Factors that compelled Tesco to exit the Japanese Market?

Executive summaryTesco is the third largest sell go with in the world later Wal-Mart Stores Inc. and crossway SA. The paper provides an overview of Tesco PLC and its commercialise expansion strategy in hawkish markets, specifically japan. The paper briefly provides tuition on Tescos entry into the Nipp matchlessse sell market. It provides details of the factors that compelled Tesco to exit from the Nipponese retail market. It is argued that another(prenominal) foreign retail companies had failed in the Nipponese market primarily due to unique shopping habits of Japanese consumers.Synopsis of the Case studyTesco is a UK based retailer company founded in 1919 (Humby, 2008). The company is the third-largest in the world in terms of gross sales, toilet Wal-Mart Stores Inc. of the United States (US) and Chain intersection point SA of France (Humby, 2008). Tesco carried out extensive look for spanning some(prenominal) years in its strategy to expand its market to other alr eady established and emerging markets internationally. Tesco embarked on expansion, into new markets, establishing new stores in the US, entering emerging markets in Central Europe and Japan through acquisition and entering markets like South Korea and Malaysia through a joint measure (Tescos internal data, 2009). At the end of August 2011, Tesco announced its exit from Japan where it had entered the market through acquisition. Tescos exit from Japan was motivated by its failure to establish enough scalable problem after its 8 years operation in Japan, the economic and demographic factors which guide affected the get trends among the Japanese, Japanese consumers switched from purchasing branded luxury products in Tesco stores and cullred more affordable private labels. In summation there were a series of viands safety sc bes that hit the Japanese retail market and Tescos British line of reasoning initialise. Additionally, Tesco failed to compete with department and superm arket stores in Japan. The paper critically assesses the factors that compelled Tesco to bear off from the Japanese Market. The company has in excess of 500,000 employees in its chain stores around the word. Tesco aims at delivering a consistently strong customer offer based on each customer visit and transaction by focusing on the Groups core problem purpose. Tesco enjoys a 30% market share in the British grocery market making it the biggest player in retail business in the UK. Other players are Asda with 16.9% of the market, Sainsburys with 16.4%, Morrisons with 11.5% and Co-op/Somerfield with 9.2% of the market share (Tescos internal data, 2009).Theoretical frameworkTesco has spread out its presence to about 5400 chain stores operating in 14 markets outside the UK. The company has grown its business value and operations to become the third-largest retailer in the world behind Wal-Mart Stores Inc. of the US and Frances retail Chain Carrefour SA (Tescos internal data, 2009). Te scos main business focus is to expand its business in established markets and emerging markets around the world. With a focus to expand its business operations, Tesco operates about 1400 stores in Asian countries of Japan, China, Thailand, Malaysia and South Korea. Tesco began its expansion to the Asian market in 1998 when it acquired a 75% majority controlling in Thailands Lotus, a chain of 13 hypermarkets for 111 million British pounds. In March 1999, Tesco progress expanded its business expansion strategy in the Asian market with a joint peril with Samsung in South Korea. In 2002, Tesco entered the Malaysian retail market through a joint think with a local company called Sime Darby Behad (Tescos internal data, 2009) The collapse in asset values caused by financial crisis in the late 1990s significantly facilitated the companys expansion in southeastern United States Asia. Tesco expanded its market into the Japanese market in 2003 by acquiring a controlling amuse in the C Tw o-Network Co, a can 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 consisting of 129 chain stores. The stores were in the Tokyo realm and other stores operating under the Tesco brand, Tesco Express and supermarkets under the Tsurukame brand. The supermarket sector in Japan is fiercely competitive and unprofitable. From the case study, it seems clear that Aeton and Itoh Yokado, the two largest supermarket groups in Japan are struggling to make profit horizontal though they enjoy huge economies of scale. Tesco and other global supermarkets with their plentiful capital failed to successfully penetrate the Japanese market. patronage Tescos intending to offer low prices on bulky purchases, things did not turn out to be successful and eventually Tesco had to exit the market. Sogo and Seibu, a big-name in Japanese departmental stores failed to dig into the Japanese retail market. Tesco, and other foreign players like Carrefour and Wal-Mart moved to fill the gaps left by the ailing internal retailers in the general merchandise store (GMS) segment by setting up their stores or beat an alliance with a domestic player. Despite the business strategy, Tesco and other foreign retailers struggles to successfully penetrate into the thorny Japanese market.Answer to the question.At the end of August 2011, Tesco announced its exit from Japan. The following are the factors that compelled Tesco to withdraw from the Japanese Market. Economic and demographic factors that impart affected the purchasing trends among the Japanese. The Japanese grocery retail is a mature market valued at US$370 billion, and its