Tesco Exits South Korea

Tesco was founded in 1919 by Jack Cohen (Cohen), who investedhis serviceman’s gratuity of £30 in a grocery stall. The firstprivate label product introduced by Cohen was Tesco Tea. The nameTesco was a combination of the initials of the tea supplier TEStockwell, and the first two letters of Cohen’s name. Tesco openedits first store in 1929 in Edgware, London. In 1947, Tesco Stores(Holdings) Limited was floated on the Stock Exchange with a shareprice of 25 pence and the first supermarket was opened in 1956 inMaldon, Essex, England. The first superstore was opened in 1968 inCrawley, West Sussex. In the 1960s, Tesco went on an expansionspree and acquired several store chains. The Retail PriceMaintenance (RPM) Act in Britain prohibited large retailers frompricing goods below a price agreed upon by the suppliers. Toovercome this obstacle to price reduction, Tesco introduced tradingstamps. These were given to customers when they purchased productsand could be traded for cash or other gifts. RPM was abolished in1964, and from then on, Tesco was able to offer competitivelypriced products to its customers in a more direct manner. The firstTesco superstore, with an area of 90,000 square feet, was opened in1967.

TESCO’S GLOBAL EXPANSION
Tesco’s global expansion began in 1979, when it entered Ireland byacquiring a 51% equity stake in ‘3 Guys stores’. In 1986, Tescodivested itself of the stores after it found that it could notsustain its operations in the country as customers were rejectingthe British products that it sold. During the late 1980s and theearly 1990s, Tesco examined the options available in the US andEuropean countries after the British government introduced newregulations on ‘out-of-town’ stores. In December 1992, Tescoentered France by acquiring an 85% equity holding in Catteausupermarkets, which operated under the Cedico brand with 72superstores, 7 hypermarkets, and 24 small stores. However, Tescofailed to sustain itself in the market due to competition fromFrench retailers like Carrefour and Promodès. In 1995, a law waspassed in France which prohibited the opening of new large retailstores. Moreover, the company failed to adapt its products to suitlocal tastes and lost market share. In 1996, in spite of investingan additional £ 300 million in France, sales in the country grew bya mere 1%. In the year 1997, Tesco sold its operations in France toProm odes.

TESCO IN SOUTH KOREA
In the early 1990s, there was a growing demand from consumers inSouth Korea for a modern shopping experience owing to rapideconomic growth and increasing disposable incomes. The governmenthad adopted protectionist policies and the retail sector was notopen for foreign direct investment (FDI). Tesco

entered South Korea in 1999 through a joint venture withHomeplus, a unit of the country’s biggest business group SamsungCorporation (Samsung). In the next few years, Tesco became the mostsuccessful international retailer in the country. Its success wasattributed to its ability to localize its products and stores toappeal to the South Korean consumers; its operating through localmanagement; and its strong presence through different storeformats. South Korea went on to become Tesco’s most successfulinternational business in terms of revenue. As of 2014, it operatedd 140 hypermarkets, 609 supermarkets, and 326 conveniencestores.

TESCO’S STRATEGIES IN SOUTH KOREA
Immediately after entering into the joint venture, Tesco went aboutupgrading the store layouts. The stores were modified to resembledepartment stores, which were spacious and clean. Tesco’s stores inKorea did not resemble its stores in the UK or in other Europeanlocations like Hungary, Poland, the Czech Republic, andIreland.

CHANGES IN THE OPERATING ENVIRONMENT
In October 2012, when Tesco posted its first fall in profits in 20years, the company also announced that its profits in South Koreawould take a £ 100 million hit due to the \"retail marketdevelopment bill” that had been passed by the government inNovember 2010. However, changes in the operating environment inSouth Korea due to new laws that were enforced beginning 2010 toprotect small retailers and merchants started to impact Tesco andother large retailers. These laws placed restrictions on thelocations where supermarkets could be opened. The DistributionIndustry Development Act passed in 2012 imposed restrictions on thetime for which the stores could remain open and also specified thaton two weekends every month the large retail stores should beclosed. As most Koreans shopped during the weekends, theserestrictions started to impact Tesco, which made losses in 2015.Under the impact of the global recession, the private spending inSouth Korea fell. Another factor that impacted Tesco in South Koreawas its UK business, which was not doing well.

TESCO’S EXIT FROM SOUTH KOREA
After several months of speculation, Tesco sold its South Koreanstores to Asian private equity firm MBK Partners for £4.2 billionon September 07, 2015. On September 07, 2015, Tesco PLC (Tesco), aBritish multinational grocery and general merchandise retailer,announced that it had sold its South Korean business, operatedunder the name Homeplus, for £4.2 billion to a consortium ofcompanies led by MBK Partners, a South Korean buyout firm. Theconsortium included Canada Pension Plan Investment Board, PublicSector Pension Investment Board, and Temasek Holdings (Private)Limited.

Case study question
The extract above mentions changes in operating environment inwhich Tesco functions.

Discuss in this context, the nuances of a Task environment.