Tesco and Walmart Companies Growth Comparison

Tesco

Tesco has rated the third-biggest grocery store in the world (based on revenue collection); coming second to Wal-Mart and Carrefour (Corporate Watch UK 2004). However, with regards to profitability, the company only comes second to Wal-Mart when it is compared to companies dealing in its line of business (Corporate Watch UK 2004). The company’s headquarters are in the United Kingdom (UK) but its outlets are found in over 14 countries across the globe with a market presence in three continents (Corporate Watch UK 2004). However, a majority of the company’s sales are derived from the UK because approximately 30% of its revenues are derived from this market. The company’s strong presence in the UK market is partly attributed to its presence in the London stock exchange under the name TSCO but its presence is also felt in the Irish stock exchange where it trades in the same name.

Tesco’s operations trace back to 1992 when it opened its first outlet in Middlesex. Though the initial business concept was to specialize in the grocery business, Tesco has over the years ventured into other types of businesses including the retail of books, electronics, clothing, and other types of businesses (Corporate Watch UK 2004). The expansion has also seen the geographic growth of the business into other continents. It is from this basis that this study seeks to analyze the company’s strategy in emerging markets, evaluate its motive in these markets, evaluate its success in emerging markets and evaluate the company’s internationalization strategy in these markets (as well as other markets it operates in).

Tesco’s Strategies in Emerging Markets

Tesco started expanding into overseas markets in the 90s through a rapid expansion strategy that was initially focused on venturing into Eastern European markets and Southeast Asia (Corporate Watch UK 2004). These markets were initially perceived to have a rather undeveloped grocery market, thereby posing a lot of opportunities for the company; however, this did not materialize in some markets such as France where the company unsuccessfully tried to venture into. Nonetheless, the company only recently ventured into some of the world’s most developed markets such as the United States (US) where it ventured in 2007. This makes Tesco an unprecedented British grocery company (in terms of international growth) because no other grocery company from the same origin has ventured into overseas markets.

Tesco’s strategy in emerging markets has largely proved successful because many retailers have failed in establishing a strong foothold in emerging markets (Child 2002, p. 2). Tesco’s strategy in emerging markets is centered on online means and most especially through online-home delivery services. This strategy has majorly been adopted when selling nonfood items in emerging markets and comprehensively, it has enabled the company to achieve one of the highest growth rates attained by a company that deals in the same type of business (Child 2002, p. 2). This strategy has even been attributed to the company’s growth in the sale of non-food items which has recently grown by close to 18% (Child 2002, p. 12). This growth has seen the company allocate its nonfood business to approximately 40% of its floor space, although the growth started spreading from Hungary in 1994 when the company first undertook its online sales strategy.

Because of the company’s success in online sales, Tesco is now considered to be a leader in internet grocery sales. In the US, TESCO achieved its high internet grocery sales through forging a partnership with Safeway Company which utilizes Tesco’s database to make online home delivery service a reality (Child 2002, p. 2). Close to its online sales strategy is a partnership strategy adopted by the company in some of the emerging markets it currently operates in. A good example is China where the company has decided to partner with Hymall which owns several hypermarkets in China and more specifically in Shanghai (Wachman 2006, p. 1). The partnership is worth 140 million pounds and Tesco is expected to control approximately half the stakes in the company (Wachman 2006, p. 1).

However, regardless of this strategy, the company expects that some of its partnership agreements are bound to take a couple of years before they materialize into profits. Tesco thinks that some of its major emerging markets are very big and it is sometimes impractical to exploit these markets as a single entity (Wachman 2006, p. 3). This is the reason that has necessitated the company to forge more partnerships with existing market operators to roll out its services. The partnership between Tesco and Hymall in China has been pursued with enthusiasm by the company’s management; such that, it has even abandoned the acquisition strategy it intended to undertake in America.

