Tesco International Business Final Project PDF

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Professor Geleilate - Final Paper - International Business Graduate Level - Final Paper discussing moving a business into a new market/country. This example takes the British supermarket company Tesco and moves it into the Canadian market, a market that they had not previously been entered into. Tit...

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Tesco plc Entering into the Canadian Market Zachary James Rowell International Business Professor Geleilate

Rowell 1

Company Background; Officially founded in 1929 by Jack Cohen of London, England, Tesco’s origin actually started ten years previously when Cohen started selling surplus groceries from a stall in the East End of London, and then eventually beginning to sell his own brand of tea known as “Tesco Tea” (Tesco). As the decades passed by, Tesco quickly evolved into a go-to supermarket for the English people, becoming one of the most popular stores to shop at even to this day. Expanding abroad and online, Tesco has become a household name around much of Europe and some parts of Asia as well, but there are still many opportunities for Tesco to capitalize upon, especially in the North American market. Even though Tesco did have a foray into the United States market in the early 2000s through its “Fresh & Easy” stores in the western United States, Canada is still a widely available market for Tesco to tap and profit from. Potential Markets: Tesco operates currently in the countries of the United Kingdom, the Czech Republic, Hungary, Ireland, Poland, Slovakia, Malaysia, Thailand, China, India, and Pakistan, and formerly operated in the United States, Japan, South Korea, Turkey, and France (Tesco). Since Tesco has evolved into one of the most well-known and established supermarket brands in major European markets, Tesco could very easily step into the Canadian market and witness large gains if done correctly. Being that Tesco runs over 6,700 stores across more than 11 countries, they have the potential to expand even further with a successful North American venture, particularly in their untapped market of Canada. The Canadian market would benefit greatly from the implementation of Tesco into its supermarket environment, bringing with it a plethora of supermarket experience and product differentiation that the Canadian market does not currently have. Seeing that Canada used to be a

Rowell 2 British territory, and that there is still generally a positive relationship between Canada and the United Kingdom, this would give Tesco a definitive advantage when entering into a new market, since the Canadian market would already be somewhat familiar with the British mentality and recognition of products, currency, and overall style of shopping. Also, since Canada is a technology advanced and developed nation with a stable economy and political environment, Tesco would be able to ease into the Canadian market, most likely without much pushback, but also being able to realize lesser start-up costs and lower risk overall, since they would not be entering into the market of a developing economy. This further cements Canada as a prime location for Tesco to enter into. International Competitors Within the Canadian market, Tesco would have quite a few home competitors to deal with, such as; the H.Y. Louie Co., the Jim Pattinson Group, the Loblaw Company, Metro Inc., and Sobey’s, all of which operate grocery stores and supermarkets throughout Canada, not to mention regional chains. However, there are also quite a few competitors on an international level that Tesco would face as well, like; Costco Wholesale, Walmart Canada, and Wholefoods Market. All of these companies mentioned operate similarly to Tesco and would provide direct competition within the Canadian market, but through a precise entry strategy and maintaining a strong overall global business strategy, Tesco could easily capitalize upon any lost market share within this North American landscape. The global strategies of these other companies, such as Walmart and Costco, is to maintain their traditional images, those being cheap, but well-made products, and bulk products, respectively. They tend to not adapt their strategies to their market, but rather adapting the products sold in these markets, but not changing their overall image or mission statement of the

