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Tesco – Entry and Exit from Japan

September 23, 2011

Case Description

In September 2011, Tesco, the British supermarket group and the world’s third-biggest retailer announced its exit from Japan after eight years in the country. In the event, Tesco became the latest in a long list of foreign retailers to exit from Japan. This case study highlights why many International supermarket chains like Tesco have been unsuccessful so far in a difficult Japanese market.

     

Case Contents

  • Japan – a black hole for foreign retailers
  • Tesco enters Japan
  • Tesco bids sayonara to Japan business
  • How and why foreign retailers failed in Japan – A few examples.
  • Carrefour – French shopping experience for Japan
  • Sephora – Self-service cosmetics sales
  • Wal-Mart – Dark and unattractive stores like warehouses
  • Blockbuster – Missing the right fit
  • Hurdles when entering the Japanese market
  • Cheap stuff at cheap prices – Japanese consumer mindset
  • Tesco – Historical Timeline
  • Tesco’s mistakes in US – Not understanding the American Customer
  • Bibliography
  • Exhibit 1 – Partial list of foreign retailers to retreat from Japan
  • Exhibit 2 – Tesco in foreign markets – Entry year, entry mode & key competitors
  • Exhibit 3 – Tesco’s performance in Asia
  • Exhibit 4 – Timeline of Tesco’s Entry and Exit in Japan
  • Exhibit 5 – Tesco Globalization/International Expansion
  • Exhibit 6 – Japan’s Retail Companies on the Top 250 Global Powers of Retailing
  • Exhibit 7 – Quick Facts on Tesco
  • Exhibit 8 – Tesco’s Seven Part Strategy

Case Study Sample Page

Japan – a black hole for foreign retailers

“Let’s be honest, Japan was a short, expensive adventure for us,”
– Jose Luis Duran, Chief Executive of Carrefour in March 2005 on its exit from Japan.
“These retailers brought into Japan their business formats without adjusting for Japan, It’s not as if a wholesale-club-type concept will not take off here, but there has to be some modification.”
– Masayoshi Saotome, research director at Mitsubishi Research Institute Inc.

Japan, the world’s third-biggest grocery market remains a difficult country to make money from as International retailers, Wal-Mart and Carrefour have found out. Wal-Mart has not done great in Japan with its presence since 2002 through Seiyu. When Carrefour had entered Japan in 2000, it had made huge claims on revolutionizing retailing in the country. However, in 2005, Carrefour swapped its Japanese assets for Tesco’s assets in Taiwan. In September 2011, Tesco, the British supermarket group and the world’s third-biggest retailer announced its exit from Japan after eight years in the country. In the event, Tesco became the latest in a long list of foreign retailers to exit from Japan.

Seven & I Holdings and Aeon dominate Japan. Even British drugstore chain Boots pulled out of Japan owing to increased competition and deflation. Additionally, Japan’s Byzantine distribution system, closely-knit web of suppliers and consumers’ fickle taste is the reason behind many retailers struggling. Many analysts attribute the failure to misreading Japanese consumers’ mindset. However, the competitive Japanese retail market is a tough arena, not just for foreign retailers but also for local Japanese department stores. Local stores also have been struggling with price deflation and ever-increasing specialty stores.

Why online business in China will become the world’s largest by 2015?

August 9, 2011

A Boston Consulting Group report stated that by 2015, the yearly value of China’s e-commerce market would grow by four times to $305 billion to become the world’s largest. Many e-commerce enterprises that are famous globally have emerged in China. Here are a few factors responsible for the successful growth of e-commerce in China:

Internet Usage

The Chinese spend about 1 billion hours online each day and are younger (73% of China’s total online population is aged less than 35) than their western counterparts. This is more than double the daily total in the US. Cheaper internet and increasing disposable income contributes to higher spending power. China has an average connection speed of one mbps compared to its neighbor India’s 0.8 mbps.

% of Chinese population which shopped online
2006 3%
2009 8%
2012 19%

American E-Commerce does not work in China

“Foreign e-commerce companies should be acutely aware of the differences in China’s cultural, political, social, and economic development, and adapt to those differences.”
– Justin Ren, associate professor at the School of Management.

