International Trade and Tesco: Expansion Strategy in South Africa

This report examines Tesco's strategic expansion into the South African market, analyzing the key issues and business challenges related to international trade. It provides a background of both South Africa's emerging economy and Tesco's global operations, highlighting the opportunities and obstacles Tesco faces. The report delves into trade agreements, non-tariff barriers such as assistive and non-protectionist policies, and governmental regulations that impact Tesco's operations. It emphasizes the importance of understanding and adhering to local trade policies and licensing requirements to navigate the complexities of the South African market. Ultimately, the report offers recommendations for Tesco to successfully manage international trade and overcome potential barriers in South Africa, ensuring sustainable growth and market penetration. Desklib offers this solved assignment and many more resources to help students excel.

Managing International Trade

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Background of the country:.........................................................................................................3
Background of the company:.......................................................................................................5
Analysing the key issues & business issues in global trade that affects the businesses..............6
Recommendations......................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Every business organization plan to expand in international market, these organizations
have huge success in local economy and now plan to trade in foreign and emerging economies. It
is very clear that those firm who plan expansion have to face various issue and challenges which
even can lead to overall failure of the company, that is why identifying the issue in the economy
related to the industry is very important and manage international trade (Hiscox, 2020). This
study is based on Tesco, this company is one of the largest and the most successful retail giant of
the UK. Tesco after getting success in local market now planning to expand in South African
international market. South African economy is still developing which can be challenges for
Tesco to manage their expansion in this country (Tesco, 2021). In this report, will discuss
background of the South Africa as a chosen country and will discuss background of Tesco as a
chosen company. Later this report, will discuss how Tesco manage international trade in South
Africa and will discuss major issue of retail sector of the country and how this effected the
business organization. At last, this report will provide recommendations.
MAIN BODY
Background of the country:
South Africa is one the most enlightened country of African continent, this country is the
powerhouse of the African continent because this country have being fuelling the development
speed of whole continent. South Africa have emerging economy which provide promising
growth to the foreign giant who plan to invest in the local market, this country have first-world
economic infrastructure who tend to welcome international companies to deal in the emerging
economy of the country (Arndt, et.al., 2020). The GDP of the country went up to 301.92 billion
US dollar alone in the year 2020. According to the World Bank, South Africa contribute 0.27%
in the development and betterment of the world economy.

The above data show that South Africa is on the way to become one of the developed
country of the world, this country have being showing great performance in GDP growth but it is
very clear that growth was heavily impacted by the COVID-19. South Africa have emerging
economy which means they have chance to reach milestone of 320.9 Billion dollar by the end of
2021.
South Africa is located in southernmost part of the continent which means most of the
growth can be seen from the import and export activities, Port of Durban is one of the largest and
main port of the country. This port manage 60% of water transportation traffic of southern
African coastline. While South Africa and it's emerging economy is going well, there are certain
issue in the business environment of the country (Jones and Muller, 2016). There are certain
trade barriers in the country which will impact the company who are planning to invest in the
emerging economy and local market of the country, these barriers include tariff policy of the
country and non tariff barrier. NTB (Non Tariff Barrier) include port congestion, permit of
import, custom value added to already established invoice price, technical and anti dumping
standard, IRP and many other issue which become the biggest barrier in the growth. Market
giants like Tesco who wish to enter market of South Africa need to face these barriers, these
barriers are very much related to import and export of the goods.
Illustration 1: The GDP of South Africa
(Source: Trading economics)

From the above data it is very clear that South Africa's retail sector is growing since 2013
to 2021 with a growth speed of 3.5%. This sector is being contributing the betterment of the
country but after the impact of COVID-19 retail sector have struggled to grow. Many
international retail giant like Tesco who are planning to trade in the South African market have
to face certain emerging barrier as well as barrier from the COVIS-19. The retail sector of the
country is going well so Tesco have chance to win the up coming retail market trend of South
Africa (Sisk, 2017). Tesco do not operate in emerging market of South Africa, they have great
opportunity to deal in these market, but they need to analyse certain issue which is going to be
discuss in this report.
Background of the company:
Tesco is one of the largest and the most successful retail giant in the world, this company
deal in retail sector with wide range of product including grocery and general merchandise.
Tesco actively contribute in the betterment of the country's economy, this company have being
operating in many other countries. Tesco have wide range of product which means they can have
Illustration 2: South Africa Retail Sales Growth
(Source: CEIC DATA, 2021)

