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The Success of Tesco’s International Expansion in South Korean Market. Examination and Analysis of Key Factors

Bachelor Thesis 2011 30 Pages

Business economics - Trade and Distribution

Excerpt

CONTENTS

Dissertation

Executive Summary

Introduction

Research Question

Research Objectives

Literature Review

Globalization and Internationalization

Factors Influencing Business Decisions for Internationalisation

Internal Factors

External Factors for Globalization

Types of international strategy: Multi-domestic vs. Global

Global Strategy

Multi-domestic Strategy

Research Methodology

Findings

Market analysis

FDI Strategy of the Host Market

Market Entry Strategy

Averting Challenges Faced by Tesco

Strategic Leadership of the Company

Business Strategies

Analysis of the Finding

Conclusion

Consultancy Report

Executive Summary

Introduction

Key Findings

Conclusion

Recommendations

References

Introduction

Tesco is one of the U.K.’s most popular retail companies and its undisputed market leader. Tesco has more than a third of the UK’s grocery market having annual sales of £38 billion. The company is increasingly sighting its international operations in Eastern Europe and more recently in Asia for its growth (Davey, 2009).

A wide range of literature available on international business and strategy indicates that while being advantageous, global expansion by big retail firms also involves considerable risks (e.g. Kacker, 1986). However, there is relatively less research on factors that determine the success or failure of U.K.-based retailers like Tesco in emerging markets such as South Korea. This forms the central premise of this study. South Korea has been an attractive target market for multinational firms in a wide range of business sectors; with retail supermarket sector being one of the most attractive. The country’s huge, and expanding middle and affluent class and their increasingly sophisticated preferences for various consumer products poses an enormous window of opportunity for retailers like Tesco Plc (U.K.).

Research Question

This dissertation will address two key questions:

How did Tesco sustain growth in South Korea while several of its global competitors such as Wal-mart failed?
- How did it manage the sensitive cultural, human and business issues which confront companies aiming to expand into overseas market?
- Which corporate governance and structure strategy is best suitable for retail businesses expanding in overseas market with significant cultural differences?

Addressing question will require an examination of Tesco’s internationalization strategy. It will involve studying into how Tesco’s strategy translates to ‘local’ business customs and values in order to satisfy the tastes and expectation of ‘local’ consumers.

Research Objectives

Tesco’s growth strategy in South Korea merits academic investigation because it holds lessons for retailers seeking to expand market share and presence in lucrative emerging markets like India, China, Vietnam and Brazil among several other developing markets (see Alexander & Myers, 2000; Buckley & Ghauri, 1999). South Korea is particularly attractive because the retail market is fragmented, with many small players; the time appears ripe for general consolidation by a few big multinationals. Although Wal-mart and Carrefour entered South Korea a decade ago alongside Tesco, both these companies made many mistakes and learned that it is not a good idea to replicate its home (U.S.) strategy in South Korea (Capell, 2003).

Literature Review

Globalization and Internationalization

Czinkota et. al. (2005) explains, a “global business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies and organizations.” (p.4) According to Dunning (2000, p. 14) globalization is “a process leading to the structural transformation of firms and nations”. Albrow (1990, p. 9 cited in Pieterse, 1994) considers globalisation as “all those processes by which the peoples of the world are integrated into a single world society, global society”. The idea of globalisation can be viewed from several perspectives. In economical perspective, globalization can be explained as the internationalization of capitalist market or increasing market relations worldwide. Both the terms globalization and internationalization are often used interchangeably, notwithstanding the distinction made by some of the researchers between two (Trilokekar 2007, p.14).

Knight (1999) asserts that the primary difference between these two terms is the way they approach international business. Globalization basically emphasis upon the relationship established among several stakeholders and actors in an interrelated world. Knight (1999, p.14) explains that “globalisation is the flow of technology, economy, knowledge, people, values and ideas across borders.” Globalization carries on with “the nature of relationship” among various actors, their influence on the global economy (Mishra 1999, p 74).

However, internationalization concentrates upon the analyses of the effects of globalization from a state-centric point of view. Knight (1999: p.14) explains that internationalization is a phenomenon which determines the “ways a country responds to the impact of globalisation, yet at the same time respects the individuality of the nation.” This difference helps us in distinguishing global and international strategy and its simultaneously operating models. It is essential to understand this distinction for analyzing Tesco’s success in South Korea.

Factors Influencing Business Decisions for Internationalisation

The contemporary factors influencing business decisions for internationalisation can be divided into two main categories: internal and external (Organisation for Economic Cooperation and Development 1997: 43).

Internal Factors

There are several important internal factors that revolve around the various resources available to a firm. According to Etemad, a firm’s resources in this regard refers to “all assets, attributes, capabilities and processes owned or controlled by a firm, which can enable it to conceive and implement strategies for improving its competitive position” (Etemad 2005: 63).

Such resources include various human, financial and technological assets and as Borghoff (2005: 132) contends taht “firms can be conceived as internalised bundles of resources.” These internalised bundles of resources can be “allocated between product groups and between national markets” (Borghoff 2005: pp.132).

The competencies of a firm are another important internal factor that influence its internatiolisation strategy because they furnish an organisation with a competitive advantage over its competitors. A firm’s competencies include “knowledge-based, resource-based and situational approaches, found within the firm’s adopted technology, market knowledge and strategic planning” (Senik 2010: 92-93).

Another vital internal factor behind a firm’s internationalization strategy is its strategic orientation. If a firm prefers to focus upon its domestic markets and its core products, it is likely to shun the process of internationalisation. On the other hand, firms with a strong entrepreneurial orientation are very likely to engage in the process of internationalisation (Wiklund 2006: 313).

The final internal factor influencing a firm’s internationalization strategy is its own characteristics. Firm characteristics, such as “firm size, age, structure, products, firm industry, ownership status and location of the firm,” are vital influencing business decisions for internationalisation (Senik 2010: 94). Although in some cases, firms may disregard this traditional model; however, this there is a large degree of consensus in the academic literature that firm’s characteristics are an important driver for internationalization.

External Factors for Globalization

There are also several external factors that influence a firm’s decisions for internationalisation. External factors have a greater impact in this regard as these are likely to affect an entire sector and a multitude of firms contained within it. One of these factors is the market environment. When a firm approaches a decision for internationalization, it carefully assesses the market environment and market conditions of both their current markets as well as those in other countries. Some of the important issues considered in the market assessment are the potential profitability of the market, its size and the resources and incentives that such markets offer particular firms (Buergel 2004: 10).

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Details

Pages
30
Year
2011
ISBN (eBook)
9783656588177
ISBN (Book)
9783656588160
File size
575 KB
Language
English
Catalog Number
v267070
Institution / College
University of Kent
Grade
A
Tags
success tesco’s international expansion south korean market examination analysis factors

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Title: The Success of Tesco’s International Expansion in South Korean Market. Examination and Analysis of Key Factors