Академический Документы
Профессиональный Документы
Культура Документы
Prepared by:
Martin Witthoeft
5. List of References............................................................................................................. 18
i
List of Tables
List of Figures
ii
1. The Supermarketization of China
China is the emerging force in today’s business world and its domestic market bears huge
growth potential for multinational companies. This report focuses on China’s supermarket
industry and shows how multinational Tesco is competing in what Gale and Reardon (2004)
call the “supermarketization” of China.
China is the sixth largest economy in the world with a GDP of $ 3,241 billion in 2007 and an
annual growth rate of 9.8 per cent in 2008. The growth of real disposable income at an
annual rate of 11.5 per cent is resulting in a rapidly emerging middle class (Economist, 2008).
Tesco PLC is the leading British and the World's third biggest retailer operating in twelve
countries around the globe. Tesco has advanced very quickly with its internationalisation,
gained foothold in Eastern Europe but withdrew from markets like France, Taiwan and South
Korea (Tesco PLC, 2008).
1
In 2004, after a three year analysis of the Chinese market, Tesco decided to team up with
Taiwanese Ting Hsin and took a 50 per cent stake of its hypermarket chain Hymall in a joint
venture that was topped up to 90 per cent in 2006 (Tesco PLC, 2008).
There are now 58 Tesco hypermarkets and four Tesco Express stores on the Eastern coast of
China in the major cities like Shanghai, Beijing and Shenzhen/Guangzhou. Tesco has made
the commitment of adding another ten stores per year and is developing supply hubs in
these key regions (Tesco PLC, 2008).
Outlined below is a PESTEL analysis to understand the forces of change in the Chinese retail
industry.
• MODERNISATION: Local governments are shutting down the traditional street markets
(so-called wet markets) and convert them into supermarkets. The aim is to expand the
retail networks of chain supermarkets into China’s western provinces (Gale & Reardon,
2004).
2
• OPEN MARKET: Since 2001 the Chinese retail market has been open to foreign
multinationals due to China’s entry into the WTO. Only one third of the companies in
China are still state controlled (Economist, 2008).
II. Economic
• ECONOMIC GROWTH: GDP growth is expected to drop from 11.9 per cent in 2007 to 8.2
per cent in 2012. However, domestic demand is to remain strong in the next five years as
consumption will rise due to overall wage growth (Economist, 2008).
• TAXATION: The rate of corporate income tax in China is 25 per cent. There are however
special tax rates available for companies which are investing in preferred sectors and
regions, e.g. the Western provinces (Economist, 2008).
• SUPPLIERS: Since most of the fresh produce originates from China, it is essential to find
local suppliers able to provide goods according to international quality standards (Jones,
2004).
III. Social
• DEMOGRAPHICS: The population growth rate of China is 0.629 per cent in 2008 with a
current average life expectancy of 73.18 years. Age distribution in China is characterized
by a small youth group (0-14 years account for only 20.1 per cent, ages 15-64 for 71.9
per cent and 65 & over for 8 per cent) due to the one child policy of the Chinese
government introduced in 1979 (CIA World Factbook, 2008).
• CULTURAL NORMS: There is a danger of forcing a foreign format onto the Chinese
shopper as it might result in rejection of the foreign supermarket chain (Gale & Reardon,
2004).
3
Table 2 below shows current shopping trends in China.
IV. Technological
• DISTRIBUTION: Due to its vast landmass and poor infrastructure it is essential to establish
a net of warehouses at strategic locations and to outsource distribution to a strong
distribution partner with great local knowledge (Jones, 2004).
• LIVING STANDARDS: Few Chinese households are equipped with a refrigerator so the
shopping behaviour is not likely to shift quickly to one big weekly shopping trip
(Wheatley, 2007).
V. Environmental
• CONTROLS: Due to international pressure China has become sensitive to the issue of
pollution and there is a trend towards stricter controls of firms in recent times (Shipeng
& Graham-Harrison, 2008).
The traditional Chinese shopping habits are deeply rooted and should be respected while
introducing Western shopping concepts. Educating the Chinese shopper of how to improve
their shopping experience should be introduced in stages to limit the danger of rejection
(Wheatley, 2007).
Shown below is Porter’s Five Forces analysis to assess the balance of power in the Chinese
retail industry.
• High cost of entry due to the need to set up new distribution channels (Jones, 2004).
• Competitors might retaliate with price war or bad publicity (Kumar, 2007).
• Differentiation is important since China is a very price sensitive economy (Arlidge, 2008).
5
• Retailing could be bypassed by internet shopping therefore eliminating hypermarkets.
• Traditional stores offering human contact are an alternative to hypermarkets (Gale &
Reardon, 2004).
• Bargaining power of suppliers is rather low, especially for small farming businesses.
