Q.How does Tesco create value in its international operations? Q.Evaluate Tescos foreign market entry modes. Should market entry into a developed foreign market differ from entry into an emerging market?

Tesco Tesco is the largest grocery retailer in the United King- dom, with a 25 percent share of the local market. In its home market, the company's strengths are reputed to come from strong competencies in marketing and store site selection, logistics and inventory management, and its own label product offerings. By the early 1990s, these competencies had already given the company a leading position in the United Kingdom. The company was gen- erating strong cash flows, and senior management had to decide how to use that cash. One strategy they settled on was overseas expansion. As they looked at international markets, they soon concluded that the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local com- petitors already existed, but in the emerging markets of Eastern Europe and Asia where there were few capable competitors but strong underlying growth trends. Tesco's first international foray was into Hungary in 1994, when it acquired an initial 51 percent stake in Global, a 43-store, state-owned grocery chain. By 2004, Tesco was the market leader in Hungary, with some 60 stores and a 14 percent market share. In 1995, Tesco acquired 31 stores in Poland from Stavia; a year later it added 13 stores purchased from Kmart in the Czech Republic and Slovakia; and the following year it entered the Republic of Ireland. 99 , fire smaller, high its partners have brought useful assets to the Tesco's Asian expansion began in 1998 in Thailand which have increased the probability of weens when it purchased 75 percent of Lotus, a local food the venture becomes established, Tesco has typical retailer with 13 stores. Building on that base, Tesco increased its ownership stake in its partner. Thus, had 64 stores in Thailand by 2004. In 1999, the com- der current plans, by 2011 Tesco will own pany entered South Korea, where it partnered with of Homeplus, its South Korean hypermarket chain Samsung to develop a chain of hypermarkets. This was When the venture was established. Tesco we followed by entry into Taiwan in 2000, Malaysia in 2002, and China in 2004. The move into China came percent. Third, the company has focused on markets with good growth potential but that lack strong di after three years of careful research and discussions enous competitors, which provides Tesco with with potential partners. Like many other Western companies, Tesco was attracted to the Chinese market ground for expansion. In March 2006, Tesco took its international expan by its large size and rapid growth. In the end, Tesco settled on a 50/50 joint venture with Hymall, a hyper- sion strategy to the next level when it announce would enter the crowded United States grocery market market chain that is controlled by Ting Hsin, a Tai- with its Tesco Express concept. Currently running in wanese group that had been operating in China for six five countries, Tesco Express stores are years. Currently, Hymall has 25 stores in China, and it quality neighborhood grocery outlets that feature a large plans to open another 10 each year. Ting Hsin is a well-capitalized enterprise in its own right, and it will selection of prepared and healthy foods. Tesco willini match Tesco's investments, reducing the risks Tesco tially enter on the West Coast , investing some 250 mil . faces in China. lion per year, with breakeven expected in the second As a result of these moves, by early 2005 Tesco had year of operation. Although some question the wisdom 814 stores outside the United Kingdom, which gener- of this move, others point out that in the United King ated 9.2 billion in annual revenues. In the United dom Tesco has consistently outperformed the ASDA Kingdom, Tesco had some 1,900 stores, generating chain, which is owned by Wal-Mart . Moreover, the 32 billion. The addition of international stores has Tesco Express format is not something found in the helped to make Tesco the fourth-largest company in United States the global grocery market behind Wal-Mart, Carrefore of France, and Ahold of Holland. Of the four, how. ever, Tesco may be the most successful internationally. By 2005, all of its foreign ventures were making money. In explaining the company's success, Tesco's man- agers have detailed a number of important factors. First, the company devotes considerable attention to transferring its core capabilities in retailing to its new ventures. At the same time, it does not send in an army of expatriate managers to run local operations, preferring to hire local managers and support them with a few operational experts from the United King- dom. Second, the company believes that its partner ing strategy in Asia has been a great asset. Tesco has teamed up with good companies that have a deep un- derstanding of the markets in which they are partici- pating, but that lack Tesco's financial strength and retailing capabilities. Consequently, both Tesco and