The partnership strategy has also been adopted in India where Tesco partnered with a subsidiary of Tata group called Trent (Best 2008). This partnership was confirmed by one of Tesco’s managers (cited in Best 2008) who affirmed that “We’ve spent a long time looking for the right partner, and we believe that we have found it in Tata” (p. 6). The partnership stipulates that Tesco should provide backroom support to help expand Tata’s Star Bazaar hyper chain of supermarkets; meaning that Tesco will undertake a double-pronged approach to enter India’s retail chain industry (Best 2008). Best (2008) also explains that under the partnership, Tesco is supposed to “open its own wholesale cash-and-carry business to provide a range of fresh food, grocery, and non-food products to small retailers, restaurants, Kirana stores, and other business owners” (p. 4).

Nonetheless, Tesco’s partnership strategy has only been applied in emerging markets because the company thinks that if it adopts the same strategy in developed markets, such as the UK and the US, it is going to face stiff competition, and therefore the strategy my prove fruitless in the long run. This is the reason why the company has focused more on emerging markets as opposed to developed markets; for example in the US where one of the company’s director was quoted as saying:

“People have talked about businesses in the US that could be bought, but I don’t think they are right for us. We have had researchers in America, but I can tell you that we have no current plans to make an acquisition there” (Best 2008, p. 7).

Tesco’s Motive in Emerging Markets

Tesco’s motive for venturing into emerging markets is largely centered on its expansion strategy as well as its profit-making aim. For instance, in the Indian market, Tesco was largely attracted by the fact that the Indian food retail industry was worth approximately 202 billion dollars (an attractive market for any international company) (Best 2008). Currently, half the company’s profit is estimated to be driven by its emerging markets and more potential is still said to be unexploited in these markets. Tesco also perceives its emerging markets (especially China and India) as a platform to propel its expansion and growth plans. For instance, Best (2008) declares that “entering the wholesale market and forming links with Tata, Tesco is setting the stage for future growth” (p. 9). The company also perceives its venture into emerging markets as an opportunity to learn about emerging markets but more importantly, emerging markets provide the company with an opportunity to establish a supply chain system that enables it effectively carry out its global operations.

Tesco’s Internationalization into Emerging Markets

Tesco’s’ internationalization strategy is partly driven by the spirit of modifying its products and services to meet the local needs of its customers. For instance, the company’s venture into South Korea was done in partnership with South Korea’s Samsung under the banner “Home Plus” which enabled it to learn how the South Korean market worked in addition to facilitating the customization of its goods and services to suit the local market needs (Corporate Watch UK 2004). It is also noted that the company’s partnership with the Korean firm enabled it to get the best location for business which also contributed to the success of South Korea as Tesco’s second-biggest market after the UK. However, Tesco did not stop at localizing its goods and services according to the local market needs because it went ahead and brought international business practices into its emerging markets.

This internationalization strategy has also been evidenced in Thailand where the company controls approximately half of Thai’s food market (Corporate Watch UK 2004). In Thailand, the company declared that it was going to source locally produced food thereby creating direct and indirect employment for the people, as opposed to sourcing their produce or labor, out of the Thai economy. Corporate Watch UK (2004) declares that “the company is committed to helping its local suppliers access local and international markets, and sell to multinational retailers, by helping them improve their quality and service standards” (p. 30). The strategy to source locally produced goods is also evidenced in Japan where the company sources whale, dolphin, and porpoise meat from one of Japan’s major companies known as NIssui (Corporate Watch UK 2004).

Though Tesco adopts the localization strategy in most of its emerging markets, its internationalization strategy in the European Union has not been widely accepted. In other words, the company is repeatedly accused of several unfair practices like setting excessively low prices than the real markup prices just so it eliminates its competitors because it has a stronger financial muscle than other retailers (Corporate Watch UK 2004, p. 20). It is also alleged that Tesco has continually bullied some farmers in certain regions to refrain from selling their produce to other retailers so that they lock their competitors out of business. Furthermore, though the company still adopts the same strategy of hiring local workers in its international markets, it has consistently been criticized for unfairly paying its employees in certain markets. Similar allegations have caused a lot of stir in some of its emerging markets where its aim of sourcing locally produced goods and hiring local workers have repeatedly been tarnished by allegations of supply chain exploitation and a disregard of fair employee practices (Corporate Watch UK 2004). These allegations have even led to the formulation of strict trade regulations in Malaysia to curb Tesco’s growing influence in this market.