• Huge international brands of the likes of Unilever or Proctor & Gamble have more power
due to international brand awareness.
• It is difficult to find local suppliers that confirm with international standards, giving the
existing suppliers a short-term advantage for bargaining.
• Bargaining power of buyers is very high towards small suppliers, e.g. small farmers.
• Switching costs between suppliers are moderate and are decreasing with growing
experience in the market.
• Higher economies of scale due to international expansion increase the power of buyers.
• The domestic retailers in China have a competitive advantage due to the time before
1992 when they were protected from their international rivals. Now Carrefour, Wal-Mart
and Tesco are entering the market almost simultaneously (Jones, 2004).
• The retail industry is now shifting its focus from the richer Chinese eastern coast to the
poorer western provinces. According to Wheatley (2007), the chain that masters this
challenge best is destined to be the major player in China in the future.
• Local competitors are quick in copying working strategies and using them to their favour
(Jones, 2004).
6
Porter’s Five Forces Summary: Build Networks and Choose Strategic Store Locations
In conclusion to the analysis above, the first step in being successful in the Chinese retail
industry is to build a network of approved suppliers and a cost efficient distribution system.
The next step is to open supermarkets at the right locations and finally cater the needs of
the Chinese customer in a better way than the competition.
With the Chinese supermarket industry still in its infancy and all major multinational
supermarket chains eyeing towards China, there will be fierce competition for the Chinese
shopper in the near future.
Shown in Table 3 below is a summary of opportunities and threats in the Chinese retail
industry based on conclusions of the foregoing analysis of PESTEL and Porter’s Five Forces.
Opportunities Threats
7
systems with advanced IT integration and the attraction of Western lifestyle (Thorniley,
2008).
Sensitive market approach and in-depth research can minimize the risk of failure in this
market and help to gain a competitive edge over the competition (Wheatley, 2007).
Outlined in Table 4 below is a Critical Success Factors analysis to identify the factors that
matter most to be successful in the Chinese retail industry.
According to McKinsey’s Hong Kong branch there is only room for five major players in the
Chinese retail industry in the next 15 years, thus expelling weaker players from the market.
Foreign firms are unfamiliar with Chinese customs, laws and regulations and have to put in
an extra effort to survive in this market (Penhirin & Miu, 2002).
8
In order to gain market share a differentiated approach in line with Chinese cultural values is
necessary. In addition to that retailers must find an innovative approach to use their
knowledge effectively thus setting themselves apart from their rivals.
Shown in Figure 1 below is Porter’s Value Chain analysis to understand how value is created
within Tesco’s organization.
FIRM
Financial policy – Accounting - Regulatory compliance - Quality management - Legal - Community affairs
INFRASTRUCTURE
HUMAN Recruitment/training Recruitment/training Recruitment/training Recruitment/training Recruitment/training
& reward of quality & reward of shop- & reward of till staff & reward of sales/ & reward of customer
RESOURCE
controllers floor staff/managers Marketing staff service staff
MANAGEMENT
Market research, Customer satisfaction
TECHNOLOGY IS/IT system integration with suppliers for ordering, stock
media choice & tracking system
DEVELOPMENT control & accounting
PR
Information Technology
PROCUREMENT Communications
9
Value Chain Summary: Focus on Core Competences
In the advancement of the joint venture between Tesco and Ting Hsin both partners are now
focusing on their core competences: Tesco is focusing on the implementation and migration
of the common IT infrastructure and the optimization of the supply chain and Ting Hsin is
concentrating on further expanding its market share as the leading food producer in China
(Tesco PLC, 2008).
Tesco has outsourced its warehousing and distribution network internationally to focus on
its core competences, IT integration and developing a lean supply chain (Elsevier Food
International, 2005).
The company is also gaining valuable market data through its loyalty scheme by introducing
the Tesco Club card in China. Tesco is able to track all purchases and customize its marketing
efforts for each individual store due to foreseeable customer behaviour (Tesco PLC, 2008).
10
According to Tesco’s CEO, Sir Terry Leahy, the adaptation of the Balanced Scorecard research
by Robert S. Kaplan into the Tesco “Steering wheel” helped the company stay focused on its
strategy in the last twenty years. The wheel has five 90 degree arcs which represent the four
Balanced Scorecard performance areas of Finance, People, Operations and Customers as
well as of Community, a field recently added by Tesco (Kaplan, 2008).
I. Finance
Table 5 below shows the financial results of the first six months in 2008 for Tesco in Asia.
According to the figures above, sales grew by 16.0 per cent to £ 3.2billion and trading profit
increased by 16.9 per cent to £ 145 million in the first half of the financial year 2008 (Tesco
PLC, 2008).
Tesco China contributed with rapid sales growth but Tesco still made a small planned loss in
this trading period due to the establishment of its operations and supply hubs in China’s
main economic regions (Tesco PLC, 2008).
