Introduction

            Tesco is one of the biggest retailers in the United Kingdom and also has a strong presence in the international market through the multiple stores it owns in different parts of the world. Its strong base in the United Kingdom has made it easy for the company to venture into different countries and dominate the market with its products and services regardless of the type of competition and different cultures present. While international operations have been relatively successful, the company has had a lot of difficulty entering and benefiting from the opportunities present in China. Although Tesco’s corporate culture has greatly favored the company in the United Kingdom, its emphasis in maintaining the same, or a similar operations culture in other countries has led to its failure to penetrate and benefit from the Chinese market.

Background

            Tesco has sought to venture into different markets such as Ireland, France, United States of America and China to mention a few. Its ventures have however had mixed result whereby the company does well in some countries but performs poorly and has to close down shop as it did in the United States of America. The challenges in succeeding in international markets stretch back to as early as 1979 when the company tried to exploit the market in the Republic of Ireland. When the company bought 51% of the Three Guys operation owned by Albert Gubay, the move resulted in failure especially because the company was not ready for expansion during that time (Hopkins, 2015). The company was not doing as well domestically and thus lacked the capital to fund expansion into foreign markets. The company was also operating on data collected regarding its success when venturing into international markets. Later on, Tesco had to divest the Two Guys Operation in 1986 to H. Williams, a supermarket company based in Dublin after it failed to bring in the profit it was intended when it was purchased (Hopkins, 2015). Although Tesco continued to conduct research on how to exploit markets in the European countries and the United States, its success was greatly challenged as was the case in China.

            The challenges that Tesco face are greatly influenced by the decisions the company makes when selecting which markets to exploit in its goal to expand to international markets. To begin with, the company’s market entry operated on a rather small scale approach despite its intent to success in the diverse markets that exists in different parts of the world (Holiday, 2017). Instead of creating a plan that was inclusive of all the requirements needed to success in a large market, the company treated its different international ventures as small scale venture despite all the requirements that must be fulfilled before a company becomes successful in the international market (Holiday, 2017). Instead of viewing the foreign markets as large ventures that need proper planning and a lot of research, Tesco overlooked all the requirements of international business operations and treated the target market as a region on its own and therefore failed to learn all that was required to successfully enter and succeed in the international markets.

            Tesco also saved stiff competition from businesses that were already present in the regions it ventured into as well as upcoming businesses. The presence of businesses like Wall-Mart, Carrefour and other retail stores meant that Tesco had to fight for the customers in the target markets and convince them to choose its products over others in the market. Its flawed market entry approach and the high level of competition made it difficult for the company to succeed (IBCC, 2016). Furthermore, the company sought to benefit from the opportunistic events that occurred within the retail markets it sought to venture into. Although the strategies it came up with positioned it in a way to benefit from the opportunities, they failed to prepare the company on how to go about meeting the needs and wants of the target audience during times where the opportunities were scarce. Instead of understanding the market the company sought to venture into, the market selection criteria only positioned Tesco to benefit from opportunities without enough data to determine how to satisfy customers even when opportunities were absent (BBC, 2013). The company was therefore unable to fully understand its customers and this had a major impact on Tesco’s inability to excel in international markets like China.

Problem statement

            Similar to its other ventures in the international market, Tesco had a hard time attracting and retaining customers in the Chinese market and only managed to capture only a small portion of the grocery market in China. The failure is greatly attributed to the fact that the company failed to fully understand the requirements of the market it sought to venture into. When Tesco failed to make the expected sales upon entry into the Chinese market, the company tried different approaches to try and attract more customers (Pendrous, 2013). Having established a solo strategy where the company did not affiliate with any other business in the Chinese market, Tesco had a hard time understanding its customer’s needs and therefore could not enjoy the same market share it had in the United Kingdom. Its attempts to sell live toads and turtles to appease the Chinese customers was not fruitful and the company had to result to other measures to try and strengthen its position in the Chinese market. In 2013, Tesco was forced to drop the solo approach and merge its 131 stores with China Resource Enterprise which had over 2986 outlets in China (Pendrous, 2013). The deal benefited both parties as China Resource Enterprise was able to borrow from Tesco’s expertise in the retail industry while Tesco benefited from the relationships that China Resource Enterprise had built with the government as well as its knowledge of the local market and the type customers present.

