GLOBAL MARKETING STRATEGY TESCO Supermarket Entry in China

Contents
ABSTRACT................................................................................................................................................ 3 TESCO-Companys Overview .................................................................................................................. 4 SWOT Analysis......................................................................................................................................... 4 Tescos Marketing Mix ............................................................................................................................ 8 China Country Overview ......................................................................................................................... 9 Chinas PESTEL Analysis.......................................................................................................................... 9 3 Cs Marketing Analysis ....................................................................................................................... 12 Tescos Strategies in entering China Market ........................................................................................ 13 Conclusion ............................................................................................................................................. 14

ABSTRACT
China is world largest consumer market and Tesco is world leading supermarket. After succeeding in UK, Switzerland, Thailand, Malaysia, France now it want to enter in China. Tesco has to face obstacles in establishing itself in China but due to its successful history Tesco will profitability operate in this country.

TESCO-Companys Overview
TESCO is leading supermarket in England , Europe and Asia . Its head office is located in Hertfordshire, UK. UK is also its largest market. Its offer completes online services, from supermarkets to gas, petrol station, financial services online shopping etc. In 2009 its profit was more then 54 billion with 470000 employees. It operates in 14 countries across the globe with 4331 stores. According to a report of Datamonitor (2010) Tesco has 960 express stores selling 7000 products including food items ,170 Metro in different city centre and town.450 Superstores which sells both food and non food items including clothing ,books , DVDs.Tesco.com and Tesco direct provides online superstore. UK is TESCO largest market where it service with four brands Extra, Superstore, Metro and Express. Approximately 40000 food products are sold in Tesco supermarkets with clothing and other non food item. Tesco has its own label products and half of its sales comprises of its own label products. Its products are of three level, value, normal and finest. In 1990s it started expanding across the globe such as in Europe its stores are in Republic of Ireland, Hungary, Poland, Czech Republic, and Slovakia. In Asia it serves Thailand, South Korea, Malaysia and Taiwan. Mean while Tesco continued international and local acquisition, in 2002 it purchase UK based T&S ,in Poland it bought hypermarket operator named HIT .In 2003 Tesco purchased Turkish hypermarket Kipa . In 2004 it planned to purchase Adminstore which operates in London and Europe but deal could not settle. It has independent gas and petrol stations. Tesco personnel services includes life insurance, per insurance, home insurance, motor insurance ,saving accounts personal loans ,secure investment bonds ,online mortgage finder .

SWOT Analysis
Tesco is leader in UK and successful in Europe and Asia, its vast operation makes it competitive advantage over other stores. Here is SWOT analysis of TESCO. Strengths Market Share Out of total UK supermarket share Tesco owns 13% share. In 2002 its investment in convent store T&S was most successful as it made TESCO UK second largest retail store. It is mainly focusing on non-food items and they are individually contributing more then quarter in total

group profit. Internationally it is growing steadily , it has opened many new stores in Thailand, South Korea , this segment contributing approximately 25% to total group profit. It shows that Tesco is both locally and geographically growing and strengthening itself.

Brand Value
Company has strong brand image .Its continuous effort of improving customer services and product innovation, giving good shopping experience to customer, high quality product , value for money increases it brand value. The insurance and finance services provided by the group also contribute in increasing positive brand image. UK Market Leadership Reinforcement By acquiring A&S and developing multi formatted strategy helped Tesco to increase is sales 70% more than Sainsburys in UK. Economies of scale also helped in maintaining this position, which is also a hurdle for Wal-Mart to enter in UK market. Its how Tesco has strong position in its home market. According to Euromonitor Tesco holds 30.7% share of UK grocery retail market in 2010. Sound Financial Position Companys strong financial position is another strength, according to Datamonitor (2010) Tesco turnover is 54billion , 14% greater then what it was in 2008.Tesco provide product and service according to respective market demand. Tesco.com Teco.co is worlds biggest online supermarket which operates in more than 300 stores across the country and cover approximately 96 % of UK. Million of household use this service and company has this segment to progress further. Customer Loyalty Economies of scale also help in providing product according to customer budget without compromising quality. Tesco ClubCard ensures customer loyalty, this help in effective direct marketing and other promotions.

