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TESCO CASE STUDY

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by

Yang Zhao

on 17 November 2014

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Transcript of TESCO CASE STUDY

Case Study
Question2 :
Evaluate Tesco’s international expansion in the context of Yip’s drivers of globalization framework
Introduction
Q1:Identify the Reasons behind Tesco's
Internationalisation Strategy

Tesco's background information
Three reasons to go Internationalisation

Q1:Identify the Reasons behind Tesco's Internationalisation Strategy

Q2:Evaluate Tesco’s international expansion in the context of Yip’s drivers of globalization framework

Q3: Comparison among Tesco's performance in Thailand, South Korea and Taiwan

Evaluation of Cost Drivers


Mission: 'To become an outstanding international retailer in stores and online.'
Founded in 1919, world's 3rd largest retailer and the UK's largest private sector employer.
Due to Internationalisation, one third of profit and employees now overseas.

Facts and Figures

£72billion worldwide sales, with an estimated £35.2 billion in international revenue for 2012.
£3.8billion profit in 2012, £1.4 billion internationally.
500,000 employees worldwide, 200,000 internationally.


Evaluation summary
Advantages
Evaluation By Market Drivers
Three Reasons to go International
2.Cost reduction
3.Risk-reduction
Reasons behind Tesco's Internationalisation Strategy

UK market is saturated, expansion a necessity to remain globally competitive.

Shareholders demand growth, international expansion is crucial to achieving this.

Greatest potential for growth is in emerging markets (i.e. East Asia, BRICS, Eastern Europe) where there is a gap in the market for 'modern retailing.'

Supermarkets are where developed countries shop, in the future there will be no developing nations, therefore first mover advantage is important.

Yip's Globalization Framework
Similar customer needs


Transferable marketing



"Tesco Express" Operation


Advantages:
Disadvantages:
Similar customer needs


Transferable marketing





Advantages:
Disadvantages:
Scale economies
- Lower production/labour in Asia

Logistics
- Mumbai gives Tesco favourable logistics

Disadvantages
Market and Product developments in US are hard, have never made a profit, at a cost of £1.2bn

Price war
Export and inflation gaps in different countries

US start-up losses since 2007/2008

Sustainable development in Asia

Rapid liberalization of previous developments

Restrictions on retail

Lower Production/labour

Rapid economic growth

Superior logistics

Pulls out of USA Market

High competitions

No profit

Similar customer needs

Government barrier

Q3:What factors might be considered in assessing Tesco's performance in Thailand and South Korea?


the Asian economic crisis of 1997/98

The local companies need large amounts of cash injections, which gave Tesco a chance to enter Thailand and South Korea’s markets.

Background
Entrance
Joint ventures: Thailand-Lotus (75% share) South Korea-Samsung (81% share)
Tesco and its local partnerships put their own useful assets into this joint venture and increased the possibility of success.


Save early promotion expenses and customer development costs
acquire customer resources quickly

Great strategy: bring tesco’s business huge convenience and profit.

Use the brand popularity of the local leader firm to decrease antipathy towards tesco
get the local customers’ trust and favor



After market expansion, tesco acquired the controlling interest by dilution the local partnerships’ share

Thailand: Lotus (0%) South Korea: Samsung (1%)

substantial and continuous post-entry to capital investment : to build scale and accrue Market leadership advantages
Build scale and accrue Market leadership advantages

In Thailand : be pumped entirely into organic expansion has required store development programme of considerable flexibility

In South Korea: acquisitions-------another way of expan market


Effective Strategies


Low-cost strategy ,the Critical Step: Control costs
small convenience stores without the limit of opening hours

Stores are situated close to the city center, convenient transportation Location
Localization Strategy (what the relevance do cultural attributes have for brand management)

Choosing Location and shopping preferences adapt to local habits
e.g. Koreans care more about the freshness

Hiring local people as managers, paying more attention on cultural integration
Tesco in Taiwan(2000-2005)


• Taipei - the first Tesco Store set up in the densely populated urban area.

• Expected that Tesco would gian £600 million in revenue

• 6 Tesco Stores only 2 stores made profit

• Carrefour annual turnover was £970m(with 34% market share) com-pare to Tesco only got £140m

• Tesco handed over six loss-making stores and two development sites in Taiwan worth £90m to Carrefour. Carrefour gave Tesco 11 stores in the Czech Republic and four in Slovakia, worth £129m.

• Tesco’s 2,200 Taiwan employees were transferred to Carrefour.

Final Results
Non-success reasons:
• Without local partners.
• Complicated local policies

Evaluation of Competitive Drivers
UK Market high competitive market falling

Domestic competitors:
Sainsbury & Asda

Global Competitors:
Wal-Mart & Carrefour

Force Wal-Mart & Carrefour exit from South Korea

Advantage:
Competitors’ of global strategy
Wal-Mart & Carrefour threats (main USA)

Growing threat from discounters (Poundland, 99p store)

Disadvantage:
Evaluation By Government Drivers



Standards of local third-party production



Policies


Anti-Monopoly office



Large-scale –acquisition barrier in the USA

Reduction of barriers to trade and investment/ownership restrictions
Cross-Region swap of retail assets
Brand value & effect: Samsung-Tesco
1. Increased sale:
Group Members:
Xiaoxiao Guo 100791501
Yuqing Wu 100807290
Tianwei Han 100789706
Kaori Ogura 100805422
An-Jui Lee 100784607
Mei Bai 100803834
Yang Zhao 100795966
Yangyang Liu 100802464

CONTENT
Background Information
Global Expansion

Escape domestic market maturity
Stagnant growth in Triad market (US, Japan, and Western Europe)

Exploit local advantages
Gain competitive advantage by drawing on unique capabilities of particular localities or clusters

Three reasons to go international
Spreading fixed costs (scale economies)

Global sourcing (cheaper inputs or in cheaper operating locations)

Achieving vertical integration



Smoothing sales and profits






Preventing competitors’ advantage


Self-scanning checkout
Tesco Brand in Thailand and South Korea
White space the core positioning of Tesco Brand in the USA
‘Fresh & Easy’ failed in the USA
Tesco Brand in Taiwan
‘Fresh & Easy’ brand in the USA
Cash injection in Thailand and South Korea for partnership
No partners in Taiwan
Blocked a cross-region swap of retail assets
Unbeatable French Rival-Carrefour (1989-Now)
Carrefour already had market dominance in Taiwan over a decade.
It entered Taiwan through a joint venture with Uni President Enterprises Corporation.
Business district of Carrefour overlap with Tesco.

Conclusion of Tesco's performance
Saves on transaction costs

Reduces bargaining power of suppliers or buyers

Timing of business cycles

Reduces dependence on existing buyers and suppliers

Less vulnerable to supply shortages
Global competitors may cross-subsidise operations in other countries
Full transcript