Global Business: Analyzing Indonesia for Tesco's Market Entry Strategy

This report provides a detailed analysis of the Indonesian market's suitability for Tesco's expansion. It examines the socio-economic, political-legal, and business environments, highlighting both opportunities and threats. The analysis covers key aspects such as economic growth, unemployment rates, political stability, legal frameworks, and the business environment's impact on Tesco's operations. The report also assesses the potential for Tesco to capitalize on Indonesia's location, booming economy, and anti-corruption strategies while addressing challenges like corruption, natural disasters, infrastructure limitations, and ethical issues. Recommendations are provided to support Tesco's decision-making process, emphasizing location selection, relationship building with the local population, and risk management strategies. This report is a valuable resource for understanding the complexities of entering the Indonesian market and making informed business decisions.

RUNNING HEAD: Global Business
Global Business

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Table of Contents
Introduction................................................................................................................................2
Company information................................................................................................................3
Analysis of the socio-economic, political-legal and business environment in Indonesia..........4
Socio-economic......................................................................................................................4
Political-legal..........................................................................................................................5
Business environment.............................................................................................................6
Analysis of the Indonesian market.............................................................................................7
Suitability of the environment in Indonesia for Tesco...........................................................7
Opportunities and threats to Tesco in the environment of Indonesia.....................................7
Conclusion................................................................................................................................10
Recommendation......................................................................................................................11
References................................................................................................................................12

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Introduction
This assignment has been executed with a motive to analyze the suitability of the
international market for the entry of a company. This assignment will discuss the analysis of
the different aspects of the business environment of Indonesia so as to analyze the impact of
these aspects on the entry of Tesco in the Indonesian market. This analysis will help in
evaluating the suitability of the environment of Indonesia for Tesco. Different opportunities
will be available to Tesco along with the threats which create an impact on the performance
of Tesco.

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Company information
Tesco is a public limited company which is operating in the retail industry. Tesco is operating
supermarkets, hypermarkets and superstores all around the globe. It was founded by Jack
Cohen in the year 1919. Headquarter of Tesco is located in Welwyn Garden City,
Hertfordshire, England. According to the profitability of the companies, Tesco stands at the
third position in the retail sector. It is operating all around the globe with a motive to provide
quality products to its customers. According to the data collected in 2017, it has 6553 stores
in 12 countries. It has a strong employee base of more than 476000 employees which is
contributing towards the growth and success of the business (Tesco, 2017). It is focusing on
meeting its responsibility towards the society. Tesco is planning to expand the area of
operation in Indonesia so as to enhance the coverage area. It is analyzing different aspects of
the Indonesian market so as to analyze the suitability of the market for Tesco.

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Analysis of the socio-economic, political-legal and business
environment in Indonesia
Socio-economic
The Indonesian economy is considered as largest economy of the Southeast Asia. The
economy of Indonesia is considered an emerging which is full of opportunities for the
businesses. It has faced a financial crisis in past and has dealt with this financial crisis in an
effective manner. The economy of the Indonesia is based on the three sectors which include
agriculture, manufacturing and service industry. These sectors attract the businesses towards
the economy of Indonesia. Majority of the population of Indonesia is young which can form a
strong employee base for the new businesses or companies planning to expand their business
operations in the Indonesian market (Hasenheit, et. al., 2016). Diverse natural resources are
available in the Indonesian market which can be used by the businesses for enhancing their
performance. The potential risk in the Indonesian market is low which encourages investment
in the Indonesia. It has been estimated that there will be a rise in the economic growth from 5
% to 7 % in the next five years. It has been estimated that there is a medium risk investment
opportunity available in the market of Indonesia. A mixed economy is followed in Indonesia
as both government and private sector are contributing towards the development of the
economy (Anderson, 2015).

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Figure 1: GDP annual growth rate of Indonesia
Source: (Trading Economics, 2017)
Figure 2: Unemployment rate in Indonesia
Source: (Trading Economics, 2017)
Political-legal
A political transformation has taken place in the Indonesian economy. Civil law system is
followed in Indonesia. The political structure of Indonesia has been strengthening due to the
vibrant democracy of the country. The tax rate has been amended by the government and it
has been fixed at 25 % flat. Negative investment list has been issued in the year 2014 which
aimed at enhancing the FDI and DDI in Indonesia. There are few political issues which are

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creating an impact on the business environment of Indonesia (Kuncoro, 2012). One of these
issues is the high-level corruption in the country which has affected the political environment.
The government of Indonesia has formulated financial and monetary policies for dealing with
the adverse situations arising in the country. The government of Indonesia is focusing on the
issue of economic packages with a motive to deregulate the different sectors of the
Indonesian economy. Different permits are required by the businesses for operating within
Indonesia (Porter, 2009).
Business environment
The business environment must be suitable for conducting business as factors of business
environment create a huge impact on the performance and operations of the business. The
government of Indonesia is placing its focus on enhancing the quality of the business
environment so as to make it suitable for the new entrants in the market. The focus of
government of Indonesia has been shifted towards the economic development and changing
the structure of the economy. 13 reform packages have been released by the government of
Indonesia for enhancing the business environment of the country. Indonesia has faced various
pull and push forces and has cope with these forces effectively by attaining stability (Ibrahim
& Primiana, 2015). Corruption in Indonesia is affecting the performance of the companies
operating in Indonesia. The infrastructure of Indonesia is lacking in utilizing the full potential
due to the insufficient quality and quantity of infrastructure. The economy of Indonesia is
booming which help the companies in gaining will advantage of the market. Another crucial
concern for the companies planning to expand the area of operation in Indonesia is natural
disasters which affect the human resource and infrastructure (Wahyuni, 2008).

