Tesco's International Market Expansion: US, Japan, and India

This report provides a comprehensive analysis of Tesco's international market expansion strategies, focusing on their ventures in the United States, Japan, and the potential for expansion into India. The report begins with an introduction to the international market and the opportunities it presents for businesses. It then delves into a case study of Tesco, a British multinational grocery retailer, examining the factors that led to their withdrawal from the Japanese market, including economic fluctuations, unfavorable demographics, high competition, and the failure of their hypermarket format. The report also critically assesses Tesco's expansion into the US market, evaluating whether the venture was doomed from the outset, considering factors like the competitive landscape and the challenges of adapting to the US retail environment. Finally, the report evaluates the attractiveness and challenges of the Indian food retail market to Tesco, considering factors like market size, consumer behavior, and government regulations, and justifies a decision on whether the company should expand into the Indian market. The report provides a detailed overview of Tesco's international strategies and the challenges they faced in different markets.

ESSAY
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INTRODUCTION
The international market refers to market outside the global borders of a entity land of
citizenship. The globalization has lead to the integration of the several economies which has
resulted into increased opportunity for entities. Therefore, corporations can expand into
international market which will help them in making optimum utilization of available resources.
The enterprises can expand in international market to enhance their market share and target more
customers (Sintonen and et.al., 2016). This will further help them in global recognition leading to
higher sales and profitability. In this report, various aspects of international market will be studied
in the context of provided case study of Tesco. It is a British multinational grocery and general
merchandise retailer founded in 1919 and headquartered in Welwyn Garden City. In this report,
critical assessment of the factors that forced entity to withdraw from Chinese market will be
studied. The evaluation of Tesco expansion into the US market will be explained. Thereafter
critical evaluation of the attractiveness and challenges of Indian food retail market to Tesco will be
provided. Further, justification of the decision if company expands into the Indian market will be
provided.
Overview
From the case study, it has been identified that Tesco is among the largest retailer of UK. It
has started its expansion into international market by entry into US in year 2007. Thereafter,
company entered into markets of Las Vegas, Phoenix, Los Angeles etc. Initially, company invested
more than £250 million per year for the 5 year period to develop new chain. In 2 years company
had started around 125 stores in US. According to the statistics, in British grocery market, Tesco is
the major leader with around 30% of share (History of Tesco. 2016). At present the corporation have
stores in 14 nations across Europe, Asia, Ireland, Malaysia, Hungary and Thailand. Tesco is
presently functional with about 5400 stores in 14 markets external the UK. With a strong
concentration on firm in Asia, it run about 1400 stores in Japan, China, South Korea, Malaysia and
Thailand. Tesco holds top 3rd position as largest retailers in the globe as per the revenues. In
addition to this according to revenues, company is 5th largest retailer. To maintain the leading
position in the market, company assure reliable, qualitative products and services.
TASK 1
1.1 At the end of August 2011, Tesco has announced its exit from Japan. Critically assess those
factors that compelled Tesco to withdraw from the Japanese Market.
From the critical assessment of the provided case study,it has been identified that Japan
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have globe second largest grocery retail market. The overall valuation of market is at US$370
billion. Japan's grocery sales per capita is prospering in the international market, with around US$
3,300 a year. Therefore, the country seemed a attractive opportunity for retail firm to enter and
expand their market share (Samiee, Chabowski and Hult, 2015). Tesco in 2003 started trading in
Japanese market with acquisition of domestic players. The company had total 129 convenience and
retail stores which provided variety of products and services to wide range of customers. However,
there were certain reasons that forced the Tesco Plc to withdraw from the host nation. The
discussion of which is provided as follows:
 Fluctuations in the economic variables: The Japan is facing serious variations in the
economy. The country faced economic bubble between 1986-1991 where real estate and
stock market prices were real estate and stock market prices were highly inflated. In 1992
the bubble collapsed resulting into speedy increase in asset process and unstable money
supply and credit expansion (Wu and Naidoo, 2016). Since, customers have witnessed the
economic downturn they are still not confident about the market and prefer saving over
expenditure. The economic fluctuation has resulted into shift of customers from branded
lavish products to more low-priced private labels. Therefore, economic fluctuation is one of
the reason that cause threat to the survival of company in long run.
 Unfavorable Demographic factors: The another reason that support withdrawal of Tesco
from Japanese market is flat population growth. It further prevent the Tesco to attain
economies of scale and earn more profit. The reason for this is lack of possibility for growth
in volume within the retail market. Thereafter change in customer purchasing pattern due to
lack of food safety resulted into decline in retail sales. Thereafter, there is decline in birth
rates leading to fear of losing target market in future. Further, a rapidly aging population; 25
% of individuals in Japan are aged more than 60, with other 15 % group of people to reach
60 in the next time period (Czinkota and Kaufmann, 2015.). It has lead to increase in
demand for health products and fortified foods.
