Tesco Entry Mode in China

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All foreign entry modes have advantages and disadvantages. Select a company and explain why it chose a particular entry mode among all the possible alternatives.

Introduction

Due to international market integration, over the last three decades there has been a dramatic change in the ever-expanding global market place. Leading scholars propose 3 main causes to explain this phenomenon; increased cross-border trade, multinational production, and international finance (Garret, 2000). This paper discusses the main aspects involved in a firm’s decision when entering new foreign markets. The main focus is to draw on previous literature and theoretical frameworks that identify several factors that determine a specific market entry.

We focus our study on Tesco’s presence in China, an emerging global super power with major influences in today’s global market place. Many multinationals have been frequently expanding operations to China with the vision of potential long-term growth. We will draw on the advantages and disadvantages it gained from the original mode of entry firstly in 2004 through its Joint Venture (JV) Acquisitions. We aim to demonstrate Tesco’s market-seeking motives behind its foreign expansion into emerging markets.

It’s appropriate to focus our study specifically on the emergence of Tesco’s in China as the organization had already learnt from past success and failures through different entry mode strategies (mostly JV’s). The example of China allows us to view a well-regarded successful expansion through strong alliances and a JV, while gaining a ‘late mover advantage’ to Carrefour and Wal-Mart (Its biggest global competitors) who were already in China before Tesco entered in 2004.

We are able to fully understand the real risks associated with this type of entry mode applying it to the worlds most prominent emerging market, gaining an essential insight into the cultural factors that effect Tesco’s global strategy.

Internationalization and Foreign Entry Modes
When an organization enters new foreign markets the emphasis on appropriate mode of entry can make or break successful integrations. In order for success the organization must have confidence in new ventures, a clear global strategy, a passion for learning and the leadership to bring these factors together .

When considering these factors, there are many different incentives for market entry. The different modes are distinguished below:

“The various modes for serving foreign markets are exporting, licensing or franchising to host-country firms, establishing joint ventures with a host-country firm, setting up a newly wholly owned subsidiary in a host country to serve its market, or acquiring an established enterprise in the host nation to serve that market” .

Hill (2011) clearly demonstrates the trade-offs that are required in order for a company to decide which particular mode of entry is most applicable. Each foreign mode of entry has different factors that may result in strengths and weaknesses for the firm’s outlook.

The decision to enter a foreign market is made on the assessment of a nations long-term profit potential, which is directly influenced by both economic and socio-political factors. Firms must assess the positive and negative aspects of doing business in a country with great reliance on risk assessments in order to distinguish which mode of entry is most suitable. There are three basic considerations a firm must contemplate before entering foreign markets, distinguished by Makino and Montgomery as; “which markets to enter, when to enter those markets, and on what scale” (Hill, 2011).

Higher control strategies such as greenfield projects and JV’s require substantial resource commitments by the local firm. The model suggests these types of market entries imply higher levels of control and investment is greater. Theory suggests that with higher control subsequently creates less risk, compared to those less...
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