International Business

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Hill: International Business: Competing in the Global Marketplace, Sixth Edition

V. The Strategy and Structure of International Business

14. Entry Strategy and Strategic Alliances

© The McGraw−Hill Companies, 2007

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14
Entry Strategy and Strategic Alliances
Introduction Basic Entry Decisions Which Foreign Markets? Timing of Entry Scale of Entry and Strategic Commitments Summary Entry Modes Exporting Turnkey Projects Licensing Franchising Joint Ventures Wholly Owned Subsidiaries Selecting an Entry Mode Core Competencies and Entry Mode Pressures for Cost Reductions and Entry Mode Greenfield Venture or Acquisition? Pros and Cons of Acquisitions Pros and Cons of Greenfield Ventures Greenfield or Acquisition? Strategic Alliances The Advantages of Strategic Alliances The Disadvantages of Strategic Alliances Making Alliances Work Chapter Summary Critical Thinking and Discussion Questions Closing Case: Diebold

230

Hill: International Business: Competing in the Global Marketplace, Sixth Edition

V. The Strategy and Structure of International Business

14. Entry Strategy and Strategic Alliances

© The McGraw−Hill Companies, 2007

Tesco Goes Global
Tesco is the largest grocery retailer in the United Kingdom, with a 25 percent share of the local market. In its home market, the company’s strengths are reputed to come from strong competencies in marketing and store site selection, logistics and inventory management, and its own label product offerings. By the early 1990s, these competencies had already given the company a leading position in the United Kingdom. The company was generating strong free cash flows, and senior management had to decide how to use that cash. One strategy they settled on was overseas expansion. As they looked at international markets, they soon concluded that the best opportunities were not in established markets, such as those in North America and Western Europe, where strong local competitors already existed, but in the emerging markets of Eastern Europe and Asia where there were few capable competitors but strong underlying growth trends. Tesco’s first international foray was into Hungary in 1994, when it acquired an initial 51 percent stake in Global, a 43-store, state-owned grocery chain. By 2004, Tesco was the market leader in Hungary, with some 60 stores and a 14 percent market share. In 1995, Tesco acquired 31 stores in Poland from Stavia; a year later it added 13 stores purchased from Kmart in the Czech Republic and Slovakia, and the following year it entered the Republic of Ireland. Tesco’s Asian expansion began in 1998 in Thailand when it purchased 75 percent of Lotus, a local food retailer with 13 stores. Building on that base, Tesco had 64 stores in Thailand by 2004. In 1999, the company entered South Korea when it partnered with Samsung to develop a chain of hypermarkets. This was followed by entry into Taiwan in 2000, Malaysia in 2002, and China in 2004. The move into China came after three years of careful research and discussions with potential partners. Like many other Western companies, Tesco was attracted to the Chinese market by its large size and rapid growth. In the end, Tesco settled on a 50/50 joint venture with Hymall, a hypermarket chain that is controlled by Ting Hsin, a Taiwanese group, which had been operating in China for six years. Currently, Hymall has 25 stores in China, and it plans to open another 10 each year. Ting Hsin is a well-capitalized enterprise in its own right, and will match Tesco’s investments, reducing the risks Tesco faces in China. As a result of these moves, by early 2004 Tesco had 261 stores in Europe outside the United Kingdom that generated £3,385 million in annual revenues, and 179 stores in Asia that generated £2,665 million in annual revenues. In the United Kingdom, Tesco had some 1,878 stores that generated £24,760 million in annual revenues. The addition of international stores has helped to make Tesco the fourth...
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