While American e-commerce firms have been successful in non-Chinese foreign markets, they have not fared that well in China. In 2004, Amazon bought a Chinese website to enter the China market but flopped. eBay spent around $400 million in China but could not capture even 10% of the market. Google had its own problems with the Chinese government over censorship and hacking scandals. Foreign firms hire Chinese mangers but the centralized management renders it ineffective. Moreover, website designs which work back home do not work in China. For example, Chinese websites are less about selling while eBay’s Chinese website emphasized low priced products and was similar to the design in the U.S. Therefore, even famous brands like Louis Vuitton, Levi Strauss, and Ray-Ban have teamed with the Chinese websites like Taobao to sell their goods.

Foreign Internet companies have long struggled in China

China’s Internet entrepreneurs

The Chinese online entrepreneurs’ drive to win & sheer hard work is unmatched. Many work part-time and study as well.

Filling voids than disrupting existing industries

Unlike the west, Chinese online businesses fill voids in market rather than disrupt existing industries. Moreover, offline businesses are less efficient.

Three trends in Chinese Ecommerce industry

Apple’s Mindshare to Marketshare Retail strategy

May 23, 2011

Sony vs Apple

Almost a decade ago, Sony’s market value was seven times more than Apple’s market share. Today, the tables have turned and Apple’s market value is eleven times more than Sony’s market value. Apple had ended Sony’s dominance of the music player market when Steve Jobs, launched the iPod inspired by Sony’s Walkman.

Apple’s Retail Strategy

For about a decade, Apple was struggling with bad retailing experiences and for no fault of its own. It then decided to expand into retail on its own. To strengthen its retail strategy, Apple hired Millard ‘Mickey’ Drexler, President and CEO of The Gap, to its Board of Directors in 1999, Ron Johnson, vice president of merchandising at Target in 2000 and Sony’s Allen Moyer as its vice president of development.

When the first Apple Store was launched in 2001, a few experts opined that the retail effort would fail within a year and a half. Today, it is regarded to be one of the core reasons contributing to Apple’s success.

“It makes absolutely no sense whatsoever for them to open retail stores.” – David Goldstein of Channel Marketing Corp in May 2001 in a MacWorld article Apple Stores: Sale of the Century?

Apple’s Experiential Marketing

The experience customers have to go through in a store in order to buy matters a lot. While designing great stores is a factor, what contributed to Apple’s success apart from great technological products was the kind of experiential marketing Apple provided to its customers. Many customers recall their experiences of Apple’s customer service, and how a bad experience turned into a good one. Sections of the store are dedicated for customers to actually use the products. A customer could freely experiment with Apple hardware and software.

The Apple Lifestyle

At any other store, once a customer purchases a product it would invariably mark the end of a relationship. But it was not so at an Apple store. Referred to internally as the ‘Apple Lifestyle’, any product purchase would be the beginning. A Genius Bar at the store would provide free/affordable service (answer questions, replacing or repairing parts) to a returning Apple customer. To build a long-term relationship and culture with the customer, stores would also conduct free seminars and community events.

Apple Store facts

  • The first two Apple Store opened in Tysons Corner Center in McLean, Virginia. and Glendale, California.
  • Over seven thousand customers visited Apple’s first two stores in its first weekend alone. They bought merchandise worth $599,000.
  • Apple has over 300 stores worldwide in 11 countries (figures as of February 2011).
  • Apple’s largest store (25,000 square feet) in the world is in London. The largest store in North America is in Boston.
  • Peter Bohlin, architect is behind Apple’s most famous stores around the world.
  • Apple Retail has 30,000 full-time-equivalent employees.
  • 15 Amazing Facts About Apple’s Retail Business

Microsoft vs Apple

In 2009, Microsoft announced plans to open some of its first retail stores near Apple stores. Its stores were similar to Apple stores.