II. People
Sir Terry Leahy, CEO of Tesco exemplifies Tesco’s mission in the following statement: "Tesco
doesn't want one leader. We want thousands of leaders who take initiative to execute the
strategy” (Kaplan, 2008).
11
III. Operations
Outlined in Figure 3 below are the “Steering wheel update” and the “Shopping list”, two of
Tesco’s main operational tools.
Tesco’s slogan “Every little helps” can be translated to constant incremental improvements
of the steering wheels’ five arcs. Figure 3 above shows a template of the “Steering wheel
Update”, a monthly report tailored to each store with individual feedback on its
performance in key areas. In addition to this report, Tesco attaches "Shopping lists" to
describe in simple terms key elements of the wheel so employees can incorporate them in
their daily activities (Kaplan, 2008).
IV. Customers
Tesco has a strong commitment of putting customers’ interests first. The main focus is
therefore on its 'Everyday Low Price strategy' in combination with other promotions. The
12
goal is to regularize low prices for Tesco customers and offer low prices not as a strategic
option, but on a daily basis (Tesco PLC, 2008).
V. Community
The addition of this fifth arch to the steering wheel shows that Tesco recognizes its
corporate social responsibility for the community. Therefore, it initiates numerous activities
including four Tesco summer soccer camps, which were held during August 2008 for
employees’ children and kids from special schools in Shanghai, and a national basketball
contest held in October 2008 (Tesco PLC, 2008).
Shown in Table 6 below is an Ansoff Matrix analysis to understand the risks of different
options for Tesco`s growth.
Products
Existing New
13
Ansoff Matrix Summary: Start with Loyalty Scheme
Establishing the Tesco Clubcard loyalty scheme in China involves low risk since an existing
product is placed in an existing market. Higher risk operations include introducing online
grocery shopping to China, a move into a new market with an existing product; or the
branding of Chinese products with the “Tesco Value” label, where a new product is created
for an existing market. Most risky options include opening an inner-city Tesco Express stores
involving the move into a new market with a new product. Going into multiple quadrants
simultaneously further increases the level of risk (Manktelow, 2008).
Tesco might want to take chances with some of the riskier options in order to keep up with
its rivals but through close examination of the market and gradual introduction of new ideas
it can limit the risks to a minimum.
Outlined in Table 7 below is a summary of Tesco’s internal strengths and weaknesses based
on conclusions of the foregoing analysis of Porter’s Value Chain, the Balanced Scorecard and
the Ansoff Matrix.
Strengths Weaknesses
• Experience in successfully entering foreign • Rapid international growth could weaken
markets control
• Steady growth in both home market an • Fast expansion difficult due to lack of
internationally experience in Chinese market
• Detailed market insight through loyalty • Hypermarket format lacks flexibility of
scheme (Tesco Club card) other more focused competitors
• “Retailer of the year 2008” at World Retail • Tesco’s mid and higher priced products will
Awards suffer due to economic slowdown
Table 7: Strengths and Weaknesses of Tesco in China
14
Strengths and Weaknesses Summary: Respect Cultural Differences
On its ambitious campaign into the Chinese retail market Tesco has successfully adapted to
local conditions and is supported by its steady international growth (Tesco PLC, 2008).
However, during what Tesco's corporate affairs director Lucy Neville-Rolfe calls the “need to
go local” (Jones, 2004), Ken Towle, head of Tesco China points out that “Tesco is not here to
change people's habits”. In order to ensure long-term success, Tesco’s main attention must
be on satisfying the arising needs of the Chinese costumer (Wheatley, 2007).
The analysis of Tesco’s weaknesses indicates that a well-planned approach with a moderate
speed of expansion could be right recipe for Tesco’s continuous growth in China.
15
IV. Tesco focuses on Learning
Mumford points out that Tesco’s entry strategy in China aims to firstly gain a foothold in the
market, then learn about the market and finally expand on a large scale. Williams calls this
“a wise decision” due to the size and diversity of the market (Foster, 2004).
A.T. Kearney’s Global Retail Development Index (GRDI) indicates that Tesco’s future success
in China will depend on two major factors, firstly on knowing when and how to move into
key second-tier cities and secondly on Tesco’s ability to understand consumer readiness
(Kuipers, 2008).
• MOVE TO SECOND-TIER CITIES: Given the saturation of China’s first-tier cities in the
coastal regions like Shanghai, Tesco lags behind in expanding into Tier-two cities like
Nanjing, which are twenty emerging cities with twelve per cent of the Chinese
population, and Tier-three cities like Chengdu, which are smaller provincial capitals
(Kuipers, 2008).