the second largest in the world behind the US market. The Japanese grocery sales per capita boosts as the gameyest in the world at more than US$ 3,300 in a year. However, the market still remains troubled. A combination of economic and demographic fa ctors have resulted in the grocery retail market slipping by 1.2% in 2004 (Tescos internal data, 2009). Since the babble out burst in early 1990s, the Japanese economy has been in the doldrums, followed by deflation in the consumer price in subsequent years. Since the economic downturn, consumer confidence has never fully recovered. In relation to demographic factors, the population suppuration has been stagnant in recent years, resulting in diminished volume growth opportunity, in the retail market. The breathing in patterns of the Japanese have changed along with the demographic shifts and varying lifestyles. The birth rate is declining and the population is ageing. High levels of unemployment have prompted heap to migrate to city areas that provide more work options. The consequence is an increased demand for new prepared and convenience Japanese-style foods. The foods are readily available in at food halls and convenience stores in department stores. The Japanese masses hav e not widely embraced Western cuisines resulting in a jolting ride and the eventual fallout of the both the domestic and foreign retailers such as Tesco. In July 2011, supermarket sales in Japan diminished by 1.2% overall to 1.05 trillion Yen. The fall has been recorded for the last 20 consecutive months based on a year-on-year comparison. In July 2011, a descent of -0.6% in food was recorded, -2.7% decline in household products, -0.8% decline in clothing, -1.7% decline in services and a decline of -3.3% in miscellaneous items (Tescos internal data, 2009). The statistics indicate that supermarket sales were dwindling, and Tesco found it hard to continue operating inside such a difficult environment (Williamson, 2013). Tesco failed to establish enough scalable business after its 8 years operation in Japan. According to CEO, Philip Clarke, Japanese shopping habits were very different from those envisioned in business strategies and business processes of Tesco. According to Clarke, t he British consumers enjoy carrying out a big shop one time in a week since there is enough room to keep their shopping. In contrast, for many Japanese, place is premium and carrying out a big shop is not an option. Tesco, like other foreign retail companies, failed to adapt fully to the local shopping habits of the Japanese consumers. Consumers switching from branded luxury products in Tesco stores to more affordable private labels. Despite the demand for staple food and household items remaining flat, some consumers switched from purchasing branded luxury products to private labels that are more affordable. However, the penetration of such private labels products has not been favorite compared to branded products because the Japanese consumers are still conscious of the product brand of the item they purchase.A series of food safety scares hit the market.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. The British business format of Tesco failed to compete with department and supermarket stores in Japan. The people of Japan put much emphasis on the quality and freshness of food items. They, therefore, prefer to shop many times in a week instead of carrying out a wholeness bulk shopping in a weekly basis. Departmental store food halls began offering high price but high quality foods while low priced standard food products were offered by supermarkets. Although discount stores started increasingly introducing fresh food product to encourage more customer visits, they were considered to be at the commence end of the market along with convenience stores. The small retail channels have increased their market share in recent years because their business format meets the Japanese consumers preference for shopping several times each week. They have too wide ned their range of services such as the provision of added-value services, bill-paying facilities, currency machines and delivery services. The small retail channels business format is in contrast with Tesco business format. As a result, Tesco faced a challenge of penetrating the highly competitive business segment. The Japanese people are highly demanding and fussy consumers who need to be provided with a wide selection of goods and foodstuffs. The Japanese consumers also value freshness of their produce, and they are likely to question of the stock in a hypermarket such as Tesco. Japanese consumers make frequent visits to many different stores per week instead of carrying out a one stop-shop within a single supermarket store.ConclusionIn summary, the expansion strategy taken by Tesco into the Japanese market was a well-timed one. However, the Japanese market posed many difficulties which prevented Tesco penetrating the market and achieving profits. Despite that Tesco invested man y 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. Other foreign retail companies such as Carrefour SA of France had failed to attain profit. Economic factors also led Tescos exit as consumers changed preference. The consumer patterns of the Japanese can be difficult to accommodate and formulate a business format to suit their demands and lifestyle.ReferencesHumby C, et al. (2008) Scoring Points How Tesco Continues to Win node Loyalty. London Kogan Page Publishers. Tescos internal data, 2009 (www.tesco.com) Williamson C, et al. (2013) Strategic Management and Business Analysis. London Routledge.