Global Contexts and Operations: Tesco's China Market Entry Report

This report examines the dynamic landscape of global business, focusing on the impact of globalization on market trends and the opportunities it presents. It analyzes the evolution of business practices, the driving forces behind globalization, and its effects on open market economies. The report includes a detailed country analysis of China, evaluating its position and relevance for businesses. A key aspect of the report is the exploration of Tesco's potential entry into the Chinese market, considering various entry modes and providing justifications for the chosen strategy. The report also delves into the commercial, cultural, and ethical considerations that Tesco would need to address. Overall, the report offers a comprehensive overview of global contexts and operations, providing insights into the challenges and opportunities of international business expansion. It highlights the benefits of globalization for SMEs, including new market access, lower labor costs, cost minimization through partnerships, lower taxes, and cross-cultural advantages. The report also discusses the forces of globalization, such as economies of scale, operational facilities, e-cash transfer, economic development, business growth, and technological advancements. The report concludes with an assessment of Tesco's prospects in China, considering the country's economic and political environment.

Report on
Global Contexts and Operations
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Executive Summary
The report is objectified to identify the changing business trends and opportunities that are
created by the continuous changing market force because of mass impact of globalisation. The
changing business trends from the previous to current condition has been discussed and
evaluated as well globalisation and the driving forces behind globalisation along with the impact
of globalisation on open market economy are discusses also. A country analysis of China has
been initiated due to identification of country position in order to set the entry mode of Tesco to
the China market as a part of its overseas expansion. The entry mode for Tesco is identified with
proper justification and the commercial, cultural and ethical issues that can arise are also
effectively evaluated.
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Table of Contents
Executive Summary.........................................................................................................................ii
Introduction......................................................................................................................................1
Changing Business Trend................................................................................................................2
Globalisation....................................................................................................................................4
Globalisation Forces........................................................................................................................5
Globalisation Benefiting SMEs.......................................................................................................6
Foreign Market Entry......................................................................................................................8
Country Analysis.........................................................................................................................8
Entry Mode..................................................................................................................................9
Commercial Aspects......................................................................................................................12
Cultural Aspects.............................................................................................................................13
Ethical Issues Concern...................................................................................................................15
Conclusion.....................................................................................................................................16
Bibliography..................................................................................................................................17
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Introduction
Globalisation has impact all over the world as it has brought the entire world into a single centre
creating a borderless open market considering the entire world a single market. The invisible
market force of globalisation bringing the countries and markets closer and influencing to
integrate with each other in order to developing a mutual benefit relationship. Business trends
have kept changing with the change of time according to the world need and economies are
directly impacted by the business. Businesses can now easily expand the operations to overseas
through different mode of entry to the foreign market as borders are now considered open for all.
Tesco, one of the top retailing outlets of the world, intending to enter China market is
significantly impacted by globalisation and Tesco can choose any sort of entry mode through
proper analysis benefit ratio.
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Changing Business Trend
Businesses have changed over time according to the needs of the countries and economies in
their way and to some extent, countries have resigned its business structure to carry on the good
economy. Since globalisation has started taking over it has also initiated from the need for
mutual benefit by each other by sharing resources, providing an opportunity to others to get the
benefit. Markets now are open for all more than ever it was in the past and globalisation has
made this happen whereas countries invite others to make investment and join the economy for
making business.
Since Mercantilism, which was the regional and national business policy that was initiated from
17th to 18th century intending to create the surplus of the economy of the countries through
making more of exports than imports. The main goal of mercantilism was to reduce the imports
and maximise the home production with a purpose to export, more than the amount of import.
Mercantilism was a complete non-free trading policy for countries and export and import
products used to charge high with additional tariff charges (Nolt, 2015). Countries were not
interested back than making collaboration to develop the mutual benefit relationship, rather was
focusing only on the home production and exporting of that production.
Initiating absolute advantage theory of production added a newer dimension to the business
which is currently applicable in a wider manner for the perfectly competitive market. Absolute
advantage theory mainly focuses on the lowering the production cost rather than others and
producing a maximum number of outputs with the least amount of resource input, in other
words, absolute advantage theory tries to attain maximum efficiency (Schumacher, 2012). In the
current China market, which is a perfectly competitive market there are numerous businesses and
competitors which results into lower market share, but companies, for example, Tesco in China
market can maximise its profit through minimising operational costs with maximum efficiency
rather than occupying market share.
