Thailand became Tesco’s first Asian base in 1998, and was followed by South Korea and Taiwan. In 2003, the company plans to open 18 new stores in Asia, including one in Malaysia. Management is also seriously eyeing China.
The Hungarian operation, which is now profitable, recently inaugurated a 160,000-square-foot hypermarket. Tesco’s largest store so far, it’s about four times the size of the average U.K. supermarket. Management has predicted Thailand, Poland, Slovakia, and the Czech Republic would all be in the black in 2001.
Not Marks & Spencer
Tesco executives, mindful of globalization’s many challenges, are also looking at other retailers’ experiences to find the best route into foreign markets. Some of the most important lessons come from the British retail clothing chain Marks & Spencer.
In the late 1980s, the High Street retailer was the most admired company in Britain. Books were written about Marks & Spencer’s management acumen — for instance, its ability to anticipate customers’ needs (it was among the first to foresee the popularity of prepared gourmet meals) and its skill at delivering good products at reasonable prices. As founder Simon Marks used to say, “Good goods will sell arse upwards.”
Yet at the same time, Marks & Spencer was beginning to feel the constraints of the limited British market. When the chain opened 63 stores in continental Europe, analysts hailed its overseas expansion as the right move for boosting sales. Globalization, however, quickly began to go wrong for the retailer. One problem was the group’s product mix. Marks & Spencer stumbled as it tried to bring its British aesthetic to foreign customers. English women were so enamored of the company’s practical, moderately priced underwear (marketed under the St. Michael brand) that the company was called the “patron saint” of knickers. The French and Spanish, however, were bewildered by the garments.
Top management’s insistence that all stores use a high level of British content crippled the group’s ability to compete on price in Europe. As shoppers discovered they could buy cheaper, more fashionable goods elsewhere, they drifted away. Marks & Spencer’s profits began to plunge and are now just half what they were a few years ago.
“Marks & Spencer was a broad-range supplier to the British middle class, and they understood what that consumer group wanted,” Professor Yip says. “That proved completely untransferable to another country because when global companies depend on understanding local peculiarities, it’s easy to make mistakes.” Mass-market groups, in particular, pose a special challenge. More rooted in tradition than other demographic groups, the middle class can often be the most difficult segment for foreign retailers to reach.
In mid-2001, Marks & Spencer announced its intention to withdraw from continental Europe, and later agreed to sell its 18 stores in France to French retailer Galeries Lafayette. In the U.S., the Brooks Brothers clothing chain it had acquired in 1988 found a buyer in November — Italian entrepreneur Claudio Del Vecchio. Acknowledging its failure to globalize, today Marks & Spencer is concentrating on its own brand and its flagship stores in the U.K. That focus appears to be paying off — the company reported that net income in the six months to the end of September 2001 rose 20 percent, to £144.2 million ($210 million), versus £120 million ($168 million) in the comparable period last year.
The Marks & Spencer example infused the retail industry, particularly in the U.K., with caution. Tesco understood that part of the clothing chain’s problem was being too British, and it vowed not to make the same mistake. What was needed, Tesco decided, was to combine operational efficiencies with product and service customization for each foreign market. Yet this is not a simple proposition. Not only is tailoring product selection to local tastes difficult to execute; it undermines the economies of scale that allowed other globalizing companies to succeed. The cost of candles purchased for All Saints’ Day in Poland, for instance, cannot be spread to stores in the U.K. or Thailand. Moreover, relationships with local suppliers, from farmers to shirtmakers, have limited benefits for stores outside the region.