• CUSTOMER READINESS: The other key challenge for Tesco is to tailor products and
services to consumer readiness and assessing the real consumer needs in the area. Tesco
still has to learn about the highly diverse consumer preferences and buying habits
between different provinces in China (Kuipers, 2008).
16
4.3. Is Tesco able to deliver its Strategy?
Concluding the analysis of Tesco’s expansion in China above, Tesco’s focus should be on
long-term strategic options rather than quick expansion at all costs. Further emphasis should
be given to the expansion into key regions and adapting to local customer needs.
Williams at Seymour Pierce concludes that the greatest threat to Tesco’s growth could be
Tesco itself either through arrogance or over ambition. He admits however, that this remains
an unlikely prospect to him (Foster, 2004).
Mumford’s final comment on Tesco’s future growth in China is that when “looking ten years’
ahead it could be regarded as a bit of a coup” (Foster, 2004).
17
5. List of References
Arlidge, J., 2008. Tesco Express rolls into China. The Sunday Times, [internet] 13 April.
Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/
article3671705.ece
[Accessed 17 November 2008].
CIA World Factbook, 2008. China - People, [Online] (Updated 20 Nov 2008).
Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
[Accessed 20 November 2008].
Elsevier Food International, 2005. Outsourcing: Tool of the Future for Retailers, [internet] 28
November.
Available at: http://www.foodinternational.net/articles/ecr/10/outsourcing-tool-of-the-
future-for-retailers.html
[Accessed 19 November 2008].
Foster, S., 2004. Tesco’s four-point master plan. Elsevier Food International, [internet] 1
September.
Available at: http://www.foodinternational.net/articles/retail-profile/1108/tescos-four-
point-master-plan.html
[Accessed 17 November 2008].
Gale, F. & Reardon, T., 2004. China’s Modernizing Supermarket Sector Presents
Major Opportunities for U.S. Agricultural Exporters. AgExporter, [internet] 1 November.
Available at: http://ffas.usda.gov/info/agexporter/2004/November/pgs%204-8.pdf
[Accessed 17 November 2008].
Jones, L., 2004. Why Tesco is betting on China. BBC News Online, [internet] 15 July.
Available at: http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/3893469.stm
[Accessed 17 November 2008].
Kaplan, R., 2008. Tesco's Approach to Strategy Communication, [Online] (Updated 14 Sept
2008).
Available at: http://freshneasybuzz.blogspot.com/2008/09/guest-contributor-tescos-
approach-to.html
[Accessed 19 November 2008].
Kuipers, P., 2008. Retail in the wild east. Elsevier Food International, [internet] 2 July.
18
Available at: http://www.foodinternational.net/articles/country-profile/1064/retail-in-the-
wild-east.html
[Accessed 17 November 2008].
Kumar, A., 2007. Retail sector undergoing paradigm shift, [Online] (Updated 8 Jan 2007).
Available at: http://www.dawn.com/2007/01/08/ebr8.htm
[Accessed 20 November 2008].
Penhirin, J. & Miu, A., 2002. Hypermarkets China-style are Cashing In, [Online] (Updated 23
Dec 2002).
Available at:
http://www.mckinsey.com/locations/greaterchina/mckonchina/industries/consumer/hyper
markets.aspx
[Accessed 18 November 2008].
Shipeng, G. & Graham-Harrison, E., 2008. China launches surprise crackdown on plastic bags.
Reuters UK, [internet] 8 January.
Available at: http://uk.reuters.com/articlePrint?articleId=UKPEK25589820080108
[Accessed 18 November 2008].
Tesco PLC., 2008. Interim Results and Management Report 2008/9, [Online] Tesco PLC.
Available at: http://www.tescoplc.com/plc/media/pr/pr2008/2008-09-30/
[Accessed 17 November 2008].
The Economist, 2008. Country briefings China – Factsheet, [Online] (Updated 30 Sept 2008).
Available at: http://www.economist.com/countries/china/profile.cfm?folder=Profile-
FactSheet
[Accessed 17 November 2008].
The Economist, 2008. Country briefings China – Forecast, [Online] (Updated 30 Oct 2008).
Available at: http://www.economist.com/countries/china/profile.cfm?folder=Profile-
Forecast
[Accessed 17 November 2008].
Thorniley, T., 2008. City focus: Tesco takes on China. This is Money, [internet] 12 August.
Available at: http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article
_id=449618&in_page_id=3
[Accessed 20 November 2008].
19
Wardell, J., 2008. Tesco plans further China expansion. Seattle Post Intelligencer, [internet]
11 November.
Available at: http://seattlepi.nwsource.com/business/1310ap_eu_britain_tesco.html
[Accessed 20 November 2008].
Wheatley, C., 2007. China revolution: Toads in Tesco. This is Money, [internet] 21 May.
Available at: http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article
_id=420559&in_page_id=3
[Accessed 17 November 2008].
20