 Lower preference to Western cuisine: The present urban population of Japan consist of
immigrants from rural areas of Japan. The preference of such customers is mainly Japanese-
style food which is saucily prepared and convenience foods. Therefore, the less preference
of Western cuisines is main cause of low demand of Tesco offerings (de Mooij, 2015). The
entity also facing issue in adapting to local habits which resulted into poor sales and
profitability.
 High competition: The attractiveness of Japanese market has resulted into entry of man y
foreign and domestic player. This has lead to overall increase in cut throat competition.
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There are companies like, Aeton, Itoh Yokado, Walmart etc that cause tough competition for
Tesco and make it difficult for it to continue business for long run. There is lack of
profitability because of high competition (Eteokleous, Katsikeas and Leonidou, 2016).. The
companies are forced to sell products at low cost to maintain their customer base and loyalty
thus preventing them from shift towards other contenders.
 Failure of hypermarket format: It is evident that Tesco is mainly hypermarket retailer but
in Japan this format has drastically unsuccessful. The reason being the customer mainly
prefer frequent buying over bulk buying (Skarmeas, Zeriti and Baltas, 2016). They further
doubt the quality products offered in hypermarket. This further forced the companies to
increase their investment in providing more facilities to customers in terms of installing
cash machine bill paying facility, delivery and value added services.
 Limited scope: The Japanese market have limited scope, the leading four retail players
account for 68% of total number of outlets and 81% of gross sales. 7-Eleven predominate
market with around US$23 billion (Gruber, Holweg and Teller, 2016). Its yearly sales are
the tantamount to the joint turnover of the 2nd and 3rd players of retail market, Lawson and
Family Mart. Tesco was facing limited opportunity to increase its sales and cover it overall
cost of operations.
 Prospective threat of new clicks-and-mortar entrant: With the increased preference of
online shopping among customers, the industry is facing severe threat of new e-business. It
will further add on to the existing high competition in the retail sector (Elms, De Kervenoael
and Hallsworth, 2016).
 Falling supermarket sales: The evidence shows that there is rapid decline in sales of
supermarket sales in host nation with drop of 1.2% whole to 1.05 trillion Yen in July 2011,
corresponding a drop for 20 continuous months on a year-on-year comparing. Further
statistics of July 2011, showcase the decrease in sales symbolize -0.6% in eatables, -2.7 % in
social unit products; -0.8% in wearable; -1.7% in Services and -3.3% in general items
(Cairns, De Andrade and Landon, 2016).
Hence, it can be stated that aforementioned factors are mainly responsible for the decision
taken by Tesco to withdraw from Japanese market.
TASK 2
2.1 Critically assessment Tesco expansion into the US market. Do you share the opinion of various
retail analyst that the venture was doomed from the outset.
Since, its inception that Tesco has started its expansion into international market by entry
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into US in year 2007. By 2009, the brand operated around 125 stores in the US market. It is
believed that host nation have highly price competitive retail market and the globe big spending
market. From 2006, statistics it has been identified that approximate worth of US grocery market is
pre than $501 billion. Further, it is predicted that market will have growth by 45% in the
consecutive 5 years. The Tesco have viable opportunity to increase its market share and profitability
in US market. The major threat that questioned company in planning entry into target market was
failure of British retailer like, Sainsbury, Marks and Spencer etc ( Strauss, 2016). There is high
competition in US market by leader like Walmart, Costco, Kmart, Albertsons, Whole Food Market,
Kroger, SuperValue etc. These retailers further target both price concerned and wealthy customers
ready to pay higher prices for gaining qualitative products. The main player and contender for Tesco
was Walmart with grocery sales of $109 billion in 2004. Thereafter, Tesco faced many issues while
expanding into US market.
The operations of company was criticised on the basis of excessive use of private labels. The
absence of loyalty card and scheme along with absurd locations of few outlets were some factors
that dissatisfied the few target customers. However, the organisation was able to win the hearts of
customer with creative store concept, customer friendly etc. Further, functions of company Fresh
and Easy store were impacted by sub-prime crisis( Chimhundu, 2016). The main reason for
outbreak of this situation in US was increased case of borrowers approved loans which they cannot
repay. Further, it was identified that company invested into expensive infrastructure whose only
1/3rd capacity was used. Due to lack of optimum use of physical resources it was stated that venture
was doomed from outset. Further, it has been identified from the case study that there is
improvement in sales, reduction in operating losses. however, due to lack of materialization of
economies of scale company was forced to take withdrawal decision from US market. The entity
has to pay £150 million un addition to previous £1bn write down of capital to leave the loss making
US business.
