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Title: To investigate and analyse strategic factors that influence international entry mode selection in Vietnam; A case study on Tesco Plc
Strategic planning refers to the procedure of setting organisational goals, set priorities and creates operational plans and policies for ensuring that work is done aligning with the business targets to derive common goals. Sound and prudent strategic planning is of huge importance to ensure right resource allocation, effective utilization and successful growth and sustainability. It also can be considered as a control mechanism which provides direction to all the members and serves as a control mechanism for the successful strategic implementation (Baylis, Owens and Smith, 2017). In the current age, corporations focus on the expansion strategies to expand their market share across all over the globe by entry into new geographical market segments. There are various international entry strategies i.e. joint venture, acquisition, establishing subsidiary, strategic alliance, licensing, direct investment and others.
Tesco Plc is UK’s leading retail business organisation that operates worldwide and aims at delivering the standard quality of products and services. Currently, it is operating in 14 countries of the world and the third largest retailer all over the world after Wal-mart and Carrefour. Huge investment in UK, multi-channel leadership and disciplined global growth are the three top strategic priorities of the business (Hay and Marsh, 2016). Its international growth strategy focuses on meeting the need and expectations of local residents in other nations via joint venture i.e. Charoen Pokphand in Thailand, Samsung Group in South Korea & many others. Such growth strategy helps entity to derive many benefits such as boost sales, profitability, market share, competitive strength and build corporate image across the world (International Strategy of Tesco Plc, 2017). Although, it is considered really beneficial for the companies to survive in the current competitive market place, still, there are number of factors that affect the market entry mode at an international level that needs to be considered by the retailer before entering into emerging economies i.e. BRICS. Currently, it is looking for the proposed expansion in Vietnam as the most suitable country to exploit overseas growth opportunities (Nair, 2014). Therefore, the thrust of the paper is to investigate the factors which influence Tesco’s international expansion strategy in Vietnam. It will also analyse that how different international strategic planning is from the domestic strategic planning.
Tesco has gained leading position in the UK retail industry henceforth, now it becomes necessary for the entity to expand their operations overseas to exploit growth opportunities in the global market. Under the worldwide expansion, its current Greenfield investment led to failure which makes it compulsory for the entity to look forward the other entry modes for entering into potential market, Vietnam. It is founded suitable for the proposed global expansion because Vietnam is one of the rapidly growing markets in South East Asia which has huge population of 94,444,200 (Vietnam Population, 2017). Undeveloped grocery sector, storming growth opportunities and government initiatives to improve political and economic reforms allowed foreign investment in the nation (Analysis of Tesco to enter Vietnam Supermarket, 2017). All the factors encourage Tesco to set up their own business in the country and achieve high growth.
Aim: To investigate and examine factors that influence international entry mode decisions of Tesco Plc in Vietnam
The study will provide great assistance to the scholars who might take interest in exploring the concept of domestic and international strategic planning associated with the globalization of business activities and functions. It will be serves as a secondary resource to the investigators in review of literature. Besides this, companies who are looking for expansion overseas can gain wider knowledge of numerous factors which will assist them in successful entry into new geographical market segment in different areas of the world. It will also present a clear differentiation how global strategic planning is complex compare to domestic strategic planning and enable entrepreneurs in successful growth planning.
Looking to the current competitive environment in the corporate sector, all the ventures are highly interested in expansion to grab larger market share and earn more return. Andreu, Claver and Quer (2017), defined strategic planning as a procedure to envisioning future and translate the vision of the establishments into goals and objectives and then create a plan to accomplish the same. It presents a procedure wherein leaders set vision and identify organisational targets and devise strategies that will enable them to reach the stated vision. It aligns ongoing business actions and activities in line with the strategic management for the effective execution.
Kraidy (2017),commented that strategic planning is totally distinguish from long-term business planning because later starts with the current organisational status and then design a path to meet the expected future needs. In contrast, strategic planning begins with the vision means desired end and works backward by implementing designed business strategies currently. It is a sequential process which looks towards future needs, analyse current environment and trends and influence forces which will affect it. It comprises various plans such as marketing tactics, growth strategies, human resource development plans and promotional strategies as well. It includes number of business decisions i.e. resource allocation, optimum use, budgeting, new product development and other operational decisions for ensuring sustainable progress.
