Discussion TESCO

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Brigham Young University, Idaho *

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Economics

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Nov 24, 2024

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The case study this week is Tesco establishing a joint venture with an established retail outlet in India. India is a large market with huge potential, but the country's rules made it difficult to enter the market due to policy. Tesco was waiting to enter this country until the FIPD changed its ruling on multi-brand retailing. Give at least three possible reasons why Tesco entered the Indian retail market with a joint venture partner rather than maintaining 100% ownership. Some reasons may appear in the case, others you may come up with as you consider the situation in India. 1. Sometimes it is easier to work with an established business within the country to alleviate the rules instead of starting from scratch. Even though they finally received clearance, they had three stipulations in the agreement. 1) Invest 50 percent of its capital in back-end infrastructure; 2) source 30 percent of the procurement from small and medium enterprises; 3) open retail outlets in population areas exceeding one million. 2. Businesses look at India and see the potential market due to the large population. There are over 1.3 billion, and the potential is there for a large revenue of business. If done correctly, you can see large profits. Working with an established company will help them as they improve the buyer's experience. Although, Tesco had different ideas about the shopping experience, they required change in their philosophy. The buying habits of the consumer in India is different than other countries. 3. The other reason might be the risk of failure due to the government. Governments can change, and with change, rules might become different. These differences could ban foreign investment. At the end of the article, we learned that the election was coming up, and the risk of a new government taking control and changing foreign investment. By working with established business partners, this risk would be less. What are some potential cons or problems that might emerge as Tesco tries to grow in India? Focus on these two areas. Some may be outlined in the case, and others may come from your thinking: Strategic or relationship Issues with the Tata-owned Trent Hypermarkets that might arise within the joint venture given their bringing together two different and distinct entities. The biggest issue I noticed from the article is the difference in philosophy, Tesco was used to larger Hypermarkets of food, and the Indian people are used to purchasing products for shorter periods of time. The Costco philosophy in America is not the same in India. This could cause some issues with Trent Hypermarkets which provided only general merchandise. Trying to combine both items into a type of Walmart Superstore, might have its problems in this country. It might take time to change the mindset of the population but at what risk? Are they willing to wait till this happens if it does happen? Issues that might emerge because of India's political, legal, cultural, and infrastructural environment. If a new government gets elected into office, there is the potential of barring foreign direct investment. This

could be damaging to their entering this market and for their large investment. By teaming with another company, they possibly stand a better chance of avoiding the rules of the reigning political party.

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