In my opinion,I share the same thought of different retail analyst that the venture was
doomed from the outset. On one hand, the company seemed doing better where significant number
of customer prefer the brand, sales were improving, loss were narrowing etc while on other the
stores were operating less than half of there capacity (Ghrmay, 2016). The failure to attain
economies of scale is among major reason for withdrawal of Tesco.
TASK 3
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3.1 Critically evaluate the attractiveness and challenges of the Indian food retail market to Tesco. If
Tesco decided to expand into the Indian market, would the decision be justified?
The case study, revealed that irrespective of presence of fruitful opportunities like, large
target audience, increasing disposable income of customers etc entity didn't expanded into Indian
market. Thereafter, Foreign Investment Promotion Board present a opportunity to Tesco To expand
into Indian market. The entity is planning to make investment of $110 million in India while it will
commence 3-5 stores every fiscal year. Tesco plan to provide variety of products to Indian customer
ranging from, vegetables, meat, fish, fruits, consumer electronics, jewelry, footwear, liquor etc
(Wood, Wrigley and Coe, 2016.). The Indian market is attractive option for Tesco as it is still not
tapped by many of international entrants. The Tesco will also get support of government as it w ill
help in improving the economy by not only investment of $110 million but also generating
employment for local individuals etc. However, the entity face issue in this respect regarding the
opposition by present ruling party which perceive this as loss to local business. The Indian market is
ruled by traditional sole proprietors. The major reason for its underdevelopment is limited diversity
in product range,poor marketing etc that prevent the well-informed customers to make purchase.
Therefore, Tesco can use its marketing tactics and intensive promotion style to grab the attention of
wide audience (Czinkota and Kaufmann, 2015).
The nation have large number of population which further provide opportunity to firm to
make optimum use of available resources. By attaining the economies of scale company will not
only able to improve its profit margin but also sell affordable products to major segment of middle
class customers. It is estimated that by 2010,12 million households will symbolize the prime target
customer segment (Middle class) for retailers. Thereafter,there is increase in number of wealthy
customers which provide possibility to brand to enhance profitability by serving them. The Indian
buyers also have high loyalty so company can assure maximum satisfaction among them to assure
there repetitive purchase. The another main advantages that Tesco can get after its entry into Indian
market is strengthening economy. The trends show that economy of India is improving to great
extent. Further, there is reduction in import duties which assure that Tesco is now taking right
decision to expand in Indian market.
One of the issue that Tesco will face in Indian market is that majority of customers still
prefer the traditional style grocery retailers that provide products at low cost etc. Therefore,
company can use it brand image to divert the attention of customers. It has also identified that there
is increase in brand consciousness among customers. Therefore, company can increase marketing
on various channels to generate awareness among customers. Further, Tesco will be able to get first
mover advantage, if it enters the market with creative techniques and business concepts. However,
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Walmart has entered the Indian market with alliance with domestic Bharti Enterprise. Therefore, it
is feasible to Tesco to use its core competence to stay ahead of its rival (Sintonen and et.al., 2016).
Therefore, there are many grounds that justify the decision taken by brand to expand into
Indian market. One of it is, less competition in the market. The large customer base is most viable
reason that justify decision of company to expand into Indian market. Thereafter, company will also
get positive support from government. Other than this,human resources are easily available in India
at low cost ( Strauss, 2016). The purchasing power of customers is improving along with increase
in no of wealthy buyers. The economy of India show positive results and is among developing one.
overall, it can be stated that Tesco must expand in India.
CONCLUSION
Summing up the entire study, it has been identified that, Tesco is one of the UK’s largest
retail companies which have established his first venture into the US market in November 2007. It
has opened under the name of Fresh and Easy Neighbourhood in the area of Hemet which has far
from 75 miles east of Los Angeles. With the time, company has expand its business in the UK and
other overseas location s with various strategies such as joint venture, acquisition etc. The recent
market share of Tesco is 30% and it has ahead with other retail organizations such as Asda,
Sainsbury, and Morrison etc. The present report was helpful in explaining several objectives
related to factors that compelled Tesco to withdraw from the Japanese Market and evaluation of
organization expansion into the US market. Further, then study also explored the attractiveness and
challenges of the Indian Food retail market to Tesco.
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