The findings of Cuervo (2016),stated a clear difference between domestic & international strategic planning. Global strategy is important because it present business offerings across international boundaries so that it could garner more profits. It succeeds entity as an international competitor and improve bottom line by supporting operations in distinctive parts of the world. Correct strategic planning is really important for the multinational companies because it is the only way to optimally and effectively utilise business resources i.e. funds, human capital, technology and others to maximize net return. In contrast, domestic strategic planning is refers to the planning for local target market. In this, companies plan for successful operational execution of the business activities in the domestic country. Global strategy helps entity in identifying various growth opportunities exists overseas and exploit the same for strengthening the corporate position.
As per the views of Tsang and Yamanoi (2016),although overseas expansion drive advantages of higher sales, exceeding return, strong market share and strengthen competitive position, still, it seems too difficult for the enterprises in comparison to the domestic strategic planning. The study presents that domestic strategic plan focuses only on home market in which small and medium sized organisation aims to grow their geographic reach to their domestic country borders. However, on the contrary side, international strategic planning focuses on penetrating other geographical markets in untapped countries of the globe. Global strategy formulation is too complex due to broader availability of factors in emerging economies. While expanding business globally, it is important for the corporation to analyse external market factors which will affect the business growth i.e. legislations, regulations, consumer preferences, economic environment, technologies and other environmental factors as well. At cross-border operations, such factors may be totally different from that of local economy and necessary to be incorporated in global strategic planning.
Besides this, Channon and Jalland (2016),enlightened focus on internal management and implies that local company managers arranges meetings to collaborate and coordinate with each other. However, on the other side, company with existence in foreign market have to make transportation planning such as teleconferencing, web referencing and others. Effective communication between managerial team is important so as to make strategic planning and well-informed decisions. However, on the critical note, Crane, Kawashima and Kawasaki (2016), argued that there is only one cultural society in the domestic business whereas company looking for expansion will have to meet the need and preferences of cross-cultural society. It arise cultural challenges which can be managed successfully through adding talented workforce from different locations.
According to Andreu, Claver and Quer (2017), there are various entry modes through which a business entity can expand their operations in the foreign market such as joint venture, direct investment, acquisition, wholly-owned subsidiary (WOS), Greenfield investment, strategic alliances, export and others. Factors which influence the entry modes have been broadly into two parts that are internal & external. Former belongs to the organisation itself who are interested in expanding their business operations and activities in the foreign market; in contrast, external factors are also called uncontrollable which are outside the control of the entity.
Figure 1 Factors affecting international market entry mode
[Source: Naidoo and et.al., 2016]
Above illustration presents that internally, entrance into new market is affected by business objectives, resources availability, commitment level, flexibility, global experience and other factors. For instance, company with limited growth in domestic market enter globally through fulfilling exporting orders whereas for a leading organisation in the home country, subsidiary, joint venture and other strategies are founded more appropriate. On the other hand, acquisition & JV with the domestic business in high context culture is considered important in mitigating risk psychic distance and cultural differences. Hilmersson and et.al. (2017),stated that for venturing into emerging economies like BRICS, business need sufficient availability of funds, human capital and other resources thus, firm with sound financial position consider equity participation or WOS as a better means of internationalization in which, company can establish their own subsidiary in the cross-border nations. Furthermore, domestic organisation well exposed to the global environment dynamics would have ease to conduct business globally through JV agreements and WOS. Apart from this, flexibility is also an important factor that affects the entry choices because when entering into new market, entrepreneurs also need to keep in mind barriers to exit due to sudden changes in legislations, political environment, consumer preferences, intensity of competitive rivalries and others.
Ahi and et.al. (2017), argued that expanding business globally involves various risk such as political, economic and operational risk which must be effectively addressed by the company. Favourable economic conditions and legislative framework with low risk attract foreign investors to set up their own business in such countries to expand business across globe. Referring Vietnam’s political environment, there are various factors that can affect the market entry in Vietnam that are stated here as under:
Political: Vietnam is a communist nation and political parties of the nation are putting extensive efforts to ensure prosperity. Besides this, improving trade encourages other companies to come and establish their own set up in the nation to promote business growth.
Figure 2 Vietnam's economic outlook
[Source: Nair, 2014]
Above table illustrates that Vietnam’s GDP shows a rising trend over the historical period as it has been increased from 323.8 to 358.9 USD billion in 2013, still, the % growth rate in GDP shows declined trend as it came from 6.2% to 5.3% higher by 0.1% than 2012. Besides this, PCI is continuously increasing as in 2012; it was 3700 grown up to 4000 that showcase that consumer spending ability is strengthened over the period. Hence, there is an opportunity exists for Tesco to expand their business in Vietnam with high possibility of retail business development.