Another reason why Tesco failed to do well in China has to do with the late entry into the Chinese market. When Tesco moved into the Chinese market, there was already stiff competition from companies like Wal-Mart that had already moved into strategic store locations that were not only cheaper, but could also be easily accessed by the target customers. Early entry meant that Wal-Mart and other businesses had all the time to set up their premises, market their products and attract customers without too much competition (Nevile, 2013). It also meant that there were fewer similar products in the market and this gave customers the chance to determine which products to stick to and which ones to drop. When Tesco moved into the Chinese market, the competitors were already well established, had loyal customers, and the target audience comprised of people who already had a product or service in mind when they sought to satisfy a need (Nevile, 2013). Tesco therefore had to not only introduce its products into an already highly competitive market, but also convince the target audience that its products and services were better than those from the competitors. The aggressive competition therefore made market entry more difficult and it greatly contributed to Tesco’s failure in the Chinese market.

Lastly, Tesco failed to conduct enough market research and decided to use approaches that were successful in other markets such as the club card approach, especially with its success in the United Kingdom. In the implementation phase, the company quickly rolled out massive stores into the Chinese market with the hope of gaining a competitive advantage over its competitors with club cards as incentives (Anderlini & Waldmeir, 2015). While the move may have worked in the United Kingdom, it was not as successful in China especially because the target audience had already gotten used to shopping from one business to another and therefore had a lot of store cards. Tesco had once again failed to understand the market it sought to venture into as it did not understand how the target audience behaved when making purchases. Unlike the United Kingdom, store cards mostly benefited customers as they had multiple cards from different stores (Witzel, 2016). The target audience were of the opinion that having more choices of shops to buy from gave the customer more power and therefore had store cards from different businesses. What Tesco saw as a tool to beat the competition was actually a challenge that directly impacted the decisions that Tesco and other businesses in the market made in terms of prices, quality, quantity, marketing and other activities taken up by the businesses in the Chinese market seeking to attract and maintain customers. It is this lack of understanding the market that Tesco sought to venture into as well as its target audience that made it difficult for the business to succeed in China.

Implications and recommendations

            Tesco wanted to dominate the international market by first dominating the small regional markets that were yet to get the interest of other multinational retailers. In addition, the company sought to limit the losses associated with startups by entering markets one at a time rather than venturing into different markets at once. While the move did allow the company to enter different markets, it did not prepare Tesco for the challenges it would face even in the smaller markets it intended to serve (William & Thompson, 2010). Since the company entered the target markets with the belief that it would not face competition from multinationals, it focused more on how to benefit from the opportunities present but failed to prepare for competition because it was not expected. When competition did arrive, the company was ill equipped and wound up struggling to keep up with its competitors.

            The aggressive competition combined with the market entry approach made it even difficult for Tesco to succeed in China. The company wanted to attain success by exploiting the strength it had as a leader in the United Kingdom. It sought to establish a market position that would give a market share that would enable Tesco to operate using the lowest cost base so as to offer the best prices to customers for its products and services and in so doing, attain the best buyers (Barnes, 2018). Although the plan was likely to yield the expected results, Tesco failed to do its due diligence and learn all it could about the Chinese market. As a result, the strategy used made it easier for Tesco to benefit from the opportunities that existed in the market but made it rather vulnerable from any challenges that would come up. The opportunistic approach taken meant that support would be given to locations that were doing better than others so as to benefit from the opportunities present (Prange, 2016). The store by store development approach made it difficult for operations to go on especially when there were no opportunities to exploit, thus limiting the efficiency of the business’ operations strategy.

            In order to succeed in China and other international markets, Tesco must first change its mode of entry into new markets. When venturing into the Chinese market, the multinational entry mode meant that the main branch in the United Kingdom had to manage the requirements of both the small ventures pursued by the company as well as entry into markets like China where aggressive competition existed. While the small markets may have been easy to enter, those dominated by stiff competition like China required more attention and market research (Barnes, 2018). The workload involved in market research for all these new ventures created a lot of work in relation to research on the type of market, the type of customers and how best to enter these markets and satisfy the customers’ needs and wants. Instead of entering different markets at the same time, Tesco should have treated each market as a separate entity and devoted enough time and effort into understanding the requirements of a business that sought to do well in a market like China.