The foreign direct investment allows companies such as Tesco to make a direct investment in
China market and setting up their retailing outlets in China with a collaboration to the Chinese
government fulfilling the regulations (Kalamova and Konrad, 2012). FDI allowing Tesco making
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direct investment reduces the international trading costs, however, Tesco needs to analyse the
parameters of FDI to determine the cost-benefit ratio.
Through the eclectic paradigm companies such as Tesco can identify if the FDI would be fruitful
or they should not enter to the open market economy if the local and internal investments provide
more of profit than the foreign investments (Cantwell and Rajneesh Narula, 2013). The ultimate
goal of the eclectic theory is to identify which investment would generate more profit overall –
foreign investment or home investment.
Business have always changed according to the needs of economics such as the free market
economy was due to globalisation was initiated due to the needs of countries across borders.
Globalisation has made the national and international communication easier through involving
everything under a common network frame whereas countries are more committed to each other
than ever before. The world now is considered as a single market and any country can enter the
market easily and create a better mutual relationship with other countries.
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Globalisation
Globalisation refers to the mutual dependence of countries across borders in terms of business,
culture, economy, trade-off, information etc. which is creating a more of the flat earth.
Globalisation has been initiated since the countries have felt the necessity to utilise the mutual
benefit opportunity through a win-win situation by mutual coordination that allows the countries
to make businesses across the border, share cultures across the countries, sharing information
with more of a wider perspective (Thamer, 2013). Globalisation has made the earth more of
flatter and brought the entire world under a single shade through its impact all over the world in
every manner. Globalisation has linked up the towns, cities, regions thus countries, resulting in
the intense influence of each other. Since the world has started being more of flatter with lesser
boundaries and borders, it is an ongoing process that would carry on by the invisible drive of
business, economics, politics and culture (Dimitrakaki, 2012).
Due to globalisation as the world is now with lesser border and boundaries, businesses across
culture, nations and regions has become easier than before. Trade barriers regarding the cross-
border business have been lessened by every country, resulting in free entry to the market under
maintaining certain obligatory regulations. Businesses are now trendier to expand from the local
market and entering the neighbourhood countries and gradually increasing the operations to other
cross border countries, which is greatly benefitted by reduced trade barrier. Before this
globalisation impact, countries used to be more of hard and over-regulated regarding the
particular country markets and cross border businesses were strictly restrained through tough
trader barrier but since he countries have understood the necessity to expand the businesses in
international arena and let the foreign countries enter to the local market, most of the countries
have removed highly protective trade barriers (Kahai and Simmons, 2015). Due to globalisation
businesses are now facilitated more than before ever to enter foreign markets with going through
least of trade regulations. Some countries, for example – China has even lessened the corporate
and business tax for the foreign entries to their local market and promoting the world to enter
their market, which is a result of globalisation
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Globalisation Forces
Since globalisation has made international business easier and now that businesses are more tend
to enter the international market, companies will get different sort of benefit as particular factors
have influenced globalisation.
Economies of scale: Tesco with their production efficiency index developed the necessity to
expand the business and production in China which is one of the major drives behind entering
the international market (Herrerias and Orts, 2010).
Operational Facilities: There are particular production operational facilities for Tesco that can
be availed while operating in the international market such as – supply chain facility, cheaper
raw material etc.
E-Cash Transfer: Updated technology has made the capital transaction easier for which Tesco
would be able to transfer capitals with lesser trouble which drives to expand cross border
business.
Economic Development: Countries identifying the factor that foreign companies entering the
local market would help in economic growth has influenced globalisation significantly.
Business Growth: Businesses understanding that entering a foreign market with a new market
such as Tesco identifying entering to China market for existing business would generate more
revenue such company growth has been a globalisation influencer.
Technological Update: Due to the gradual improvement in the technological sector and setting
out more of satellite and other telecommunication modules have made the information sharing
easier.
Along with these, there are other social, economic and political factors influencing globalisation
as the countries are getting the mutual benefit as an impact of globalisation.
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Globalisation Benefiting SMEs
Multinational enterprises entering the global market through the different procedure is a
significant impact of globalisation that has been effectively utilising by MNEs. Globalisation
facilitates multinational companies from the various sort of perspective such as Tesco entering
the China market through foreign direct investment would allow it to expand its operation
undertaking several opportunities.
New Market Access
Through the foreign market, entry companies can find a new market with new target customer
for its existing operational products as well to some extent MNEs go through geo-clustering to
develop and modify their products for the new market (Wakstein, 2016). Tesco entering China
market would allow it to enter a huge size of China market where they would be able to develop
new outlets.