Weakness
Low quality Product

Tesco has not performed well in 2009.Acording to a Mintel Analysis, many products of companys value line were called back which caused financial and brand image loss. These products were marketed as high quality and a suitable cheaper alternative to expansive key brands. But its quality was not as promised. Emphasis on home market

Tesco is focusing more on home market and not expanding geographically as it should be. So, this can be termed as systemic risk of UK market.

Opportunities
International Diversification

In 2009 Tesco opened 185 local stores and 435 international stores (Mintel, 2010). This move helped in achieving economy of scale, systemic risk reduces. Tesco entry China will strengthen its position globally as these are world biggest consumer market. Tesco.com

Tesco.com is popularizing day by day which have reached 1 million customer in 2010. This too will attract new customer and reduce cost which will ultimately result in higher profit. Food Retail Market According to a Euromonitor 2010 report Tesco due to food market profit will rise from 125 billion in 2009 to 145 billion in 2014. Being the necessity this segment will sustain even in recession.

Threats Global Crisis

Due to global recession UK economy contracted 2.4% in 2009 which will increase to 4.2% according to IMF report ( Poulter, 2009). Tescos focus solely on UK

market will harm its financial figures. Decrease in income and rise in employment has effected consumer buying pattern specially non-food items.

Intense Home Competition

Tesco is facing intense competition in UK retail market such as Asda , Sainsburys etc. Even geographical expansion local producer of every country is threat for Tescos progress.

Tesco Porter Five Forces Analysis

To analyze competitive advantage of Tesco, porter five forces are used as follow. Threat of Substitute and services

Food items substitute are low and medium for non food items. Substitutes of food items are generally small chops and organic shops but these
are not threat to Tesco. Tesco has open Express stores in local town to overcome these threats .

Threats of non food items are high, so during recession customer will prefer
discounted threat. In this segment Tesco is threat to specialty store.

Threat of new Competitors New competitors in food retail market are low, because it needs huge capital to
establish new brand name. In food market big brands are already present such as Sainburys, Morrisons etc. So, new entrant should produce something extra ordinary to capture the market (Mintel, 2010).

Legal formalities take time and resources to open new supermarket, so it is a

barrier to new entrant.

Intensity of Competitive Rivalry Competition in food and grocery industry is high. Tesco is facing intense competition from big brands of grocery retail. All
competitors are progressing, so it is treat to Tesco leadership position in UK market.

Small grocery retailer attracts rural areas customer.

 Hard discounter like Aidi and Lidi have progressed very high in recession
period and their sales growth is over 25% (Keynote, 2010). Bargaining power of buyers

Buyers bargaining power is high.

Product which has little differentiation their switching cost is low, so buyer can switch from one buyer to another.

Customers are generally attracted towards low pricing, and due to online buying, customer can compare product with each others.

Bargaining power of suppliers

Bargaining power of supplier is low. Suppliers are leaning toward major food and grocery retailer and less interested in large supermarkets. Thats why Tesco enjoys possible low prices from suppliers.

Tescos Marketing Mix

Marketing mix is set of controllable marketing activities that a firm uses to meet the need of target market. It consists of four Ps product, price, promotion and place. Tesco has to examine closely but do not compromise on companys basic standards. The main objective of the marketing mix is to satisfy customer.

Product
As soon as Tesco take over the control of its Chinas store then they should stop their product development strategies and focus on distribution of product to different stores, provinces etc. In this way they can achieve market penetration and achieve market share. Tesco should revise its product according to Chinese customer need in this way they will sell and promote their own brads product.

Price

If Tesco want to conquer China market it has to go for cost advantage strategy. Cost advantage can be achieved by process efficiencies, dealing with large supplier who will offer raw material at low prices and other general cost. If other competitor in Chine fails to lower their prices the Tesco will enjoy cost leadership.

Place
Being the grocery retail store Tesco needs to make million pound investment in establishing stores in low income district and Express stores in rural areas. If Tesco will open store in economically deprived areas it will win trust of customer and favour from local government by providing its people employment and good quality product at low prises.

Promotion
Tesco have to build a long strategic plan to generate customer loyalty in China. It has to focus on food and non food items and services. Tesco needs to know what customer of respective want plus by providing competent services Tesco can make customer satisfied and loyal.

China Country Overview

Chinas consumer market is dynamic and growing very fast. Analysis predict that it is going to be second largest consumer market by 2015 after USA. Every multinational want to avail the emerging opportunities in Chinas growing middle class , established elite and

progressing rural areas. A survey conducted by American Chamber of commerce Shangahi and world leading management consulting firm Booz& Company through a survey identified six major trends effecting Chinas consumer market. In this survey the respondent

companied (2% foreign companies all other Chinese) replied that they are all prepared to compete effectively in Chinas consumer market.