Rowell 3 company as a whole. This is where Tesco could potentially grasp a competitive advantage over these companies, since they could very quickly and easily adapt to the Canadian market without having to change much of their internal, or external, operations. Adaptation and implementation by Tesco into Canada would be a smooth transition into a new market, especially having the advantage of positive relations between home countries, so Canada would be primed and ready for Tesco to enter into and create a profound impact almost immediately. Tesco could offer lower prices in a different shopping environment, but also overall Tesco offers more than just a grocery store or a general market but combines the two to create a unique shopping experience that Canada has not truly witnessed with their current businesses. Economic-Geographic Environment Geographically, Canada is an incredibly diverse and vast environment, spanning roughly 9.9 million square kilometers, bordering the Atlantic Ocean, Pacific Ocean, and Arctic Ocean, and having one of the most unique terrains of any country within the world. With a balance of having all four seasons pretty set throughout the year, and even though it does tend to be on the colder side being that it is a northern country, Canada’s diversity of environment creates an interesting challenge for any company attempting to enter into its market. With a wide array of rivers, mountains, forests, national parks, lakes, volcanoes, and plenty of lowland, there is no small shortage of different potential aspects to deal with for Tesco. Canada also has major cities throughout the country, such as Montreal, Toronto, Edmonton, Calgary Ottawa, and Vancouver, spread across the whole country, each with differing cultural aspects and environments to market to. When looking into the natural resources of Canada, one can find plenty of minerals, rare earth elements, coal, wildlife, and hydropower, all of which are utilized in the major industries of Canada (Natural Resources Canada).

Rowell 4 Major industries within Canada include mining, timbering, farming and cattle, wine production, fishing, large equipment suppliers, biopharmaceuticals, food processing, and the chemicals industry (ICS, CanadaFAQ). Canada’s primary exports include cars and automotive ($48.9B), crude petroleum ($39.6B), vehicle parts ($10.5B), refined petroleum ($8.34B), and sawn wood ($7.79B), while imports include cars ($26.4B), vehicle parts ($20.4B), delivery trucks ($12.9B), refined petroleum ($10.8B), and crude petroleum ($10.3B) (Atlas Canada). The top destinations for exports are the United States, China, Japan, Mexico, and the United Kingdom, while top importing origins are the United States, China, Mexico, Germany, and Japan (Atlas Canada). The large majority of these imports and exports are not primarily Tesco’s forte, however the industries aspects, especially the ones regarding any aspect of food and pharmaceuticals, are of major interest to Tesco upon entering Canada. In terms of Canada’s economic environment, Canada has witnessed a steady growth overall, with a small weakness in the housing market, but exports have exceeded expectations and non-residential investment have been on the steady rise as well (Focus Economics). However, with a rising population, the average GDP has actually decreased considerably over the past 5 years, so even though there have been significant increases to investment, consumption, domestic demand, and economic growth, the GDP has decreased roughly $7,000USD over the past 5 years, signaling a slight cause for worry to companies planning on entering into this market (Focus Economics). Lastly, the infrastructure, being that this is a developed country, are sound in nature and should provide no cause for worry for Tesco. With well-maintained highways, plenty of waterways, airports, cities, and plenty of buildings to be capitalized upon, Tesco can quite easily enter into Canada without much adversity, but still having to be careful of how they are to enter.

Rowell 5 Based on the geographic influences, major industries, exports, imports, and current economic conditions of Canada, Tesco needs to take extreme caution when entering into this market, even though it could provide plenty of options for revenue. In this foreign environment, Tesco should start this investment by setting a basis of where they want to be located, and based on these factors, starting off within a major Canadian market, such as Toronto, Montreal, or Vancouver, could give Tesco the right step into this market, and then expanding from there into the smaller markets to attempt to capture an even larger share of the market. It would make sense financially and strategically to start with the major cities, primarily to see how citizens would react to a new venture, particularly with a larger population to draw influence and statistics from. The exports and imports are not entirely something that Tesco truly needs to worry about yet, but the major industries are a factor that Tesco can immediately impact upon entry, as well as the current economic condition, since this would be a large investment into the economy of Canada for Tesco to make. Social-Cultural Environment There are plenty of common demographic trends that greatly impact global business activities and that help to shape the world today and are not limited to any one country in particular. Some of these trends include; (1) the ratio of children to older citizens is declining, (2) there has been a sea-change in the nature of illness to non-communicable diseases, (3) the speed of aging is rising rapidly in emerging economies, (4) old age dependency ratio is rising rapidly in Japan, European countries, but at a slower pace in Anglo Saxon economies, and (5) it’s getting harder to exploit demographic dividend (Badkar). When looking into each of these, the majority of them involve age or health on the global scale and show a generic trend that with an aging economy comes the issue of how the world is supposed to adapt and handle it. With the