Hiring at McDonald’s – 50,000 McJobs in a day

April 20, 2011

McDonald’s announced April 19, 2011 as National Hiring Day in the U.S. McDonald’s has 14,000 restaurants in the U.S. and has 650,000 employees. On April 19, this figure will be 700,000 employees i.e. roughly four people per restaurant. (McDonald’s has around 32000 restaurants globally in 117 countries.)McJobs at McDonalds Hiring

As per the plan, McDonald’s will hire 50,000 new employees in various part-time and full-time positions at crew and management levels. The starting wage will typically be more than $8 an hour. Restaurant managers can earn up to $50,000 a year. McDonald’s was also recently selected by Working Mother magazine as one of the best companies in the country for hourly employees.

McJobs – Changing Perception

Oxford English Dictionary defines McJobs as “an unstimulating, low-paid job with few prospects.” McDonald’s is looking to change the perception of the term McJobs with this effort and teaching its workers important skills.

Around 75% of restaurant managers and 40% of corporate employees at McDonald’s started as restaurant crew members. And 50 percent of McDonald’s franchise owners started working as crew members. This should be great news for those who see it as a first step to a better career later, either within or outside the company. This should also be good news for the American economy where the national US unemployment rate is around 8.8 percent.

McDonald’s urges applicants to apply in person at their local restaurant or online. The biggest hiring initiative in company history comes in the wake of growing number of 24-hour stores.

How are successful innovators different?

April 11, 2011

A recent study (400 companies) on global innovation by Booz & Company found that the most innovative companies (seven out of 10 top innovators) were not necessarily the biggest spenders on innovation.

The top 10 innovators are:

  1. Apple
  2. Google
  3. 3M
  4. GE
  5. Toyota
  6. Microsoft
  7. P&G
  8. IBM
  9. Samsung
  10. Intel

Building right innovation capabilities not mere Spending

What matters is the ability to develop the correct innovation capabilities. These capabilities should match with the overall business strategy.

Building right innovation capabilities

Tesco’s mistakes in US – Not understanding the American Customer

March 22, 2011

In early 2006, Tesco plc decided to enter the US market with convenience stores (Fresh & Easy Neighborhood Markets) to be launched by 2007. Tesco had been studying the American market for two decades and its entry was long time coming. Though the company is not faring that well (currently loss making and is not predicted to break even until the financial year 2012), it hopes to turnaround sooner than later.

The following are some of Tesco’s mistakes in the US market:

The American way of shopping – Car culture and weekly shopping expeditions

Tesco opened stores in California, Nevada and Arizona offering about 4000 fresh products. But US customers do not shop daily, particularly in California where families shopped weekly in cars. Tesco on the other hand wants to cater to shoppers who have less time and want fresh and healthy food.

Competition not only from US super chains

Tesco was also facing tough competition from Japanese owned supermarket chain FamilyMart which had started two premium convenience stores under the banner  Famima in California and had big expansion plans. The Japanese store offered a new community lifestyle experience along with services like banking, stationary department and also Japanese delicacies like sushi, noodles etc. Its imported groceries also cost less than Tesco.

No Discount Coupons

The American customer wants to try something before making a final decision on buying. Even discounts or taste samples help in finalizing a deal. But Tesco removed discount coupons.

No Promotional Fliers

There is less loyalty in the US market with the American consumer shifting loyalties based on weekly/daily special promotional offers. Tesco assumed that like British consumers who would not switch loyalties easily, the Americans would follow suit. A focus group found that Tesco was not sending fliers promoting the latest special offers.

Good Effort but No Learning

When Tesco entered US, it did not go unprepared into the American market. It sent around 50 to 60 British executives to live with California families to discover the products they bought and the food they ate. But with Tesco’s dropping profits it seemed they did not learn much into the American way of buying.

Tesco did not partner with a US retailer when entering the US market and also intended to use its own proprietary distribution system.