Chinas PEST Analysis

Here is Chinas political, economical, social and technological factors analysis.

Political Factors
China uses communism in countrys political decision making. Government controls all citizen activities, mean whatever any one work should be positively contributing to the nation.

Chinas government is stable because it doesnt publicize government matters in media so, citizen involvement is less. Government has imposed laws and imposed rules which have work for effectively for economy.

By joining WTO China has open doors for foreign business, which led to manufacturing and industrial growth due to its cheap labor.

But still government is facing problems of environmental disturbance, demographic pressure, and shift of population from rural to urban areas.

Earlier Chinas business freedom was restricted, but now they have allowed business from other countries. It take only 37 days for starting a business in China as compare to world average of 38 days But it takes 1.7 years to fill for insolvency in court until resolution of assets.

Due to foreign business and arrival of supermarketization , China has transformed its traditional markets to supermarket.

Foreign companies are now allowed trading, importing, exporting in China. Chinas weighted average tariff rate was 3.9% in 2008. Factors such as import and export bans & restriction, complex regulations, service market restriction, subsidies add to cost of trade.

Inflation Rate in China is 5.9 and unemployment rate is 4.2, tariff rate is 3.9, income tax rate is 45.0, corporate tax rate is 25 this show that income tax and corporate tax is moderate in china.

Government encourage new technologies in business .Due to low corporate tax foreign MNC started business in China and number of FDI have increased rapidly. From October 2008 income tax is not charged on interest from bank deposits. Recently to revenue as percentage to GDP were 18.3.

Economic Factors
Chinas economic freedom score is 51.0.its GDP is $7.9 trillion , at the growth rate of 9.0% and five year annual compounded annual growth is 11.0% , and per capita income is $ 5962.Government expenditure are 19.9% of GDP and tax burden is 18.3% of GDP. Unemployment rate is 4.2% and inflation is 5.9%, FDI inflows $108.3billion.

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Government has directly and indirectly control their banks and financial institutions .Any investment in Chine is control by government and its courts has very less power to solve political issues.

China has modest corporate tax rate and high income tax rate. Government supports new technology as compare to foreign institution entry in local financial institution. Due to lower corporate tax rate many MNCs has entered China which has increased FDI in the country. Now individual taxes are not charges on bank deposits.

Chinas economy is mix of free and control market. Prices of the products are determined by demanded but also government control prices of some goods to maintain price stability. Government gives subsidies to small firm to compete with big firms.

Chinas laws are complex, non transparent, corruption, industrial polices protect local firms and court vulnerability hinder in FDI. China has divided foreign countries in different categories such as encouraged, restricted, financial strictness, prohibited and permitted. In China there are only two private banks and four state owned banks owning 50% of total assets. The China Banking Regulatory Commission controls and administers China financial systems.

Chinas central bank discount rate is 2.79% and commercial lending rate is 5.31%. Inflation rate is 3.2% (2010 estimates.).

Social Factors
In 2010 Chinas population was 1.34 billion; its growth rate is .493% (2011 est.).Urban population is 43% of total population and 2.7% annual rate of urbanization. Life expectancy in male is 79.24 years female is 84.88 years (2010 est.). Literacy rate is 91.6% as compare to world average of 82% .Han Chinese 91.5% and other nationalities 8.5%.Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2% .Standard Chinese or Mandarin are common languages. China has an intense gap between highest and lowest 20% of wealth consumption. Source from http://globaledge.msu.edu/countries/china/statistics/ Life style and trends of Chinese population keeps on changing due to new product from west , level of consumption ,living standard and trend change from quantity satisfaction to quality satisfaction. Now Chineses are more fashion oriented.

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Literacy rate is 91% average age of school is 11.2 years and education expenditures are 1.9% of the GDP. Chinas labor regulation is obstacle in labor productivity.non salary cost of a employee is high and and before terminating any employee employers need to consult with labor bureau and labor union.

China ranks 72nd out of 179 countries in Transparency Internationals corruption Perception Index 2008.Corruption is spreading due to weak investigative bodies and courts.

Chinas Judicial system is weak and all land is state own local people can get it at long term lease. Copyrights, patents, brand names, trademarks, and trade secrets are routinely stolen.