The company has also been criticized for using its financial and economic power over local farmers by taking advantage of the local farmers and workers (in emerging markets) as well as locking out its competitors. These inconsistencies were especially reported in Ireland (Corporate Watch UK 2004, p. 21). Moreover, Tesco has in the past supported mechanization efforts of Polish farmers so that they increase their production of grocery items but this move was criticized on the basis that it was going to lead to much destruction of the environment if it was not regulated. Nonetheless, previously, Polish farmers were not mechanized enough and therefore their supplies to the retail chain store were not sufficient. Tesco, therefore, decided to support these farmers to mechanize their production to increase production.

Tesco’s Success in Emerging Markets

As mentioned earlier in this study, Tesco is currently deriving 50% of its profits from emerging markets. The company’s presence is currently felt in approximately 14 countries and though its operations are increasingly spreading, its strong market footing is established in several countries in Eastern Europe, Turkey, and Japan (City staff 2010, p. 1). However, in recent years, Tesco’s success in the emerging markets has majorly been witnessed in Asia where Just-food.com (2009) establishes that “In the year to 28 February, Tesco’s international sales rose by 13.3% at constant currencies, as the company saw its growth in Asia accelerate on the back of the However acquisition in South Korea” (p. 3). In expressing, the company’s confidence in emerging markets, Tesco’s manager was very upbeat even in the wake of the global financial downturn by declaring that its profitability in the emerging markets was going to withstand the financial turmoil.

By the close of the year 2010, Tesco had registered increased financial growth in some of its primary emerging markets including South Korea, India, China, Malaysia, and Thailand (City staff 2010, p. 1). However, the biggest growth was registered in South Korea which is deemed the company’s second-biggest market after Britain. The company also expressed extreme optimism that the company’s growth in emerging markets was going to reverse its past periods of poor financial performance in Europe (compounded by the global financial downturn). As a result of this optimism, the company has announced that it is going to open its first cash-and-carry outlet in India in the coming months.

Tesco’s success in emerging markets can be largely evidenced in its UK venture and partly in some Asian markets such as South Korea and China. These are the major markets that characterize the company’s success in emerging markets. Tesco’s strategy in emerging markets is largely characterized by partnerships but its main motive is to maintain its financial growth because its major European market does not offer the same potential. However, to accomplish this goal, the company adopts a localization strategy when operating in emerging markets to gain local acceptance.

Wal-Mart

Wal-Mart is an American owned business enterprise with large discount stores across the globe (Walmart 2011). The company is a market leader in its business division because as of 2010, the company was considered the largest in terms of revenue collection (beating other market operators such as Tesco). The company’s operations did not however start as widespread as it is because as of 1962, when its company founder, Sam Walton started its first outlet, it only had a few stores in America (Walmart 2011). The company, however, went public in 1969, and as of 1972; it had already listed in the New York stock exchange (Soderquist 2005). Currently, the retail chain is deemed the largest in America and the largest private enterprise in the grocery business.

