Tesco’s expansion strategy focused more on developing countries than the developed countries. This was the case because in the developing countries, there is no stiff competition and the markets in the developing countries have a great potential (Barclay, 2000). Competition is a very important aspect when it comes to investment decisions.
Thus, the management has to strategize very well so as to avoid being affected by competition (Hitt, Ireland & Hoskisson, 2007). Tesco’s aim was to make a profit; hence investing in less competitive regions was the best way to go. Furthermore, the market in the developing countries has a lot of potential and this is an assurance that the revenues received will be enormous.
Tesco creates value in its’ international operations in various ways, first Tesco does not involve a lot foreigners when launching an investment in a new country. It is imperative to recruit local individuals when launching an investment in a foreign country. The local individuals can be assisted by experts from other countries (Estrin & Meyer, 2004). Recruitment of local citizens enables the potential market to associate more with the company, this will increase the company’s market, hence more profits will be attained (Tallman, 2007).
Secondly, Tesco launches investments in countries where multinational companies are present. It is of utmost importance to analyze a specific market before launching an investment (Estrin & Meyer, 2004). This enables Tesco to be able to detect the mistakes done by other multinational companies and correct them. In addition, Tesco is able to know the most appropriate management and marketing strategies to apply.
Joint-venture agreements have also become a current trend with the launch of investments (Verbeke & Merchant, 2012). Tesco has engaged in joint-venture agreements with the Asian locals so as to be able to unveil their business in the region.
The benefits of joint venture agreements are high levels of innovation, the potential market associates more with the company, the company’s staff become diversified and high revenues are received (Bouchet, Clark & Groslambert, 2003). The risks involved with joint venture agreements include lack of goodwill of the local investors, the local company might have a bad reputation, and the profits realized at the end of the accounting period might be meager (Tallman 2007).
These risks have to be addressed by ensuring adequate research about a specific company is done before partnering with that specific company in any investment (Estrin & Meyer, 2004). The local company has to have a good reputation, it has to be a law abiding enterprise and the potential market should have a lot of respect for that specific company (Hitt, Ireland & Hoskisson, 2007).
Secondly the local company’s books of accounts have to be analyzed by financial experts and if sales volumes of the local company are low, it is not advisable to create a joint-agreement (Barclay, 2000). The local company has to be a stable entity and the perceptions of the potential market concerning the local company have to be analyzed before engaging in the joint-agreements (Verbeke & Merchant, 2012).
Tesco broke its’ tradition of investment in developing countries and invested in the United States in March 2006. The reasons why this decision was made include adequate research about the American market was already done, availability of the factors of production such as land, labor, capital and favorable legislation practices.
The US market is different from the market in the developing countries in various ways, such as the presence of stiffer competition, the existence of numerous multinational companies and different tastes and preferences of the target market (Bouchet, Clark & Groslambert, 2003).
The preferences of the American people will not be the same as those of other individuals. The risks associated with the launching of Tesco in the US are that the sales might be low due to stiff competition, the American market might not associate itself well with Tesco and the operating cost in the US might be very high hence lowering the profits. Considering Tesco’s performance in the UK it will also do well in the US. This is because the two countries are not very different and the US and the UK are great allies, hence the perceptions of the target market will be positive (Tallman, 2007).
The best option for the Canadian firm dealing with pharmaceuticals would be to enter into a joint-agreement with the large European pharmaceutical firm.
The benefits of this option are positive perceptions of the local market, high profits will be attained as the sales volume will be high, diversity of staff working in the joint venture will also enable the enterprise to earn the support of all nationalities and the joint venture will be able to comply with the local laws as the local company will already be enlightened about them (Estrin & Meyer, 2004).
The reputation and financial stability of the local company have to be investigated and in cases where these two aspects are unfavorable the effects become detrimental (Barclay, 2000). High levels of profits will be attained if the local company is financially stable and if the customer perceptions about the local company are positive (Verbeke & Merchant, 2012). The Canadian firm has to ascertain all these facts before engaging in the joint-agreement.
References
Barclay, L. A. (2000). Foreign direct investment in emerging economies: Corporate strategy and investment behaviour in the Caribbean. London: Taylor & Francis.
Bouchet, M. H., Clark, E., & Groslambert, B. (2003). Country Risk Assessment: A Guide to Global Investment Strategy. Chichester: John Wiley & Sons.
Estrin, S., & Meyer, K. E. (2004). Investment strategies in emerging markets. Cheltenham: Elgar.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management: Competitiveness and globalization: concepts. Mason, OH: South-Western.
Tallman, S. B. (2007). A new generation in international strategic management. Cheltenham, UK: Edward Elgar.
Verbeke, A., & Merchant, H. (2012). Handbook of research on international strategic management. Cheltenham: Edward Elgar.