Tesco's Globalization Strategies and its Success in South Korea
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Case Code: BSTR242 Case Length: 20 Pages Period: 1995-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Tesco Industry: Retail Countries: South Korea Themes: Globalization, International Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"They (Tesco) have adapted their store formats very well and have been very good at working with local management. They do have an extremely clear idea about what their business is about, but they are not macho about how they apply it. There are some firms that if they buy a company in another country, putting their brand name on it as quickly as possible is almost a source of corporate pride."
- Rita Clifton, Chairman, Interbrand, in 2006.
"Samsung Tesco and BAT Korea can be seen as two of the biggest overseas successes. They realized the importance of localization as the main key to success in the Korean market at an early stage and acted upon it, instead of insisting on operating based on business strategies that would only work elsewhere."
- Na Hong-suk, Senior Analyst at Good Morning Shinhan Securities, in 2006.
Introduction
In October 2006, Tesco Plc. (Tesco), Britain's largest retailer, announced that its operating profits for the half year ended August 2006 had risen by 13.7% to reach £ 1.10 billion. In the same period, Tesco, also the third largest retailer in Europe, reported revenues of £ 5.3 billion from its international operations. Its operating profits grew by 21.1% to £ 229 million as compared to the operating profits of £ 167 million reported during the first half of financial year 2005-06. By August 2006, the company had established 949 outlets outside the UK.For the financial year ending February 23, 2006, Tesco reported a profit of £ 2.25 billion.
Sales in the UK grew by 10.7% and international sales by 23% to £ 9.2 billion, contributing £ 492 million to the operating profit. Tesco reported that its overseas growth was driven by Asia where profits grew by 30% in the year. Tesco was the market leader in Thailand and was expanding its operations rapidly in China and South Korea (Refer to Exhibit I for turnover and operating profit of Tesco between the year 1995 and 2006). As of 2006, Tesco was the second largest retailer in South Korea. It was operating in the country through 62 stores and had a market share of 17%. Tesco had entered the South Korean market in 1999, through a joint venture with the retail arm of Samsung Group (Samsung) and begun operating under the banner Homeplus. From the time it entered the country, Tesco concentrated on localizing its product offerings and this it did in association with Samsung.
Tesco's success in the country was of key importance in light of the fact that other leading global retailers operating in South Korea including Carrefour and Wal-Mart had exited the market as they were unable to achieve the expected levels of growth in the country. According to Na Hong Seok, analyst with Good Morning Shinhan Securities, Seoul, "In contrast to Wal-Mart, the British retailer Tesco is a remarkable case of succeeding in localizing."...
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