Lower Labour Cost
MNEs tend to enter such market that would initiate it with the least of labour cost which would
help to obtain economies of scale in the whole business procedure (Treble, 2016). China market
entry for Tesco would be a great benefit for them as China still has lower labour and employee
management cost that would help Tesco to save a good cut of budget regarding employees which
can be used in other R&D segments.
Cost Minimisation through Partnership
There are several forms of foreign business expansion for multination enterprises which allow
them to make a partnership with foreign local companies and make more of efficient business
operational activities through that partner company. In such cases, taxes and external tariff
charges are deducted as well. Though China entering for the Tesco is of direct investment, but
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after entering to the market it would need to develop a partnership with many local ventures to
get benefit regarding occupying market share.
Lower Tax Benefit
Tesco entering to the China market would be able to facilitate by the regulatory obligations of
China Government since it has reduced its corporate taxes for foreign companies running
operations in China, which is a significant impact of globalisation (Bargain, 2012). Many other
countries are currently reducing the higher corporate and business taxes for foreign companies
running operations in their local market such as – Brazil, Switzerland, Singapore, Malaysia etc.
Cross-Cultural Benefits
Multinational enterprises while entering to the foreign markets focus on the cross-cultural
strengths and weaknesses to determine the factors regarding which they would expect the
benefits such as for Tesco entering to the China market would have to develop a proper
knowledge of Chinese language as Chinese people tend to make communication in their native
language than another foreign language, as well the organisational hierarchy, performance
appraisal for employees and other operational and human resource staffs that avail under cultural
factors (Fontaine and Richardson, 2003).
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Foreign Market Entry
Country Analysis
Tesco expanding its business operations to international arena entering a foreign market, China
would be one of the best markets to enter as business expansion due to its current economic,
political and business condition. China is the second-largest economic market currently in the
world with massive development since past 40 years, though it is still a developing country with
its current GDP growth rate of 6.6% which is forecasted to reduce to 5.9% in the next year.
Chinas current GDP from the last economic year is 14.17 trillion-dollar that has decreased in the
current economic year (Qian, 2014). Current per capita income of Chinese population is 10
thousand dollars that lies with the developing country criteria, and still, China has to increase a
good amount of per capita income to be in the list of developed countries. It currently has 4% of
its population under the poverty line which is impressive though with its current economic
condition and has 3.8% of unemployment rate reflecting a good employment rate within the
large China market. Chinas current FDI inflow from the index of current economic year is 1.36
trillion dollars, which is impressive and shows the competitiveness in China market of foreign
entries as well the vast size of China market (National Bureau of Statistics of China, 2018).
Overall from the index analysis of China, it can be concluded that China is still a developing
country with a huge market size to enter fore the Tesco.
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Entry Mode
Tesco is one of the largest retailing company, entering to the China market through Foreign
Direct Investment, a direct entry mode would be the most suitable for it, which would be much
beneficial and more of efficient to running operational activities in China after launching the
expansion. FDI would allow Tesco to invest in China directly and develop their retailing outlets
in China in specific regions and areas according to the proper market research and analysis of
supply chain benefit along with supplier facilities.
Market Analysis
As China is a huge sized market and there are a lot of foreign companies existing running their
operations in China, Tesco would need to operate the business quite directly than maintaining the
operations through any other intermediaries. While dealing with the operational issues directly
through developing retailing stores under the Tesco brand, Tesco would be able to identify the
competitive advantages and utilise those properly to make the entry and operations more
adequate. Letting the third party or any other intermediaries to deal with the operation issues, it
might result in reluctant to the identification of critical advantageous issues that Tesco would be
able to identify by itself running the operations directly (Wang and Thomas, 2015).
Efficient International Trade
If Tesco, however, prefers to run their operations through exporting or partnership, it would not
match with its types of service as it is mainly retailing outlet chain business, as well exporting
products to China would add the value up of tariff charge, though the trade barriers are very low,
but a small portion of tariff charge would add up with products which would increase the price of
products. As Chinese people by nature prefer their native products, new products with extra
charges are tend to be overlooked by the target consumers of Tesco (Bhatt, 2008). Though Tesco
in exporting or partnership would be able to avoid the corporate and regulatory tax amount, their
products would not be adequately accepted by the Chinese consumers. Ultimately FDI would
allow Tesco to make an easier approach of international trade through direct investment and
developing own stores than going through intermediaries and exporting.
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