Social: Vietnam has huge population and remains conservative society that follows cultural rules and principles, but, with the modernisation, younger generation society is adapting changing trends. They are demanding innovative goods and services to satisfy their expectations which demonstrate that by expanding overseas, Tesco will be able to serve Vietnam’s population by service them standard quality goods and services.
Technological: Information & communication technology development in Vietnam brought change in retail industry operations. In the country, there are around 23.38 million are online users who are interested in online purchasing. Thus, it makes it necessary for the companies who are looking for expansion like Tesco to deliver online services to the users and thereby grab larger market share with strong competitive position.
Legal: Doi Moi policy of the nation allowed the party to grow economic development. There are several laws which Tesco will need to follow by expanding business in Vietnam such as labour laws, taxation laws, commercial laws, investment policies, consumer rights and others so as to ensure ethical trading practices.
Environmental: In order to protect environmental issues, venturing into Vietnam will make it necessary for the Tesco to follow environmental laws, cutting wastage, ensure optimum use of natural resources and reduce any harmful environmental impact so as to maintain safe and healthier environment for the society.
However, on the contrary side, Naidoo and et.al. (2016), said that market size is an important key factor that must be consider by the global marketers before venturing into emerging nations. Countries with larger size require extensive investment; therefore, WOS or equity participation is founded more suitable for the expansion purpose. Under the market growth, well-established markets like Europe, US Japan has less or more reached a consumer saturation point in consumer electronics, automobiles and other, therefore, such market growth rate shows a decline trend. However, from the investor’s perspective, it is considered more appropriate for the marketer to expand business in such countries which has high growth potential. In context to Tesco, currently, although its Greenfield investment strategies has been proven as fully controlled but still founded inappropriate & costlier approach due to dismal results in Taiwan.
Besides this, in the study of Verbeke and Kano (2016),it has been discussed that countries in which business operates have to follow the applied laws and regulative framework. Like, in Gulf countries, it is mandatory for the businesses to have a local partner. Therefore, establishments always look for expansion in overseas market where the regulative environment is favourable. Now-a-days, the level of competition is too high as companies with multinational presence are looking for unique plans to promote business position such as diversification, technological update and others. Therefore, global ventures need to examine the competitive rivalry before investing capital overseas. However, on the critical note, Baylis, Owens and Smith (2017),demonstrated infrastructural facility i.e. roads, telecommunication, banking and financial services, railways as an important element of entry choices. For instance, in Asian region, strong infrastructural development in Hong Kong, Dubai, Singapore and other developed it as global marketing hubs for the expansion.
Philosophy is just researcher’s belief that represents that how data will be gathered & examined by the scholar and is of two kinds, positivism and interpretivism. The proposed research study is an aspect of social science opposed to natural science therefore later is suitable wherein investigator believe that social construction provides access to reality. It integrates human interest to study the issue so as to interpret each & every element to choose the most appropriate strategy of market entry mode (Silverman, 2016). Being an interpretive researcher, qualitative study is founded suitable which is based on analyzing Vietnam’s economic environment, competitive intensity in retail sector, consumer preferences and others so as to make better expansion decisions.
The relevance of the hypothesis or research question to study the subject matter critically distinguishes deductive & inductive approaches. The planned thesis will study various factors influencing the foreign market entry choices of Tesco Plc using inductive approach which is based on data findings and analysis addressing the particular research questions and thereby overcome the issue.
Primary source presents fresh-hand information by gathering new information through distinctive means i.e. survey, observation, interview, field research & other. However, secondary refers to collecting data through available information may be either published or unpublished like scholar articles, newspaper, economical reports, industry statistics, online resources and others (Flick, 2015). Considering proposed study, data will be obtained through Vietnam retail industrial statistical reports, economic reports, scholarly articles and other web resources as well to examine the feasibility & viability of Tesco’s expansion strategy in Vietnam.
The findings of the secondary information will be interpreted and evaluated using thematic perception test (TPT) which is based on theme designing evidencing subject’s responses in a narrative manner (Mackey and Gass, 2015). It presents underlying concerns, motives & true picture of the subject matter and assist scholar to choose the most appropriate strategy for the expansion.
The study is based on secondary research hence there is a possibility that some of the information might be out-dated and unsuitable for the purpose of current research. Therefore, lack of availability of new and first-hand information is the main drawback. Besides this, it is also possible that access is not available to the scholar and makes it tough for obtaining sufficient dataset to investigate the chosen topic.
Proper reference and citation to give credit to the authors following Harvard style has been done and also helps to avoid use of copied content. Besides this, data manipulation has been avoided to provide authentic and reliable information to the readers. In order to access copyrighted online resources, access has been received from the authority to avoid misconduct.
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