great market share in the retail sector and can win the customer in the market. This company is
well know for its high class customer service and delivering antique customer experience to the
customer. Tesco background show that this company have being growing since it was
established, this company was established Jack Cohen in the year 1919 and its first ever brand
was established in the year 1924. This company tend to use Clubcard system which means
customer get points after transaction which later can be used in availing shopping discount, this
trick of Tesco keep their customer engaged shopping with Tesco (Chowdhury, 2016).
Tesco fall in the category of retail sector and retail sector actively contribute in the
betterment of the country, Tesco is being providing surplus revenue to the UK. It is very clear
that retail industry of every country have great competition which means even Tesco have great
brand name and reputation they have being facing and have to face competition in this industry.
Tesco's biggest competitors are, Sainsbury, ASDA and Morrison. These four retail giant
including Tesco rule the retail industry of UK and have footprint in retail industry of the country.
Tesco face huge competition in every provide line they have, it is very clear that every product
have its substitute which make the value of original product low in the market and shift the
customer to chose competitors., but still Tesco is being performing well in the market. Tesco use
different strategies to win the customer in the market, this company know that substitute
products of the competitors only can be defeated by providing high quality product. Tesco tend
to deliver high quality product in affordable price, this company value their customer that is the
reason why this company always remain market king. Tesco have greater plan to expand in other
border as they have funds but this company is planning to expand their store in the South Africa
they need to identify and analyse key issue in the process which are related to the economy of the
country. Tesco have great opportunity to use their surplus profit in the expansion activity
including expansion in the other foreign market part from South Africa, Tesco can win the
market and can become successful in other foreign market.
Analysing the key issues & business issues in global trade that affects the businesses
International trade refers to the exchange of goods and services across the border. This
opens up the various opportunities for the firm in order to touch the higher rate of success. But,
as it has been known that success always comes with large number of struggle. Same goes here,
opening a business across the border is not an easy task. The business has to analyse the number
of things in order to establish their business across the border. There are various international

trade issues that has to be faced by the firm in order to establish the business in the international
market (Corbett and Winebrake, 2018). TESCO has planned to open its branch in South Africa.
The company is one of the leading firm in the retail sector. It has been found from various
studies that, the economy of South Africa is on a high emerging rate. Thus, it is the best place to
open up the business. In order to open up the branch of the chosen company in the chosen
country it is important to analyse all the international trade issues along with the business issues
that may affect the decision of the TESCO. An effective analysation act as a strong base in term
of guiding the executives of the TESCO. In Order to understand this with clearance, here are
those key issues along with the business issues:
Trade agreement- This refers to that agreement which involves the signing of the contract
between the two countries under which the trade activities is going to perform. Different
countries have different policy and therefore, the business has to understand the trade policy of
that country in which the company has to be established. As TESCO is planning to grow its
business in South Africa (White and et.al., 2021). Therefore, it is important to have the effective
understanding of all trade policies that has been adopted in the South Africa. The major issue
that may be faced by the TESCO under trade agreement is the Non-Tariff barriers. In South
Africa the trade policy of the government strictly focusing on the Non-tariff duties.
As this is one of the weapon that has been used by government in order to maintain the
stability of the economy. The nation is protecting their local industries with the help of non-tariff
implications. The government has an effective control over the imports and exports of the good
in South Africa. This will act as barrier for the TESCO. Already there are large number of local
retail sector has been opened up in the country. And government is protecting them by putting
trade restrictions over the foreign companies. The major policy under the Non-tariff barrier that
can highly impact the TESCO is:
Assistive policies- The international trade administration commission of South Africa has
adopted this policy under the Non-tariff policy. Under this, the government has put the certain
restrictions over the new companies that are establishing their branch in the country. Such as,
“restricting the trade with other countries in order to protect local markets” The TESCO PLC has
to face this issue their trade activities are managed by the government (Gusonka and Polyova,
2018). There is high chances of excessive interference of the government in the key decision of
the company.

