Why Do Companies Go Global?

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Tesco’s international strategy

Globalisation progressed significantly in the past decade, facilitated by modern communication, transportation and improved legal infrastructure as well as the political choice to consciously open markets to international trade and finance. Included in this wave were the efforts of companies to broaden the geographic reach of their products. Today multinational enterprises own or control production or service facilities outside the country in which they are based. Although a company can achieve MNE status through the level of control that for example Nike exercises over its manufacturers without actually owning them, most companies become multinationals because of some form of foreign direct investment (FDI) that spreads their geographic activities. Tesco is a global grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues (after Wal-Mart and Carrefour) and the second-largest measured by profits (after Wal-Mart). It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in the UK (where it has a market share of around 30%), Malaysia, the Republic of Ireland and Thailand. The company was founded in 1919 by Sir Jack Cohen as a group of market stalls. The Tesco name first appeared in 1924, after Cohen purchased a shipment of tea from T. E. Stockwell and combined those initials with the first two letters of his surname, and the first Tesco store opened in 1929 in Burnt Oak, Middlesex. The business expanded rapidly, and by 1939 there were over 100 Tesco stores across the country. Originally a UK-focused grocery retailer, since the early 1990s Tesco has increasingly diversified geographically and into areas such as the retailing of books, clothing, electronics, furniture, petrol and software; financial services; telecoms and internet services; DVD rental; and music downloads. The internationalisation of a retailer such as Tesco is a special case: It does not have a single, physical product that could be exported, but retailers typically sell many products by many manufacturers and provide the shopper with an experience, hence retailing contains a major, intangible service component. While consumer tastes in areas such as electronic goods and clothing converge, different cultures still maintain their distinct ethnic preferences in certain product categories; food for example remains a largely local product. Tesco has evolved an international strategy based on six elements: • Be flexible - each market is unique and requires a different approach • Act local - local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff - less than 100 of Tesco's International team are ex-pats • Keep focus - to be the leading local brand is a long term effort and takes decades, not just a few years • Be multi-format - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout • Develop capability - developing skill in people, processes and systems and being able to share this skill between markets will improve the chances of success in challenging markets • Build brands - brands enable the building of important lasting relationships with customers Dunning’s elective paradigm (1981) integrates several theoretical frameworks into three sets of factors or ‘conditions’ to explain the ‘why’, ‘where’ and ‘how’ of the internationalisation of production: Ownership factors, Location factors and Internalization factors (OLI). Ownership advantages are company assets used to obtain market power linking to Hymer’s firm specific advantages (FSA) and the core competences or resource-based school of corporate strategy. These advantages can be asset-based or transaction-based. These are difficult to identify but could...
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