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Tesco, the British supermarket group plans to exit from Japan after working in the Japanese market for eight years. Paper briefly provides information on Tesco’s entry into the Japanese retail market and exit plan after facing many challenges. It is argued that other foreign retail companies had failed in the Japanese market primarily due to unique shopping habits of Japanese consumers. This paper briefly described why Japanese retail markets are difficult to compete within and why Japanese consumers are reluctant to shop at foreign retailers.
Case Study: Factors Compelled Tesco to exit Japan
Japan is the world’s 3rd largest GDP and represents about 10% of the world’s economy. After a boom in economy in Japan for around 10 years, there was recession started in 1980s. Most business owners and industrialists were in a hope that this recession will over soon which opened new opportunities for the Western world to come into this new market of 125 million people. UK based Grocery store “Tesco” took this opportunity without doing enough marketing research about culture and business ethics in Japan or about Asian market and end up exiting the Japanese market after spending 8 years in Japan.
Tesco Expansion Strategies
Tesco was founded in 1919 by Jack Cohen in UK which is the 3rd biggest Grocery chain in world after Walmart of USA and Carrefour of France. Tesco has around 5400 stores in 14 different countries. At around early 2000’s Tesco’s main focus was to expand the business in emerging markets and diversify the business. With this focus Tesco expanded their business in Asian Markets in countries like Japan, Malaysia, Thailand, China and south Korea. They diversify the business and opened Gas stations and entered in Retail banking and Telecom business. in early 2005. They opened 1400 new grocery stores in Asian markets in 2003. The company’s online businesses include online grocery and Tesco Direct, which operates in South Korea and Ireland. Tesco expanded its market into the Japanese market in 2003 by acquiring a controlling interest in the C Two-Network Co, a discount supermarket chain. However, in September 2011, Tesco PLC took the decision to withdraw its retail business operations from the Japanese market and sold off its operations.
Factors Resulting Tesco Failure in Japan
There are number of factors which compelled Tesco to pull their strings out from Japanese market for their operations.
Economic and Demographic
Economic and demographic plays an important role in Grocery business. Japan being a country of 4 islands and with tropical weather conditions resulted in the grocery retail market slipping by 1.2% in 2004. With the demographic shifts and varying lifestyles, the consumption patterns of the Japanese change and resulted in slow down the business and not getting enough opportunities to expand. According to Japanese lifestyle the people of Japan like quality and fresh food as compared to Canned or tinned food. They, therefore, prefer to shop many times in a week instead of carrying out a single bulk shopping in a weekly basis. In July 2011, supermarket sales in Japan diminished by 1.2% overall to 1.05 trillion Yen.
Japanese Consumer Behaviors
Japanese people like to buy the food items from the people they know. Due to which small retail channels increased their market share as they were able to meet the consumer’s demands (Rodrigo, 2017). Consumers in Japan prefer for shopping many times a week as a result, time-saving products and services are in demand. The consumers in the Japanese market are very demanding and fussy. Fresh produce retail stores sell at vastly lower prices than a well-presented counterpart.
The outbreak of Bovine Spongiform Encephalopathy (BSE) in Japanese cows, use of non-approved additives in packaged foods and product origin being mislabeled eroded consumer confidence and caused a series of food safety scares in the grocery retail market. Tesco failed to compete with department and supermarket stores in Japan.
Strategic Human Resource Management
For any successful business Strategy planning plays and important role. As Strategies of company comes from the Mission of the company. It provides a sense of direction and outlines of company’s mission. In this Case Tesco mission was to expand their business in Asian counties but to complete the mission, it seems Tesco failed to do the market research and was failed to study the culture of Japan. It is very important that Tesco should have made the strategies to determine the corporate mission for globalization and have clear directions how to meet these objectives. They should have formed local HRM and Global HRM. Local HRM should have focused on the local hiring and employee’s growth as per local market which can be derived from the local culture study. While Global HRM also involves training and orientation of employees with different cultures, religions, and ethical values while HRM does not.
In 2011 Tesco decided to exit from Japan after 8 years of operations in world’s third-biggest grocery market. Due lack of understanding of the Japanese culture while making the strategies for the business created many difficulties for Tesco to expand and make profit. Tesco invested many resources and formulated strategies to gain the Japanese retail market, its failure to establish a business format to suit the Japanese consumers’ lifestyle envisaged its eventual exit. Tesco could make adjustments to their companies’ global strategic objectives and move to resource based view model that sees resources as key to superior firm performance. This could have made significant changes in Tesco’s profitability in Japan. The most important lesson from this venture is expanding into any foreign market.
- Tesco’s internal data, 2009 (www.tesco.com)
Rodrigo, 2017 “The international Strategy of Tesco PLC” retrieved from https://writepass.com/journal/2017/01/the-international-strategy-of-tesco-plc/
- Rodrigo, 2017 “Factors that compelled Tesco to exit the Japanese Market”, retrieved from https://writepass.com/journal/2017/02/factors-that-compelled-tesco-to-exit-the-japanese- market%EF%BB%BF/
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