McDonald’s versus Subway – The Sandwich Hamburger battle

March 10, 2011

In March 2011, sandwich chain Subway surpassed the world’s largest hamburger chain, Mcdonald’s in terms of the number of stores globally. In 2002, around nine years ago, Subway had already surpassed McDonald’s in number of stores in the U.S. However, McDonald’s still rules in terms of revenue with $24.1 billion, as compared with $15.2 billion for Subway last year. Read McDonald’s International Innovations

Subway – Rapid growth strategy – opening outlets in non-traditional locations

Subway has opened around 8000 outlets in non-traditional and unusual locations. E.g. in Automobile showrooms, Goodwill stores, high schools, zoos, appliance stores, ferry terminals, riverboats, and even a church. In China it has around 200 stores and has plans to expand it to around 500. Subway has competitive advantage over other chain restaurants as it costs less for it to open and operate a smaller format store.

McDonald’s Versus Subway
McDonalds versus Subway comparison chart View image in full size

Rise Mahindra Rise – Brand Makeover and Positioning

January 18, 2011

Re-branding Mahindra with a New tag-line

Around 13 years ago, Mahindra & Mahindra (M&M) defined its core purpose inspired by Akio Morita, founder of Sony Corporation. Its tag-line read – “Indians are second to none in the world.” While Sony Corporation represented Japan as the best in the world with its world-class products, M&M wanted to do the same with its products for India.
Mahindra's New Brand Makeover Tagline - Rise

With this core purpose and global ambitions, M&M grew rapidly to a $7.1-billion automobiles-to-IT conglomerate since its founding in 1945. With businesses expanding to newer geographies (Mahindra Group has a presence in 79 countries around the world), 10 per cent of M&M’s workforce comprised of non-Indian employees. The tag-line no longer suited a global multinational company with customers all around the world. Mahindra chose to reposition itself based on employee, consumer and customer feedback and hired StrawberryFrog, a New York-based global advertising agency.

New branding called Rise

M&M had never communicated through a single brand umbrella across its segments such as aerospace, automotive, farm equipment, IT and logistics. The need for one brand voice spanning geographies was evident in capturing global markets. After a nine month search the company chose ‘Rise’ which the group’s vice chairman and managing director Anand Mahindra believes is not a word but a rallying cry that will give an opportunity to become tomorrow’s company. The word ‘Rise’ was chosen after customers around the world expressed a common desire to rise and to succeed.

Spirit of ‘Rise’ – Three Brand Pillars

Rise is based on three brand pillars –

  1. Accepting no limits
  2. Alternative thinking
  3. Driving positive change

By incorporating Rise into its performance management systems, M&M wants to allow its employees to perform better and succeed. The company plans to spend about Rs 120 crore over three years to promote its new brand positioning.

Mercadona – Innovative HR Practices for better store performance

January 17, 2011

Mercadona, a Spanish supermarket chain is not only committed to offering the lowest prices but also personalized customer service. For over a decade, Mercadona has had steady profits and do so for more than a decade. In 2008 it had 1,210 supermarkets.

In 2008, its performance, operation-wise was superior to other Spanish chains and also foreign chains in the business. It’s sales per square foot was 60 percent higher than French retail chain Carrefour and twice more than an average U.S. supermarket. But all this was not achieved by neglecting its employees or cutting labor costs. In fact, Mercadona employees received more wages and training (20 times more training) than what the average American retailer offers. An indication of better employee productivity is the 18% higher sales per employee than other comparable Spanish chains (50% higher than U.S. chains).

HR Secrets of Success

Stable labor policy – Permanent contracts and Better pay

While Spain and Spanish retail chains are known as leaders in offering temporary contracts to employees, Mercadona is recognized for its stable labor policy. It offers only permanent contracts to its employees from the start. It also offers average pay better than the rest of the industry sector.

Employee Bonus

In 2008, when sales growth slowed down Mercadona still gave a EUR 190 million bonus to its staff, 19% more than a year earlier. CEO Juan Roig acknowledged his employees contribution and hard work and that they could not be solely responsible for the downturn. For promotions, employee coordinators assess employees based on a series of parameters and on their own judgement.

Additional month of maternity leave

Newspaper El País reported that Mercadona extends the legal four months of maternity leave to five months but on a discretionary basis and also based on certain conditions like foregoing pay rise or bonus.