In 2009, it was estimated that the company derived approximately 258 billion dollars in sales revenues from the United States alone (Walmart 2011). One of its major constituent businesses is Sam’s Club retail stores in North America but its market presence is felt in approximately 15 countries where it runs approximately 500 stores (Walmart 2011). However, some of its global stores do not go by the name Wal-Mart. For instance, in Mexico, the company trades under the name Walmex; in the united kingdom (UK) it operates under the name Asda; in Japan, it trades under the name Seiyu and in India, it operates under the name Best Price (Walmart 2011). Regardless of its large global operations, Wal-Mart’s venture in the global grocery business has not been entirely successful. There are some regions it has posted good results while other regions have seen the exit of the retail store after only a few years. For instance, in Germany, the company’s operations collapsed, and in the same manner, its operations in South Korea collapsed as well. However, its entry into emerging markets such as China has been largely successful, and in the same manner, its venture into the UK and South America has been successful as well. Considering the company’s success and failure in the global grocery business, this study seeks to establish Wal-Mart’s strategy in emerging markets; its motive to emerging markets; its success in emerging markets and the company’s internationalization in emerging markets (as well as the markets it currently operates in).

Wal-Mart’s Strategies in Emerging Markets

As mentioned earlier in this study, Wal-Mart has not been entirely successful in its venture into emerging markets. Part of the reasons identified to have caused the company’s failure in some emerging markets can be attributed to its emerging markets strategy. Its strategy into emerging markets has been largely characterized by the acquisition of performing retail stores in the emerging markets. For instance, the company recently decided to venture into South Africa as its latest emerging market venture where it acquired South Africa’s largest retailer, Massmart holdings for 4.6 billion dollars (PaperCamp 2011, p. 2). This acquisition has been termed by observers as one of the largest in close to a decade of the company’s existence.

Massmart’s operations in South Africa stretch far and wide and even though it is majorly centered in Johannesburg, it is largely considered the largest retailer in low-cost consumer goods in the South African country (a business strategy that Wal-Mart also possesses in America). Massmart’s operations hugely resemble Wal-Mart’s because its operations also stretch to more than 13 countries across the globe and a majority of these stores also operate under different names. In the 13 countries Massmart operates, 290 stores are run by the South African retail giant; however, the biggest similarity with Wal-Mart is evidenced in its business strategies because as PaperCamp (2011) notes “Massmart operates low-cost, high volume stores with a strong general retail business backed by low-cost distribution systems” (p. 4) and Wal-Mart is also known to adopt the same strategy in its American and South American Markets.

Wal-Mart’s acquisition strategy has also been adopted in Brazil where the company recently bought 118 Bompre Co stores and a further 140 Sonae stores by the close of the year 2004 (Bussey 2006). Though it’s Japan and German markets are not as successful as its South American ventures, Wal-Mart has also made similar acquisitions in the two countries. In Mexico, the company undertook a joint venture with one of the strongest retail chains in the country, Ciafra (Bussey 2006). Later, the company was able to buy the controlling shares in the company and as a result, it added a list of additional Supercentres and Sam’s clubs to the company’s operations. The strategies of acquisitions of joint ventures have largely propelled Wal-Mart to the heights it enjoys today. Stein (Cited in Bussey 2006) affirms that “What Wal-Mart is finding so far internationally, is that when it has gone into a country and acquired or partnered with a successfully established retailer it has done very well” (p. 32).

Wal-Mart’s Motive to Emerging Markets

After Wal-Mart failed in succeeding in its German and South Korean markets, Wal-Mart’s motive in emerging markets is largely seen as that of learning the trends in emerging markets. For example, the company perceives its acquisition of Massmart’s operations as an opportunity to learn the South African market and tailor its products and services to be suitable to the South African population. Also, its motive in the emerging markets is largely seen as financial because observers note that the country’s growth in the American market is almost unreal and so, for it to maintain its expansion strategy, it ought to venture further into emerging markets.

Wal-Mart’s Internationalization into Emerging Markets

Again, Wal-Mart’s internationalization strategy in emerging markets has been largely influenced by its experiences in South Korea and Germany. However, its failure in South Korea has given the company the biggest lesson of how to deal with emerging markets. One of its biggest pitfalls leading to its failure in South Korea is attributed to the fact that the company never tailored its goods and services to meet the needs of the local people. PaperCamp (2011) affirms that “Wal-Mart learned that being the first mover and adjusting to meet local market needs are important advantages to have in international retailing” (p. 13). The same lesson was also learned in Brazil where the company made some miscalculated moves by selling Dallas cowboys to Brazilians just because they were obsessed with football (Bussey 2006). However, this venture was not successful because the company failed to consider the fact that though Brazilians loved football, they were not obsessed with American football.

