China’s rapidly growing retail market has offered a range of opportunities for foreign investors. The retail segment in China is highly fragmented and is composed of many small-medium sized retailers, unlike United States, where big-box retailers dominate the market (China Business Review, 2010). With a huge population, where diversity exists amongst different cities or provinces, Chinese market is highly complex in nature and therefore, is considered to be a strategically important market for many companies which are sizing opportunities to expand in China. A significant number of MNCs operating in China have not been profitable due to a common misconception that large and homogenous population often overshoots the local demand. Tesco’s approach to the market was at a monolithic view of the Chinese consumers which inadequately gave less than satisfactory results (Xinhua, 2016).
Tesco has been able to successfully establish a large customer base in United Kingdom (UK) mainly due to its affordable pricing, quality products and services. Tesco’s internalisation strategy included targeting Chinese consumers by opening its first store in Beijing and continued to increase its standard stores portfolio over the next few years to expand throughout the country failing to understand the wide diversity existing within China where people from different provinces have varied tastes and preferences (Hopkins, 2015). Another mistake made by Tesco was the assumption that its famous clubcard facility which gained an incredible response in the UK would work well among Chinese consumers too. Though, the response backfired with the customers opting for mobile payments app offering similar facilities or they already held cards of different retailers under the perception that larger choice gave them more power of decision-making and control, and more chances to select programmes suitable to their needs leading to incomplete customer information, thereby, hinting at Tesco’s ill-fitted choice to understand Chinese consumers (Wang, 2013).
Tesco lost the first-mover advantage to other foreign retail giants, Walmart and Carrefour which had already established an immense customer base and enjoyed many advantages including the choice of store locations and premium market positioning in bigger cities. Tesco’s timing of entry was proved to be disadvantageous resulting in an intense competition with other foreign and local companies already prevailing in the market, demonstrating its poor competitor analysis (Hopkins, 2015).
Even though Tesco teamed up with local managers to reduce possible local risks, drastic drop in sales revenue and profits showed its poor performance in China due to above mentioned misconceptions and problems. Successful strategic planning is an important factor that Tesco needs to focus on, and increase its probability of success in China and future endeavours.2.2 Solutions and Recommendations for Tesco’s operational problem
Entering any country requires in-depth market analysis to avoid any possible failures especially relating to local demands. Understanding consumer behaviour is an important factor for a firm trying to capture a market segment. Localising business strategies and models accounting to local conditions is considered to be successful factor to understand the Chinese consumers at large (Rein, 2012). As Tesco offers products which require a more localised approach, its global strategy can be enhanced by focusing on a particular customer segment, mainly the middle class and cater the needs of varied demands from different provinces or tier-cities prevalent in China (ACC, 2012). Focus on a detailed localisation strategy subjected to a set of various macro-environmental influences can lead to rapid responsiveness from local consumers and expedites local business development (Haron, 2016).