International Business Coursework: Tesco International Expansion Analysis

The British supermarket chain Tesco has appointed you as a consultant to assess potential international expansion opportunities. With global growth seen as a critical component of the company’s long-term strategic objectives, Tesco is currently exploring several international markets. Two key locations under consideration are Canada and Vietnam. Management has asked you to compile a comprehensive report on the viability of ONE of these markets, focusing on potential return on investment.

For this coursework, you are required to analyse the opportunities and risks associated with the chosen location. Based on your assessment, would you recommend that Tesco proceed with investment in the selected market, or should they consider alternative options? Be sure to justify your recommendation with clear reasoning.

Please note that you must select only ONE country to investigate. For example, do not write a report comparing the two countries.

……………………………………………………………………………………………………………………………………………

Allocation of Marks

• Presentation and structure (5%)
• Analysis of political, economic, cultural, legal and ethical risks in the country selected

(30%)

• Identification and evaluation of business opportunities (30%)
• Use of appropriate examples of companies to support arguments (10%)
• Conclusion and recommendations based on findings. Do you recommend that the company you are representing should invest? Which market entry strategy would you propose? Ensure your findings and recommendations are consistent with the foregoing analysis (20%)

1.     Presentation and Structure (5%)

• Your report should be typed with a font size 12, 1.5 spacing and it must look professional. Paragraphs in the document should be justified. The report needs to be well-structured, divided into numbered sections that correspond logically to the coursework brief. Include an overall introduction and conclusion.

2.     Analysis of political, economic, cultural, legal and ethical risks in the country selected (30%)

• In relation to the country risk analysis you might consider/address the following issues in your analysis including:
  • What form of political system exists? (totalitarian/democratic); what kind of economic policies exist? (Government controlled/regulated/free market); what kind of social system? (regulated/controlled by govt.)
  • For political risk… the Root Model, applied in terms of instability risk; ownership/control risk; operations risk; transfer/repatriation risk. If you do not apply Root you should make use of other political risk indexes/indicators.
  • What incidence of cultural/ethical risks exist, as evidenced by the existence of fundamental cultural differences between host and home (UK, in this case) countries – Hofstede’s Cultural Dimensions can be applied, other factors such as the extent of govt. influence in business, product offerings, the significance of religion, the existence of an ethnic mix, the degree of toleration of differences, the extent of censorship of information.
  • Legal risks – i.e., different legal systems and/or weak legal systems.
  • Ethical issues such as bribery/corruption, poor working conditions/low wages, oppression of minorities, environmental concerns if any.
  • Ensure you do not simply describe the aforementioned. You must identify what risks exist to the business, as a result of identified systems, policies, cultural, legal and ethical risks.

3.     Identification and evaluation of business opportunities (30%)

• In relation to the analysis of business opportunities you might consider/address the following issues in your analysis including:
  • Key economic/market indicators – not limited to, but perhaps including GDP, GDP growth, GDP per capita, inflation rates, unemployment data, exchange rate issues etc. – importantly what are the implications of this data for the company?
  • Levels of competition – domestic and/or international.
  • Evaluation  of  income  levels  (in  terms  of  ‘poor’/middle  class/rich  elites),

demographics, education systems… and what they imply for the company.

• Consumer buying habits
  • Whether foreign industrial products/service provisions are in (rising) demand in the country.
  • Whether the country is a free market economy and of the degree of government

‘welcome’ afforded to foreign investors.

4.     Use of appropriate examples of companies to support arguments (10%)

• In relation to the use of corporate examples of businesses to support your argument you might consider/address the following issues in your analysis:
  • Which companies can be identified as having been either successes or failures in the country selected for the analysis?
  • Further corporate examples to illustrate particular points, say, in respect of negotiation with governments/involvement in bribery ‘issues’/alliance formation with (or acquisition of) domestic companies, management of local workforces.

5.     Conclusion, recommendations and proposed market entry based on findings (20%).

• In relation to the conclusion, recommendations and proposed market entry strategy you might consider/address the following issues in your analysis including:

• Do you recommend that the company you are representing should invest? Has the country got more opportunities than risks – clearly, your conclusion has to be consistent with the analysis which you have done, so that you can provide reasons for your choice of country into which the British retailer should invest. You should reinforce the recommendation with advice as to the market entry strategy which should be chosen.
  • In terms of proposing a market entry strategy while this section carries ‘only’ 20% of the marks you should consider what method of entry might be most appropriate for the recommended country as an opportunity to enhance your overall answer.
  • You should use examples to support your comments e.g. foreign company X has successfully used a joint venture/alliance with a local retailer, or cite a foreign company which has acquired a local operator – but remember that market entry may not always take only one form (as with Tesco in some Asian countries, with wholly owned subsidiaries, alliances, and acquisitions all being used).

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Expert Answer on Above Questions on International Management

Introduction

The expansion of business activities into the international market requires the consideration of various factors including an assessment of the political, economical, cultural, legal and ethical risk as prevalent in the target market, along with an analysis of the business opportunities available, selection of a suitable market entry strategy and many more. The given situation of Tesco expanding to the Vietnam market is analysed for its feasibility as follows:

Vietnam external environment analysis

In analysis of the external environment condition indicates significant risk prevalent in Vietnam in terms of political risk because of its system which is based on one party socialist state. There is a high risk of instability because of strong political continuity. Along with political risk is the economic risk because of socialist oriented market economy. As a result, there are strong growth opportunities available along with the implication of global trade fluctuation. The cultural and ethical risk is also high because there is a high power distance according to hofstede cultural dimension,and the culture is highly based on relationships which increases negotiation complexity for businesses. The legal risks are evident in the form of weak enforcement of the civil law system in Vietnam and lack of adequate transparency in regulations.

Analysis of business opportunities

In terms of business opportunities in Vietnam, the GDP growth rate is high and stable and supports retail expansion. The income level of people in the urban areas is also improving and the young people in particular are mainly involved in the rising consumption. The competition level shows that the vietnam market is highly fragmented with domestic retail operators and there is room for international operators to scale at large. Tesco has therefore a great opportunity to expand to the Vietnam market as it is supported by strong long term demand for private label groceries.

Corporate examples

Some of the examples of successful expansion to the international market is the Central Group of Thailand which expanded to the Vietnam market via acquisition. However, there are cases of failure as well such as Metro Cash and Carry that exited from the market because of regulatory and margin pressures. This indicates that the regulations can be effectively fulfilled by entering into local partnerships, and my hiring managers from the local area to ensure proper compliance.

Conclusion and Recommendation

It is recommended to Tesco to perform expansion to the Vietnam market looking at the opportunities available as compared to the risk and challenges. It is also beneficial to enter into joint ventures or acquisition of a local retailer to perform expansion because it reduces regulatory risks and also speeds up the expansion.

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