Tesco's Globalization Strategies and its Success in South Korea

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Case Details:

Case Code : BSTR242
Case Length : 20 Pages
Period : 1995-2006
Organization : Tesco
Pub Date : 2006
Teaching Note :Not Available
Countries : South Korea
Themes : Globalization | International Business
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"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."¹

- Rita Clifton, Chairman, Interbrand², 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."³

- Na Hong-suk, Senior Analyst at Good Morning Shinhan Securities⁴, 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 billion⁵. 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)⁶ 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.

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1] Gavin Stamp, "Foreign Growth Key to Tesco Goals,"www.news.bbc.co.uk, April 25, 2006.

2] Interbrand Corporation is a leading brand consultancy, serving clients worldwide. Founded in London, Interbrand is headquartered in New York.

3] Park Hyong-ki, "Tesco, BAT Represent Success Story in Korea,"The Korea Times, May 25, 2006.

4] Formerly known as Good Morning Securities Company Limited, Good Morning Shinhan Securities is based in Seoul, South Korea. The company is involved in investment and securities brokerage including underwriting of equities, bonds and other financial products.

5] As of November 17, 2006, 1 £ = US$ 1.893.

6] Samsung meaning 'three stars' was founded by Lee Byung-chul. It began as a trading company in the 1950s and grew to become an internationally reputed company by the 1990s. Samsung's subsidiaries are actively involved in several businesses including electronics, machinery, heavy industries, chemicals, financial services, retail services, engineering, construction and entertainment. In the year 2005, total revenue of the group stood at US$ 79.5 billion and net income at US$ 7.5 billion.