Rowell 6 considerable population growth that the world is also facing right now, this becomes yet another issue that must be dealt with by companies on the global scale. Quite a few cultural factors greatly impact global business activities, such as language, religion, government involvement, and corruption. Starting with language, this is one of the most crucial factors that companies need to overcome, since if you cannot communicate correctly, it becomes increasingly difficult to move forward with business activities. Communication is key for business activities to occur, so especially in the global trading and business environment, this is an essential factor that firms have to overcome and understand. Religion is another cultural factor that can have incredible implications for global business activities, since religion can be such a pivotal part of some individuals’ lives and effect how they go about their day-to-day routines. Marketers have to cater to these religions in specific ways in order to not offend certain individuals, otherwise they will face severe backlash from those that they are attempting to market to. Government involvement and corruption play a large role as well, since the culture of a country may determine how much government involvement there is within a market, as well as the ramifications that corruption may bring to the table in terms of said business activities. The majority of these cultural factors are directly correlated with the social institutions associated with them, religion and churches, language, family, and culture, government and government involvement, all of these social institutions and groups are in direct relation to the behaviors of individuals who abide by them and follow through with what these social institutions want them to do or live by. These affect global business activities in the same ways as the cultural factors, since they are so intertwined together. The area where difference occurs is in the informal trade barriers, which can include government subsidies and financial aid, transportation and its various costs, the technical and health regulations imposed by the

Rowell 7 government, and distribution policies within the borders of one’s country. These vastly impact global business activities on a base level, since they all change the direction of individuals and how they interact, what they are capable of attaining from various sources in terms of health and well-being, witnessed through the health regulations, and how individuals get around their respective areas of life through transportation. Tesco would have to balance all of the demographic trends, cultural factors, social institutions, and informal trade barriers when entering into the Canadian landscape. Given that all of these implications directly affect every country around the world, the Canadian market is no different in terms of sheer uniqueness, so Tesco would need to start with these factors when officially establishing themselves. With Canada in particular, the languages in different regions of the country would be a cause for concern, since Quebec, primarily a French-speaking province of Canada, differs drastically from other provinces like Ontario and British Columbia, primarily English-speaking regions of the country. Also, since Canada has a large portion of religious individuals, spread between Roman Catholicism, other Christians, Islam, Hinduism, and nonreligious individuals, among others, this would be another factor for Tesco to consider upon entering the Canadian market. The interactions between the cultural and social environment and the foreign companies entering into said environment play a pivotal role in the success of these companies, so Tesco would need to take note of these when crafting their strategy of entry. Political-Legal Environment Government regulations, taxes, and formal trade barriers have the utmost significance when foreign companies are entering into a new market. Government regulations can either help or harm businesses when attempting a foray into a new country, and the question is always raised on whether they are truly there to help the businesses, or to maintain some semblance of control

