Tesco’s woes hide a global business strategy disaster

8th March 2019

Outside Fortress Europe Excerpts
This Global Business Strategy Blog post is based upon unabridged excerpts from Chapter Seven, A Practical Framework for Global Business Strategy Success; and Chapter Eight, Implementing Global Business Strategy, in Outside Fortress Europe: Strategies for the Global Market.

Additional commentary reflecting current ‘hot topics’ and global strategic management challenges is presented in the Context and Analysis sections.

 


Context

Cumbo, J., & Eley, J. (2019, January 28). Tesco to cut thousands of jobs as part of wide-ranging corporate overhaul. Financial Times.

Under Expert Panel review…

 


Outside Fortress Europe Excerpt

Make a firm commitment
Reverting to the Global Business Strategy Framework presented in Figure 1 (not presented in this extract), companies far too often show a lack of commitment to the global markets they have chosen to ‘explore’. Frequently they withdraw if success is not ‘immediate’, alienating the host country who could well have expended considerable effort and resources to assist the company to establish its market presence. Lack of commitment can also alienate company employees who may have charted their career paths based around an international assignment.

British retailer Marks & Spencer has been notoriously poor with regard to this issue of commitment, investing in and pulling out of global markets in what can only be described as an international marketing yo-yo syndrome. They have tried everything, including:

  • Leasing retail properties in France, Spain and elsewhere and then managing the local operations centrally from Baker Street, London;
  • Franchising the M&S brand in South Korea and Hong Kong but heavily restricting local input to the selection of the fashion ranges sold;
  • Acquiring Brooks Brothers (clothing) and King’s Super Markets (food) in the US and, in the process of post-acquisition integration, creating a huge culture-clash in managerial style between the independently-minded US executive teams and the controlling (‘we had an empire, you know’ ) English acquirers.

We mentioned Tesco earlier, and they are also guilty of ‘dabbling’ in global business strategy, closing down its miserable Californian adventure and unravelling a very messy Tesco-branded international joint venture in Thailand to focus on its domestic market, where they are being squeezed by German low-end price-fighters Aldi and Lidl in ‘economy class’, Sainsbury’s in ‘business class’ and the elegant Waitrose in ‘first-class’.

(A golden rule of international business adventuring is to secure the home base first, not really a new idea in global business strategy (see Sun Tsu, The Art of War – 孫子兵法 – late 6th Century BC – google it!). More recently, the rapidly expanding Uber has withdrawn from Southeast Asia, albeit retaining an equity stake in the Chinese rival that had kept Uber at bay in the region (a ‘market entry strategy’ defined elsewhere as Portfolio Investment). Google’s withdrawal from China reflects subtler geopolitical undercurrents, its exit effectively leaving the Chinese company Baidu with a largely uncontested market space in the country. At the time of writing this passage, the company is causing huge controversy with its plans to return to China, in this attempt apparently agreeing in advance to comply with censorship regulations associated with the Great Chinese Firewall).

As an investor in Tesco, the author would much rather that its Board of Directors had invested in an equity stake in an established US retailer rather than trying to develop a start-up ‘fresh-food’ retail chain in southern California which, predictably, ended very badly indeed. Don’t worry, your author divested Tesco the moment the announcement was made, having witnessed multiple digressions of this type in the past, frequently using them as case studies in executive MBA classes: why will this-or-that strategy fail? Or succeed? Intentionally provocative and deliberately thought-provoking…

Strategic management risk assessment in global business strategy
Opportunity Cost Analysis. This assessment relates to the fundamental economics of investment decisions wherein any individual project should be considered alongside a range of alternatives with reference to achieving the highest relative return at the lowest relative risk. The Tesco example discussed in the previous Chapter provides a good insight: the funds allocated to their international (mis)adventures in California, Thailand and elsewhere would have been better spent shoring-up their domestic market position which was being squeezed from above (Waitrose) on the level (Sainsbury’s) and below (Aldi, Lidl). Which is ultimately what they did, with countless billions of investors pounds predictably frittered away in the meantime. In this case, the best global business strategy was domestic. The mighty Wall*Mart has recently taken this decision, planning to divest its UK supermarket subsidiary ASDA to focus on shoring up its domestic market in the face of encroachment by e-commerce giants Amazon and Alibaba, alongside numerous ‘cherry-pickers’, smaller firms carving out online niches in a multitude of product categories.

 


Analysis

Under Expert Panel review…

 

Analysis informed by…

Cumbo, J., & Eley, J. (2019, January 28). Tesco to cut thousands of jobs as part of wide-ranging corporate overhaul. Financial Times.
Eley, J., & Thompson, B. (2019, February 20). Sainsbury’s takeover of Asda hits the watchdog’s wall. Financial Times.
Lex. (2019, February 19). Walmart: holiday, celebrate: The transformation of the bricks-and-mortar retailer is working. Financial Times.

 


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All content © Colin Edward Egan, 2019