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Analysis of the Indonesian market
Suitability of the environment in Indonesia for Tesco
The analysis is done in the environment of Indonesia for analyzing its suitability for Tesco.
Resources are available in an adequate quantity which will help in conducting the operations
of the business in an effective manner. Human resource is available as the majority of the
population is of young people. There is low risk present in the Indonesian market related to
the investment. This will encourage the companies to invest in the Indonesian market. GDP
of the Indonesian market is increasing and it is expected that there will an increase of 5 to 7
% in the economic growth of Indonesia which will attract investors towards the Indonesian
economy. Government is providing support to the companies by increasing the participation
of private sector in the economy. A fixed tax rate has been decided by the government of
Indonesia which has provided a better opportunity to companies to enter the Indonesian
market. There are few issues which are creating an impact on the business environment of
Indonesia. These issues include corruption, the impact of natural disasters, lack of policies
and rules and regulations, lack of developed infrastructure and ethical and religious violence
(Ibrahim & Primiana, 2015). Thus, from the analysis of the Indonesian market, it can be
stated that Tesco can enter Indonesia market. The business environment of Indonesia is
suitable for the expansion of operations of Tesco. There are various opportunities available in
the market of Indonesia.
Opportunities and threats to Tesco in the environment of Indonesia

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Various opportunities and threats are available in the market of Indonesia which can affect
the performance of Tesco in the market of Indonesia. Opportunities available in the
environment of Indonesia for Tesco are listed below:
 Indonesia is located in Southeast Asia and its location attracts the companies towards
it. Tesco can enter the Indonesian market and this will help in covering the large area
(Iberglobal, 2015).
 The economy of Indonesia is at a booming stage. There is a high growth rate in the
economy of Indonesia which provides opportunities for the growth of the business.
 Anti-corruption strategies have been implemented by the government of Indonesia.
This help Tesco is performing operations without any adverse impact on its
performance due to corruption (IGS, 2011).
There are few threats which Tesco needs to consider while entering Indonesian market
and these threats include:
 Increasing corruption can increase the cost of the business.
 Natural disasters can affect the operations of the business.
 The infrastructure of Indonesia lacks the quality and quantity which can affect the
performance of Tesco in Indonesian market (Iberglobal, 2015).

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Conclusion
With the change in the business environment and increasing role of globalization, there has
been a rise in the number of companies trading across the border. Tesco is planning to expand
the area of operation by entering the Indonesian market. Analysis has been done on the
different aspects or factors of the economy of Indonesia. On the basis of this analysis, it can
be stated that Tesco can enter into the Indonesian market as various opportunities are
available in the Indonesian market.

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Recommendation
Few recommendations have been provided with a motive to support the decision of Tesco for
entering into the Indonesian market. These recommendations are listed below:
 Selection of the location for the business must be done properly so as to ensure that
the natural disasters are not creating an impact on the functioning of Tesco.
 Healthy relations need to be developed with the population of Indonesia as domestic
firms are creating influence on the population.
 Threats need to be analyzed and strategies need to be adopted for dealing with the
threats and gaining the advantage of the opportunities available in the market of
Indonesia.

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References
Anderson, I. (2015). Political Economy Analysis Country Report on Indonesia: A Summary
Of The Political Economy Factors That Are Shaping. Research Gate.
Geiger, T. (2011). The Indonesia Competitiveness Report 2011. World Economic Forum.
Hasenheit, M., Gerdes, H., Kiresiewa, Z. & Beekman, V. (2016). Summary report on the
social, economic and environmental impacts of the bioeconomy. BioStep.
Iberglobal. (2015). Doing Business in Indonesia. Iberglobal.
Ibrahim, R. & Primiana, I. (2015). Influence Business Environment On The Organization
Performance. International Journal Of Scientific & Technology Research, 4, 4.
IGS. (2011). Issues And Opportunities Of Doing Business In Indonesia. ISG.
Kuncoro, A. (2012). Globalization and Innovation in Indonesia: Evidence from Micro-Data
on Medium and Large Manufacturing Establishments. ERIA Discussion Paper
Series.
Porter, M. E. (2009). Improving Indonesia’s Competitiveness. Harvard Business School.
Tesco. (2017). About Us. Tesco. Accessed on: 28th August 2017. Retrieved from:
https://www.tescoplc.com/about-us/
Trading Economics. (2017). Indonesia GDP Annual Growth Rate. Trading Economics.
Accessed on: 28th August 2017. Retrieved from:
https://tradingeconomics.com/indonesia/gdp-growth-annual
Trading Economics. (2017). Indonesia Unemployment Rate. Trading Economics. Accessed
on: 28th August 2017. Retrieved from:
https://tradingeconomics.com/indonesia/unemployment-rate
Wahyuni, S. (2008). A Review of Indonesia’s Competitiveness and its Investment Climate.
National University of Singapore.