Non-protectionist Policies- This policy is related to protecting the environment. As TESCO is a
retail industry. The firm has to produce the large number of retail goods (Aránguiz and et.al.,
2021). The company is establishing their industrial plant as well in South Africa. In accordance
of this policy, the company has to make keen focus over performing the ethical consideration
towards the environment. Otherwise, there is a risk of high penalties by the government.
These key issues of the international trade leads to affect the decision of production in the
company. The company makes an effective plan in relation of producing the goods for their
customer. In South Africa, there is high demand for the retail goods. And TESCO has high
goodwill in the international market. It provides goods in the affordable prices along with
ensuring the quality. Therefore, the public of the South Africa will prefer the products of the
company. And in order to protect the local retail market, the government will make high amount
of interference. In order to face this issue, the company must focus on performing all the trade
policies that has been determined by the government of the country. Most importantly, the
company has to focus on their licensing (Yamaguchi, 2018). This is an instrument that helps in
facing the issues of the international trade. The international trade license provides the copyright
to the company in order top perform their activities in smooth manner without having higher
interference of the government. Within this, the firm has to put high focus over performing
corporate social responsibilities. This ensures the safety towards the environment. This leads to
lower the risk of the international trade issues.
International company structure- This is one of the major international business issues. It
involves the establishment of the firm's manufacture plant and stores in the selected country in
which the business has to established. As TESCO is planning to open manufacturer plant as well
in the South Africa. Therefore, it is important to decide the location where the plant can
established. In South Africa the administration commission is highly focused over saving the
environment. Therefore, this is one of the hard task for company to decide the location for
establishing their manufacturer plant. The stores of the company that has to be opened in the
South Africa needs to take the permission from the government. After that only, the company
gets the copyright in order to ensure their sells (Goldfarb and Trefler, 2018). If all the legal
formalities has not done with the administration.
Then this leads to imposing heavy penalties over the TESCO. In order to solve this issue,
the company must open their manufacturing plant in those areas where there is less population.

So, the production activities of the organization does not affect the public and within this, the
company has to make sure that they are performing their ethical consideration by using
environment-friendly methods of production. It has been found from various studies, that
TESCO has been proven effective enough in performing their ethical concern towards the
environment. Thus, the company can easily handle this issue.
International accounting standards- These are the bunch of set accounting standards that has
been made for the international firm in order to run their operations and for managing their
accounting. It has been analysed from the studies that in South Africa, the international trade
commission highly follows the accounting standards principles. Therefore, it is important for
TESCO to maintain all those set of accounting standards that has been made for carrying out the
activities of the international firm. Otherwise, the license can get cancelled by the administration.
This element of the global trade puts heavy impact over the operations of the business. This is
just not limited to maintaining the principles of accounting standards (Rensmann, T. ed., 2017).
Within this, it involves the trust and faith of the government along with public towards the
organization. Those companies that delivers the wrong data faces the certain charges in
accordance of business law. Therefore, it is important for TESCO to maintain all those
accounting standards that has been stated by the IFRS.
Changes in currency rate- This has been considered as one of the biggest international key
issue for the business. This refers to change taking place in the value of currency. A business
must have the effective knowledge in relation of this as this impacts the over all growth of the
business. TESCO is planning to open their branch in chosen nation. Therefore, it is important to
provide a keen focus over the international market where the changes in the values of the
currency takes place can be known. As the company has to approach the suppliers, labours and
employees from the South Africa and therefore, the payment has to be made in their currency.
Any fluctuation in the currency will affect the payment scenario of the TESCO (Delatte and
Jean, 2017). As a result, the operations of the business gets affected. In order to solve this issue,
the firm has to make a keen focus over the international market. This leads to provide the
important information to the company. As a result, the organization can be prepared for the
changes.
Supplier chain- In order to ensure effective production it is important to have efficient raw
materials and resources. As effective input delivers the potential output. In South Africa, the