Technological Factors
China has managed to achieve many discoveries in field of science such as Daqing Oilfield, building the first atomic reactor, successful testing of atom and hydrogen bombs, synthesis of crystalline insulin, positron and negatron electronic collider, nuclear power stations, carrier rockets, and satellite launching technology. This improvement created many jobs in all industries. Government takes imitative in developing research and development industry such as Torch Program and the Scaling Heights Program.

Environmental Factors Government takes steps to protect environment and had made rules to protect
industrial pollution and environment.

Legal Factors Chinas labor regulation is obstacle in labor productivity.non salary cost of a
employee is high and before terminating any employee employers need to consult with labor bureau and labor union.

3 Cs Marketing Analysis
Three Cs of marketing stands for Customers, Company and Competitors.

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Competitors
Entry in supermarket business is difficult due to huge cost and administration expenses. Food item substitutes are low as compare to non food item because people can opt low prices product over high prices. Substitute of supermarkets are small grocery stores but these are not big threat to Tesco.

Company
Tesco is leading supermarket in England. It is also present in other European countries with such great experience, and producing own branded product, its cost will be lower and every soon it will achieve break even in China. As it deals in large volume of products, its profitability will be higher as compare to any newly established supermarket. Its good will attract customers. Sound financial position, a group of companies especially tesco.com are strengths of Tesco. Tesco caters to customer of all classes, so few of low quality products may harm its goodwill. It has effective leadership, teamwork working environment make it culture very inspiring.

Customers
Chinas market has huge potential to quality consumer products. Trend of quality satisfaction is increasing as compare to quantity satisfaction. Now Chinese are more fashion oriented, they inspire from western trends. Consumption pattern has changes in China. Tesco has to segment effectively because urban population is increasing. Infrastructure has improved which allow easy movement of public to go around for shopping. Only people in rural areas are price sensitive.

Tescos Strategies in entering China Market Market Entry Joint Venture is one of the best options to entry in any new market. But this strategy for TESCO failed in1996 when it wants to enter French market. SO in China Tesco may entry through supermarket acquisition.

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This is very effective and Tesco has successes once in this, Tesco entered in Ireland by acquiring its largest market Quinns.

Retailing Strategies
In Chin number there is large number of small and medium scale few large stores. So medium scale stress are more popular. As a major portion of Chinese population lives in rural areas so they cannot access the market. So, Tesco can setup Tesco Express type of stores to cater this segment and large supermarket in big cities. Product & Services Development Tesco needs to look closely on the success factor of presently leading Chineses supermarkets. So, they have to be different from them to attract customers so, Tesco will offer wide variety of products and at lower cost. Besides products Tesco excel in services especially in e-retailing, after sale services, on time delivery etc will attract and retain customers. Tesco needs to position itself in Chinese people as brand of convince, quality and low priced. Channels Of Distribution In China channels of distribution are not easy as rules and regulation of each territory differ so establishing warehouses or factory in one city and supermarket in other can create problems. So its better to locate both warehouse or unit plant near supermarkets.

Conclusion:Tesco is leading supermarket of the world it is operating many countries

of Asia and Europe. Now Tesco wants to enter in world largest market China .Who is now a days favorite of all industries across the globe. China had strict laws regarding foreign companies want to operate in China .But these has lessen now. China will adopt acquisition strategy to enter market and target especially rural areas through Tesco Express. Tesco has cost advantage due to wide variety of product it can easily achieve its target.

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References: DATAMONITOR (2004) , Tesco PLC , reference code :1674.

www.datamonitor.com. Dunn, Mason, Scarff,TowersTesco in Switzerland

Abeysinghe, T. (2010), Roaring tigers, rising dragon, Straits Times (Singapore), February 2, 2010. Available at http://www.fas.nus.edu.sg/ecs/scape/doc/ST-NUS-Econ-Series-02Feb10.pdf King, I. (2009), Tesco shows its claws, Sun, Jan 18, 2009. p.42 Euromonitor (2010), Industry Profile Food retailing, Euromonitor International, 2010 Fame (2010), Annual Reports Analysis Tesco plc, FAME International

Porter, M. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, (Location: The Free Press) Tesco (2010), Annual Report and Review 2010, Tes co. Available at

http://ar2010.tescoplc.com/en/downloads.aspx [accessed 07/07/2010]

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