A review of overseas opportunities
Director of International operations
Executive summary| 2|
Country risk summary| 4|
Current situation| 5|
Market entry strategies| 6|
The acceptance of an initial country risk assessment for South America has created the need to report on the methodology for, and next steps of our international expansion plans. Firstly you will see the condensed findings of the risk assessment. Three South American countries were selected and then eliminated down. Chile was selected with a distinct advantage in risk level with only 62, while Argentina held 85 and Venezuela 87. Our intentions will then be explained as a precursor for future South American development, not an immediate sales growth. This will greatly shape our strategy to attempt to build independent production infrastructure for Tesco. Secondly you’ll read how this expansion fits in with our current situation. You will be aware of the growth we experienced last year through intermittent reports, but the annual report is quoted for a holistic view. A revenue growth of 27.3% in the US shows demand in North America which runs through to South America. Possibly most importantly, we will recognise the cause of the slow launch of fresh & easy in the US; Research and development leading to poor brand uptake. Towards the middle of this report will be an overview of the different strategies available. You can expect a breakdown of Direct and Indirect exportation, as well as foreign production. The latter section of this report will explain our three recommendations for entry; Limit non Tesco products to being sourced from ITC only, to ensure the least profitable products carry least risk. If a product cannot be sourced from ITC’s then they are not to be included in South Americas range. To focus on direct investment only, recommend to achieve the best infrastructure to supply Tesco products with smallest margins. When priority products achieve satisfactory sales (Tesco own brands), attempt to licence other brands for our own production in South America. A millstone will be agreed for when licences should be pursued.
Earlier this month a country risk assessment intended to lead further international expansion was proposed and accepted. This report will condense previous stages of this review while exploring the next steps in depth. This report should be digestible for staff outside of international operations, and if successful will leave them with an understanding of the decision to enter the South America market as well as the recommended strategy for entry. The review was concerned with three South American countries; Argentina, Chile and Venezuela. Of these, Chile was deemed to have least risk associated with it. Its merits lay in its high HDI ranking, free trade agreements and a history of MNO’s establishing there successfully. Both Venezuela and Argentina had a much higher level of risk, accumulated from a mix of social, economic or political insecurity or deficiencies. This was expected as the expansion is proposed in pre-empt of the continent becoming economically habitual, not for its current state. A background of basic entry strategies has been provided, spanning subcategories of foreign production, indirect export and direct export. These are then evaluated with consideration of Tesco’s needs. Three recommendations have been made as to how best to enter Chile and South America as a whole. These will ensure our entry leads to a profitable operation in the continent, with focus on maintaining high margins and prioritising most profitable products.
Country risk summary
The accepted risk assessment made a recommendation of Chile as the lowest risk for expansion. Argentina and Venezuela had a much higher risk value which, as we expressed, ruled...