Because of this lesson, Wal-Mart’s internationalization strategy has been largely seen as a “think global act local strategy”. This strategy means that the company will still expand into emerging markets as part of its growth strategy but it will tailor its goods and services to meet the needs of the local population. This strategy is speculated to be Wal-Mart’s business model in the South African market after it acquires Massmart (PaperCamp 2011). However, in as much as the company seeks to adopt a local strategy in its emerging markets, it is still pegged to its business model of low-cost leadership. This is the major business model attributed to its success in the American market because it has been able to maintain prices way below most of its competitors. This is part of the reason why Wal-Mart’s acquisition of Massmart has been largely attractive to Wal-Mart’s management as is affirmed by PaperCamp (2011) which states that:

“Massmart’s low-cost strategy, which appeals to Wal-Mart, centers on a highly developed low-cost distribution channel throughout the local South African market. Acquiring Massmart will allow Wal-Mart to maintain its current strategy while also gaining local knowledge and already established suppliers” (p. 13).

Wal-Mart’s Success in Emerging Markets

Except for a few markets (such as South Korea), Wal-Mart’s venture into emerging markets has been largely successful. This can be evidenced by its growth in some emerging markets such as Mexico. Bussey (2006) affirms that: “Total sales in Mexico grew nearly 14 percent in 2005 to $15.5 billion – still just a fraction of Wal-Mart’s $285 billion total business, but steadily increasing in importance as Wal-Mart’s international sales growth outpaces its domestic rhythm” (p. 13). Moreover, the company recently declared that “The Mexican subsidiary also opened 93 new outlets in 2005, beating its original plan of opening 70 stores” (Bussey 2006).

Though the company’s growth in its American outlets may be limited, it expects a lot of growth in the coming years from the optimism it enjoys as a result of its success in emerging markets. This fact is affirmed by Bussey (2006) who declares that “But while U.S. sales growth slumps, the Mexican subsidiary is growing at a lightning speed, outpacing its Mexican competitors and outperforming its parent company” (p. 29). The company’s success in Mexico is seen from the success of its Mexican subsidiary, Walmex which is currently considered Mexico’s number one private employer, and its success is compared to its three next big competitors summed up together (Bussey 2006). The company’s growth in Mexico can be traced to its venture into the South American market in 1991 but so far, the company has managed to grow to approximately 783 supermarkets complemented by a series of departmental stores, Sam’s clubs, and other auxiliary market ventures by the American retail giant (Bussey 2006).

Wal-Mart’s success in emerging markets is however not only limited to Mexico because it has also registered significant growths in other emerging markets such as Argentina where it currently operates approximately 11 stores around the South American country (Bussey 2006, p. 40). Its market presence in the South American country is estimated to span a decade. In Brazil, the same success is also noted and even though the company entered the populace of South American nation as recent as 1995, it has managed to add approximately 30 stores to its existing chain of retail stores in the country (Bussey 2006). In China, the story is no different because the company is estimated to be running approximately 60 stores and is also in control of roughly 8,000 supply stores (Bussey 2006, p. 39).

Wal-Mart’s success in emerging markets can be largely evidenced in its South American ventures and partly in some Asian markets such as China. These are the markets that characterize the company’s success in emerging markets. Wal-Mart’s strategy in emerging markets is largely characterized by acquisitions and joint ventures but its main motive is to maintain its financial growth because its major American market does not offer the same potential. However, to accomplish this goal, the company has learned that it ought to maintain a “think global and act local” internationalization strategy while operating in emerging markets to avoid the same eventuality it suffered in South Korea.