Rowell 8 over what business activities are deemed “suitable” in these countries. “Many sectors of the business world have long complained about government regulations and their restrictive nature.”, so even though government regulations can bring about economic flourishing for new businesses, they do provide hurdles to deal with as well (Davis). Taxes provide a hindrance to business as well, since they take a direct cut from the revenue and profits that companies make through dealing their business activities. They provide yet another complication, but are ultimately a necessary factor of governments, so there is no real way to avoid them. Lastly, formal trade barriers create an interesting stumbling block for companies to interact with and overcome, since they provide restrictions to free trade, such as tariffs and import quotas. One decisive trade agreement to keep in mind here is the North American Free Trade Agreement (NAFTA), which calls for free trade among the North American countries and does not severely limit countries to trade, as opposed to other agreements in place. Canada welcomes foreign companies into its borders with open arms in most cases, however it is prohibited and highly restricted in specific parts of its economy, with limits coming on industries such as aviation, electric power generation and distribution, energy, fishing, financial services, mining, real estate, and telecommunications for foreign firms (USA.gov). Canada is also a country that will give tax breaks to certain corporations and firms when they are a necessity to an improved economy or an overall improvement to society for the Canadian citizens. Canada, much like other developed nations of the world, go to great lengths to protect the intellectual property of companies and individuals. These are done through Canada’s own patent registrations, however it is important to note that patents do not exist cross-borders, since you cannot have an “international copyright”, the Canadian patents do not grant intellectual property

Rowell 9 rights to those wanting to sell abroad (Carton). Keeping these aspects of intellectual property in mind, the Canadian market is still an attractive option for Tesco, since there are no real issues with intellectual property within this company. In regard to Tesco, Canada provides a welcome political and legal environment, without much standing in their way of establishment, other than the basics of government regulations and taxes, however a company of Tesco’s size can easily overcome these trivial factors. If done correctly, Tesco could actually be subject to tax breaks and leniency with government regulations with the mission that they provide through their company. Capitalizing upon the attractiveness of Canada’s political and legal landscape would help Tesco reap the benefits. Global Company Structure Tesco’s core purpose of “Serving Britain’s shoppers a little better every day”, can easily be adapted to fit a world view to “Serving the World’s shoppers a little better every day”, or in Canada’s sake “Serving Canada’s shoppers a little better every day.” (Tesco). With this, it shows a hunger for Tesco to provide the best service possible and to foster an environment that promotes this best service and positivity as a whole. Tesco aims to promote this mentality, but also strives to see a large profit and revenue increase with this engagement with Canada, with strong return on investment being a pivotal aspect needing to be realized. With 3 core values being realized by Tesco, those being (1) no one tries harder for customers, (2) we treat people how they want to be treated, and (3) every little help makes a big difference, Tesco is committed to acting responsibly in the community, providing the best environment not only for shoppers but for employees as well, and focusing on the sustainability and healthy living mindsets of the health-conscious individuals in today’s market.

Rowell 10 Keeping in mind the failed efforts of Tesco’s “Fresh & Easy” stores on the West Coast of the United States, those being wholly-owned subsidiaries, it would make sense for Tesco to start off with a possible joint venture when entering into the Canadian market. This mode of entry would allow for some of the burden of entering into a new economy to be taken away, primarily through the aspect of not having to gain new customers or attracting customers to a brand-new store or brand name. In this case, starting a joint venture with Loblaw Companies Limited would create the most beneficial partnership for both parties, creating access to a large market share already witnessed in Canada, but also crafting a strategic alliance that could potentially lead to other ventures within North America. Through this strategic alliance, Loblaw Companies Limited would be able to continue to thrive within the Canadian environment, while Tesco would be able to get its feet wet and provide even further financial backing for Loblaw Companies Limited’s future endeavors. It would make the most organizational sense to go with a centralized organizational structure, to remain uniform across all locations the products that are sold within the various supermarket locations. Tesco would have to re-evaluate the Loblaw Companies Limited’s offerings, and change what they saw fit, but also take in the advice of the Canadian’s on what has already been successful, and what needs improvement. The only parts of Canada that may need to see a difference in their products is the French-speaking regions of the country, being that they maintain a strongly different culture than the rest of the country, however this could be easily maintained by a management sector within those regions. Financing Sources Canada currently witnesses an inflation rate of 3.1%, an exchange rate of .579 with the GBP, and an unemployment rate of 6.3%. Based on these 3 rates, Tesco would have a direct path

Rowell 11 into the Canadian economy and would most likely be welc...