Tesco case

Figures derived from Tesco Annual Report, 2009.

of supermarkets’. In response to regulatory pressures, Tesco progressively refocused ts operations and capital investment in an attempt to secure long-term growth – diversifying into non-food products and retail services (personal finance, telecoms, online shopping channels) and, most significantly, expanding out of its home market via one of the most comprehensive and sustained international diversifications ever attempted by a I-JK company.

After commencing the first stage of international expansion in Europe – entering the emerging post-Soviet consumer markets of Central Europe in the mid-1990s (see Table 1) – Tesco launched the next stage of its strategy in 1998. Following Terry Leahys appointment as CEO in 1997, it committed to an Asian expansion programme, initially entering Thailand and South Korea. The growth potential of the Asian markets had been extensively researched by the firm for a number of years.

However, the immediate catalysts for entry were the rapid liberalisation of previous restrictions on retail FDI across East Asia, and opportunities to make strategic majority-share acquisitions of fledgling but potentially market leading retail businesses at discounted prices, which resulted trom the Asian economic crisis ot 1997/98.

Tesco’s subsequent expansion in Asia was ramatic. Just 10 years later it had 1047 stores, accounting for 33 per cent of the firm’s global operating space, in the region (see Table 1). South Korea now provided Tesco with its second largest market by sales after the I-JK.

Significantly, Tesco had signalled its commitment to develop businesses in two of the world’s key twenty-first century economies, China and India. In China it was rapidly building the scale of its operation following entry in 2004, and in India it had successfully negotiated a partnership arrangement for entering a market in which ownership of retail businesses y international operators was still strictly regulated. On the other side of the world, Tesco had taken the potentially transformational, but high risk decision to enter the USA – the world’s largest consumer market.

Building on Leahys strategic vision of the market opportunity to develop dense networks of a new breed of convenienceoriented, smaller-format stores served by a short-lead-time integrated food preparation/distribution system, Tesco had announced entry into the western USA in 2006. By the end of 2008, a year after opening its first store, it had already rolled out a chain of 115 stores together with 675,000 square feet distribution centre with capacity to serve over 500 stores in Southern California, Arizona and Nevada.