suppliers has enough power in terms of fluctuating the prices of the raw materials. This is one of
the key problem for TESCO. If the suppliers increases the prices of raw materials then it
increases the cost of production. As a result, the prices of the goods increases. TESCO is famous
for its affordable price strategy (George and Rengamani, 2018). And this issue results in
affecting the strategy of the business. In order to resolve this issue the company must approach
the different suppliers. The more options leads to more alternatives. At the time of price
increases by one supplier the firm can approach the another supplier. Effective connection with
the supplier is needed in terms of solving this issue.
Foreign direct investment: foreign direct investment means the cross border investment
activities, this is a term used in the international market to understand the company's growth and
their value of interest. Many cross border investor review the FDI activities of the company, FDI
simply means substantial investment of the company in the foreign market. In the process of FDI
company try to invest in foreign market, some of the business organization look for open
economies who tend to welcome these foreign giants in the market (Jones and Wren, 2016).
There are certain type of foreign direct investment such as horizontal, vertical and conglomerate
investment. It is very clear that growth of every economy have slow down because of the impact
of the pandemic, this impacted the speed of growth of market giant as well. Tesco who always
look for investment have opportunity because UK attract world to invest in their local economy,
but Tesco is planning to expand in South Africa market where the FDI stability is still
developing. South Africa always look for foreign direct investment to better their economic
structure and growth, they welcome those market giant who have great success in the local
economy (Cole, Elliott and Zhang, 2017).
For Tesco who are planning to invest in South Africa have to face certain issue regarding
foreign direct investment policy of the country. Tesco have to be face issue regarding the weak
FDI structure of the country, this company will face major issue regarding the private ownership
and long term establishment in the local economy. Major issue such as changing exchange rate
have influenced FDI policy of the country which means exchange crisis might occur in the
country which can shake the balance of foreign direct investment in the country, it is very clear
that every business organization fear the issue of exchange crisis in the country where they are
planning to invest in the country (Seid, 2018). Some foreign direct investment related issue

which occur in the process of organization which become barrier, company need to have strong
base in the local economy to keep it as a backup plan in the case of expansion failure.
Recommendations
Here are the major recommendations for the TESCO that can lead to solving the
international trade factors and helps in performing business operation in South Africa. As it has
been analysed that the government of the South Africa is highly concerned about saving and
protecting the environment. It is important to make the effective relation with the government of
the country so, the business operations can be done in smooth manner. Therefore, the company
must adopt the concept of sustainability. As this ensures the eco-friendly and environment-
friendly method of production. In South Africa the labour are easily available therefore, the firm
must focus on approaching the labour and provides an assurance of safe labour practices.
The excessive availability of the labours lead to less cost of production. As a result, firm
can have the assurance of increasing in profit. The another recommendation for the firm is to
perform all the legal formalities of the trade agreement. This enables the organization in order to
save themselves from the Tariff and non-Tariff issues. The major recommendation to the
company is to adopt the effective skill of critical analysation. As it enables the company to have
the knowledge regarding the changes that can affect the business in drastic manner (Dean and
et.al., 2020). Pre-knowledge regarding the different aspects of global trade helps in adopting and
facing the changes in effective manner.
CONCLUSION
From the above report it has been concluded that, international trade is concerned with
large number of key issues and the effective understanding of all these problems is required in
order to run the operation at the global level. It is important for the business organization to
critically analyse all the important aspects of the international trade that can affect their business
operations (Owens and Zhan, 2018). There are different types of business and various policies
has been designed for all those businesses at the global level. Those countries in which the
business has to be established plays the mandatory role is solving the global key issues of
business.
An organization must have the effective knowledge in relation of the rules, regulation of
all those particular nation in which the business has decided to perform their operations. All the
problems that has been described under this report affects in different manner to the business.

Trade agreements restricts the operations of the business, FDI leads to sharing the control of the
firm, changing currency rate affects the stakeholders of the business and so on. Thus, it is
important to have the effective knowledge of all these issues in order to solve the affairs. As a
result, the business grow on a high note. Lastly, the report shows the recommendations regards
of solving international barriers for the chosen organization that wants to open their branch in
chosen country.