 

PESTEL analysis

            One approach that Tesco should have taken in order to better understand the Chinese market in order to enter and benefit from the opportunities present should have involved a PESTEL analysis of the region. Like any business environment, understanding the factors that determine how business is conducted as well as what approaches are most likely to be successful would have helped the company develop a better and more detailed market entry strategy (Tian, 2007). The information would have also ensured that the company is aware of both opportunities and challenges it is likely to experience in China and what approaches to take in order to benefit from the opportunities as well as overcoming any challenges that may arise.

• Political factors

China stands to greatly benefit from the various policies and regulations passed by the government with the intent to boost the economy. The Chinese government is determined to improve the level of production in the country and this is likely to have a positive impact on the economy and business (Tian, 2007). Had Tesco conducted enough research on its target market, it would have identified areas that are likely to benefit from the political factors in the country and identify ways in which it can make its products and services meet the demand created by an improved economy.

• Economic factors

China has experienced growth in its GDP for over five consecutive years making it an ideal region to target as a potential market for business. The development experienced has brought about great development as it boosts the consumer’s purchasing power. A good economy also means that there is cheaper labor and this helps employers to cut down on cost. Another advantage of a strong economy is that the goods and services increase in value especially when exporting to other countries (Tian, 2007). Understanding the economic factors can help Tesco to better understand the market and what requirements it has to fulfill before making profits in its new market. Strong economies for instant make the environment highly favorable for SME’s and their presence means a great level of competition. The information can be useful for Tesco as it will be able to understand the type of approaches to take in order to do well in its new market.

• Social factors

Family size and social behavior are some of the social factors that impact the way in which customers purchase products and services. Understanding what drives the target customers to make purchases is crucial to creating an appropriate market entry approach as it helps to better anticipate they type of products and services the customers want and how best to make them available (Tian, 2007). Other than influencing the purchase decision, social factors also determine how customers get to know about products and services. E-commerce, for example, is popular in the country and people go online for various reasons, among which is to conduct research and collect information regarding products and services they wish to purchase. Technological developments have also made it possible for customers to make payments online and businesses must create an online platform to ensure that customers get the most out of the online shopping experience. 

• Technological factors

Understanding the level of technology used helps to determine the approach used to offer goods and services to customers as well as how they pay for the services offered. In the case of China, the country has a rather unsafe online mode of payment and customers rarely use online transactions to purchase goods. Debit cards are not as common either and businesses seeking to exploit the Chinese market must therefore find a way to offer the goods and services especially with the introduction of online shopping yet still guarantee the security and comfort associated with other mode of payment (Tian, 2007). Tesco should have exploited the lack of a safe online payment system and developed a more secure way for customers to make purchases and in doing so, gain a competitive advantage as customers would have found it easier to use services they can trust.

• Environmental and Legal factors

The environmental and legal factors greatly determine a business’s ability to conduct business in the market it seeks to satisfy. Since the trend has shifted towards E-commerce in china, Tesco could have used online shopping to advocate for preservation of the environment as people would have made purchases online and therefore no need to drive to actual stores. Online shopping therefore means little emissions from motor vehicles and Tesco would have managed to establish itself as a company with China’s best interests at heart hence the push to protect the environment (Tian, 2007). E-commerce also means that the customers are more likely to buy online even with the lack of security in the modes of payment used. Tesco could therefore come up with secure modes of making transactions as well as abide to the laws and policies set in place by the Chinese government to help prevent theft and scams on the online platform and in doing so, encourage customers to purchase more since their transactions are now more secure.

Conclusion

            Tesco’s inability to succeed in China is greatly due to its lack of proper analysis of its target market and unwillingness to change. The company’s emphasis on using the same or similar operations culture in China s the one that brought it success in the United Kingdom did not take account of the differences between the two regions. Even when ventures such as the solo approach when setting up stores failed, Tesco was hesitant to consider new strategies that borrowed from the Chinese culture. While Tesco was successful in the United Kingdom, understanding the differences that exist in other parts of the world can greatly help when venturing into international markets. This is because people have different customs and traditions and their culture greatly influences their purchase decision. Tesco must therefore learn to take culture into consideration when determining a market entry approach as this will give a better understanding of the target audience, their needs and how best to fulfill them in order to succeed even in the Chinese market.

 

 

 

References

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