Better workplaces

A few of Mercadona locations have nurseries to look after children and also free services like day care, food etc.

Employee Training

Mercadona provides an average of 60 hours of training per worker per year with all executives trained within the company. In 2008, Mercadona employees received more training (20 times more training) than what the average American retailer offers. In 2008, Mercadona spent €5,000 for each new store employee and four weeks in training time compared to just seven hours in the U.S.

Cross-training and Predictable Schedules

By cross-training employees, Mercadona ensures that employee productivity is not related only to store traffic. A store cleaner is trained on a cash register which he/she can operate during more traffic times, while a cashier can stock products on the shelf during less-traffic time. As a result, Mercadona is able to provide monthly schedules to their employees as compared to the U.S. chains which find it very difficult to even provide a weekly schedule to its full-time employees. This (stable hours and salaries) has resulted in Mercadona having only a 3.8 percent turnover rate with over 85% full-time employees.

No work on Sundays

Mercadona supermarkets do not open on Sundays and not even in tourist resorts to ensure work-life balance.

Ensuring employee productivity

To avoid employees coming late to work, Mercadona managers only recruit employees who stay no more than 10 minutes walking distance from the stores.

Department Specialists and Prescription Instructors

Mercadona stocks only the highest-quality and affordable products. A customer can walk up to a department specialist in the store and ask for advice on buying a particular product. The department specialists know everything about the products the store stocks. Any product changes are in the knowledge of the specialist. By stocking lesser products, the specialist has less information to remember. Field employees known as ‘prescription instructors’ constantly visit stores in their area to know what customers were saying about Mercadona’s products and service. Such information is conveyed back and forth in the chain to the management and to the suppliers as well.

To Mercadona, before it thinks about impact on the profits it always thinks about society, its suppliers, its customers and also its employees.

Nandan Nilekani – From Infosys to Politics

September 26, 2010

This case was selected to be used for the 2010 International Leadership Association (ILA) Student Case Competition (ILA Conference events, ILA Boston – 4th Annual ILA Student Case Competition)

     

Nilekani is recognized as one of India‘s most successful software entrepreneurs. He was invited by the Indian Prime Minister to head the Government’s Unique Identification project (UID project), which aims to provide identity to a billion citizens. Can Nilekani, a man of technology who was prone to measure software projects in great detail, successfully lead a government program, a social project with India‘s inherent challenges?

Case Contents

  • Introduction
  • Nandan Nilekani – Early Years
  • Nandan Nilekani – Leading Infosys
  • Nandan Nilekani – Public Life
  • Nandan Nilekani – Leading UIDAI
  • Political Challenges
  • Other Indian Challenges
  • Opposition to UID – Data Privacy Concerns
  • Technological Challenges
  • Reaching the rural areas – Rebranding UID
  • The French Experience – Sharing best practices
  • Questions for discussion
  • Additional Readings and References
  • Exhibit 1 – Two Dimensions of software projects
  • Exhibit 2 – Infosys – Company Profile – 2010
  • Exhibit 3 – Infosys Timeline
  • Exhibit 4 – Infosys Historical Stock Price Chart
  • Exhibit 5 – Nandan Nilekani – Achievements and Awards
  • Exhibit 6 – Previous unsuccessful efforts by the Government for unique identification
  • Exhibit 7 – Nandan Nilekani at the unveiling of the new UID logo
  • Exhibit 8 – Leadership in India
  • Exhibit 9 – Features of the UID project
  • Exhibit 10 – India at a Glance
  • Exhibit 11 – India on the World Map
  • Exhibit 12 – Management Challenges – Private versus Public Sector
  • Exhibit 13 – Maturity levels in the CMM
  • Exhibit 14 – List of organizations/bodies opposing UID Project across India
  • Exhibit 15 – National identification number used by the governments of many countries

Case – Additional Reading/Reference

  • 10 things you must know about the UID project
  • Who’s Who in Nilekani’s UID Dream Team
  • Nandan Nilekani – About him, Photos, Biography
  • UID project: Demo of the registration process
«‹ 3 4 5 6 ›»

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