What Effect Might Tesco Plc Planned International Expansion Have on the Countries in Which It Creates New Outlet?

Introduction

What effect might Tesco Plc planned international expansion have on the countries in which it creates new outlet?

Throughout this investigation I will be investigating what effects might Tesco Plc planned international expansion have on the countries in which it creates new outlet? This is part of options 1 in module 5 & 6 for A2. I chose this question as I feel it would be interesting to investigate how Tesco Plc are expanding when there seems to be a limit on the amount they can expand further in the UK.

Who is Tesco Plc?

Tesco Plc is the UK's biggest supermarket chain with a market share of 29% compared to that of its rival Asda 17.1% and Sainsbury 15.9%. Tesco Plc’s turnover for 2004 was Ј30,814 million with 80% of this coming from the UK alone, 9% coming from Asia and 12% from the rest of Europe2.

Tesco set out a four-part growth strategy seven years ago. This involves: core UK business, non-food, retailing services and international.

They have moved from being the number three domestic retailer in the UK to being one of the top three international retailers in the world with 2,318 stores and 326,000 people. They have stores in both Europe and Asia.

Stores in Europe (apart from UK) include:

• Republic of Ireland (80)

• Hungary (62)

• Poland (69)

• Czech Republic (22)

• Slovakia (23)

• Turkey (5)

Total number of stores = 261

Stores in Asia include:

• Japan (78)

• Malaysia (5)

• South Korea (28)

• Taiwan (4)

• Thailand (64)

Total number of stores = 179

Why is Tesco Plc looking to expand internationally?

The major reason for Tesco wanting to expand internationally is that at the moment there appears to be little potential to expand further in Britain. One reason for this is that there is limited space to build new stores due to some extent, to green field sites. There is a further restriction for Tesco Plc to expand in the form of the Competition Commission . This was shown when Safeway was being sold and the Competition Commission told Tesco Plc that it could not bid for the Safeway chain and thus expand. So for Tesco Plc any other attempts for large-scale expansion in Britain is also likely to fall foul of the Competition Commission. In 1995 the UK group began building its international arm to compensate for it not being allowed to make any significant acquisitions in the UK.

Who are they expanding into?

Since 1995 they have been expanding into both Europe and Asia. South Korea and Thailand are Tesco Plc most important markets in Asia. It operates its stores in Korea via a joint venture Samsung Corporation, a local conglomerate . They have recently brought another 12 stores in South Korea, expanding its South Korean Homeplus estate to 44 stores.

In July Tesco Plc took its first steps into China by signing up to buy a 50% stake in a venture with Taiwanese hypermarket chain Ting Hsin, which has 25 outlets (hypermarkets) . These outlets are under the Hymall brand name, most of which are in shopping malls.

Effects of multinationals

There are a number of problems caused by multinational companies like Tesco expanding into developing countries. One problem is that they could use their competitive advantage to drive local competitors out of business or buy out existing competitors. This will reduce the number of competitors in the market and possibly give the multinational monopolistic power. This in turn can have a bad effect on suppliers as the multinational may have enough power to tell suppliers the prices they want and they will have no choice but to agree because they are unlikely to have any other customers in that market.

Another problem posed by multinational companies is that employees may have low pay and poor working conditions if the country has no strict laws about these. This means the company’s costs are kept low and so will get a higher profit. This would be good for the multinational company