“Companies usually go abroad when they are running out of opportunities at home,” confirms Don Lessard, deputy dean of the Massachusetts Institute of Technology Sloan School of Management. But he also notes the hazards of foreign expansion. “Globalization means complexity and increased overhead. The company has to pay the rent of going global by adding to its stock of best practices. If Tesco is to be successful overseas, it has to be fantastic at using best practices and recruiting talent. Retail, in particular, is ridden with pitfalls.”
Local merchandising in foreign markets is logical enough. Yet anyone versed in the history of globalization knows this strategy is daring. In fact, pioneer global branders — McDonald’s, Boeing, Coke, Gillette, and others — succeeded overseas by following a one-size-fits-all-cultures strategy. “McDonald’s is so successful because it adapts minimally to local markets,” says George Yip, a professor at London Business School and an expert on globalization.
The reason the first global companies built their brand empires through standardization is that it is by far the most cost-effective way to export a successful domestic product to multiple countries and deliver consistent quality at an affordable price. The less adapting that multinational corporations do, the more they can spread overhead costs. By appealing to local consumers’ appetite for Western goods, moreover, a multinational corporation can distinguish its products and avoid competing directly with local groups that know the market better — Marlboro cigarettes sell better in China when they are shown in the hands of an American cowboy.
Mass retailers like Tesco, however, have sensed they need a different approach to globalization. By seeking to blend into the local scene, Tesco acknowledges that the experience of shopping at a hypermarket can’t be too exotic. To be accepted, shopping at Tesco needs to be part of people’s routines. Non-Americans who don’t think twice about eating at Burger King once a week or drinking a Coke once a day will probably balk if they can’t find culturally familiar staple goods, whether they are food, clothes, or other items. “At McDonald’s, foreigners are willing to be Americans for 15 minutes while they eat a hamburger and french fries,” Professor Yip says. “But if they buy a shirt, they’re going to be wearing it the rest of the season. That’s a tougher proposition.”
Recognizing this, Tesco is taking the “think global, act local” strategy to a new level. Its approach — call it “glocalization” — hinges on deep understanding of and responsiveness to the cultural vagaries and habits of foreign consumers. Wal-Mart has made modest concessions to European customers, for instance, by accepting smaller parking lots in Europe than it would in the U.S. But no one tries harder to adapt to local conditions than Tesco does.
Last July, a paperback version of the latest “Harry Potter” book was displayed prominently at the entrance to English Tesco stores, as British fans anticipated the release of the film version of the best-selling children’s book. But you wouldn’t have found Harry Potter in the windows of Tescos in Central Europe last summer. There, swimsuits were highlighted as residents prepared for holidays at the beach. Tesco plans carefully around all national holidays. Indeed, throughout the year, in the company’s non-U.K. hypermarkets, Tesco managers work hard to plan promotions and select stock based on country-specific holidays and customs. In Poland, consumers can expect to find a large supply of candles on hand for November’s All Saints’ Day. In Korea, October’s Alphabet Day shoppers will be greeted by a selection of materials with literacy themes.
Pile High, Sell Cheap
The principle “The more a single company sells of a certain product, the fatter its profits are” is a key to successful globalization not lost on Tesco’s management. In fact, managing to achieve scale efficiencies is a tradition at Tesco. After World War II, Tesco’s founder, Sir Jack Cohen, expanded his business based on a slogan that later became famous: “Pile It High, Sell It Cheap.” He understood that the greater the volume of goods, the bigger the discount he could offer.