that the recent economy of Brazil is going through rough phase and is not favorable for
the foreign investment. On the other hand, Vietnam is one of the leading economies in the South
East Asian regions and is currently ranked at 6 in the global retail index. Thus, the market
potentiality of Tesco will be more in Vietnam compared to Brazil.

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