Temple University China Team Reaction Paper Please see the files attached for the materials. The country for reflection is china. Page 35 Reaction Paper ar

Temple University China Team Reaction Paper Please see the files attached for the materials. The country for reflection is china. Page 35 Reaction Paper are one-page paper where your team summarize news articles from professional business journals such as Wall Street Journal, Financial Times, Economist, or others of this caliber and then give your own reaction.The reaction could be novel, interesting, disappointing or simply puzzling.A copy of each news article should be attached to your reaction paper. 1.
Temple University
Fundamentals of Asian
Business (Fall 2019)
Chiwei Huang
2501/2511
Fundamentals of Asian Business (Fall 2019)
Chiwei Huang
2501/2511
Temple University
Table of Contents
Home Plus: Riding the Korean Retailing Rollercoaster…………………………………………………………..5
Yamato Transport: Replicating Japanese Success in Singapore……………………………………………17
SinYi Corporation Expansion Strategy in China…………………………………………………………………..35
Political Risk in the Kaesong Industrial Complex………………………………………………………………….45
Alibaba Group’s Corporate Values…………………………………………………………………………………….53
Coffee Wars in India………………………………………………………………………………………………………..65
Selling Ready-to-Drink Tea in Southeast Asia: C2 Green Tea in Vietnam (B)………………………….75
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9B13M050
HOMEPLUS: RIDING THE KOREAN RETAILING ROLLERCOASTER
Research Assistant Youngwoo Lee and Professor Martin Hemmert wrote this case solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2013, Richard Ivey School of Business Foundation
Version: 2013-04-23
On a cold winter morning in January 2013, Homeplus CEO Seung-han Lee was looking out of his office
in Seoul’s glittery Gangnam business district. He contemplated the rapid growth of his company since it
was founded in 1999 as a joint venture between British retail giant Tesco and the Samsung Group. It was
the only company under foreign majority ownership that managed to establish itself as a major player in
the South Korean retail market. In fact, it had become the second largest retailer in South Korea (Korea)
within less than a decade.
Notwithstanding these achievements, Lee had to think about how to address a number of serious
challenges to his company’s business. Two new retailing regulation bills were currently being discussed
in the Korean Parliament. If they became law, they might greatly hamper his company’s further
expansion in Korea and seriously derail the strategy he had pursued throughout the last few years. More
generally, he needed to consider how to deal with various new developments in the Korean retail market
and retain his company’s competitive strength.
TESCO’S INTERNATIONAL EXPANSION AND COMPETITIVE STRATEGY
Tesco was founded by Jack Cohen in 1919 when he opened a market stall in the East End of London. The
brand name Tesco appeared in 1924 when Cohen started to sell tea products named Tesco Tea. The name
comes from the initials of T.E. Stockwell (TES), who was the tea supplier, and CO from Jack’s surname.
Later on, Tesco became the biggest retail store in the United Kingdom, with a market share of around 30
per cent in the 2000s, and one of the fastest growing retailers in the world, mainly due to its rapidly
growing international business. It was the fourth largest global retailer measured by revenue in 2009, next
to Walmart, Carrefour and Metro; and it had the highest compound average growth rate (CAGR) of 10.9
per cent among the top 10 retailers in the world between 2004 and 2009 (Exhibit 1).
Tesco started to seek international expansion at the beginning of the 1990s as a key part of its growth
strategy. After outstripping its competitors in the United Kingdom and many other European markets,
Tesco looked for emerging markets with high growth rates. The company’s international strategy was not
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2.
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simply focused on reducing its dependence on the domestic market. It also sought to maintain sales
growth by entering markets with high growth potential. The total floor space of Tesco operating outside
of the United Kingdom surpassed that of its home market for the first time in 2004. However, the United
Kingdom still accounted for 66 per cent of group sales due to lower sales per unit in other countries
(Exhibit 2). In 2011, Tesco operated 5,380 stores in 14 countries and employed 492,714 people
worldwide. In addition to the United Kingdom, Tesco had operations in Ireland, Poland, Hungary, the
Czech Republic, Slovakia, Turkey, the United States, Thailand, Malaysia, Japan, India, China and Korea.
Tesco’s global sales increased from £51.8 billion in 2008 to £67.6 billion in 2011.
One core strategy that enabled Tesco to achieve fast growth was not only to diversify geographically but
also to expand its general merchandise range to provide greater appeal to customers. Tesco started as a
grocer that sold mostly food and drink items but had diversified into areas such as clothing, electronics,
DVDs, petrol stations, telecommunications, pharmacy and financial services. This diversification allowed
the company to provide more value to customers with a more comprehensive range of products and
services. At the same time, Tesco made constant efforts to satisfy customer demands for every type of
product it sold. For example, its electronics section in large discount stores had responded quickly to the
latest technology trends to meet customers’ demands. Tesco was the first U.K. supermarket to offer the
Apple iPad and the Amazon Kindle, which were items in particularly strong demand. Tesco also had
technical support teams at discount stores who were trained to provide customers with technical advice on
various electronic items. Customers could make better choices to suit their individual needs based on such
advice, thus resulting in a reduction in product returns.
Additionally, Tesco strategically developed various types of private brand (PB) products to pursue high
profit margins, including food, beverage, household appliances, clothing and telecom devices. PB
products were designed by retailers themselves, carried their own name, were produced by outsourcing
and usually sold at prices that were almost 20 per cent lower than those of general retail products. Tesco’s
PB products were largely divided into two levels: upmarket products called “Finest” and mid- to lowprice products called “Value.” This strategy gave the Tesco brand a competitive edge over general
merchandise products, as customers tended to put more emphasis on product quality in addition to low
prices. Finest products had shown a 6.3 per cent increase in sales in 2011.
Tesco had expanded in a wide variety of store formats, ranging from hypermarkets to convenience stores,
as well as online and catalog channels. The hypermarket store was a retail format that combined
supermarket and department store, offering a wide selection of general merchandise alongside food items.
Tesco’s multichannel strategy made it easy for customers to find products in a way that was most
convenient for them and allowed the company to reach new customers. In recent years, it was the online
channel that made it possible for Tesco to diversify its product range. Although sales growth in the United
Kingdom had slowed in recent years due to an economic recession that limited the potential to grow by
opening additional stores, Tesco had aggressively pursued a multichannel approach that had allowed it to
deliver above-average sales growth. Its grocery delivery business had shown double digit growth and a 30
per cent annual rise in sales at its non-food online operation, Tesco Direct. The company’s online sales
had increased by 15 per cent in 2011.1
Tesco introduced a customer loyalty program called “Clubcard” in 1995. The Clubcard was particularly
popular and had an active membership of more than 15 million customers. It had become a significant
driver of growth for Tesco as customers who had a Clubcard were showing a high degree of loyalty.
Tesco also actively developed technological innovations that could help operational efficiency. The
1
Internet Retailing, “Tesco to Extend ‘Compelling’ Multichannel,” April 19, 2011, http://internetretailing.net/2011/04/tesco-toextend-compelling-multichannel/, accessed April 9, 2013.
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THE KOREAN RETAIL MARKET AFTER THE ASIAN FINANCIAL CRISIS OF 1997
In 1999, Tesco decided to invest in the Korean market due to the rapid growth of middle-income families
and, most importantly, as the Korean government deregulated its retail market after the Asian financial
crisis of 1997. Previously, the Korean retail sector had been very difficult to enter for foreign retailers.
However, the crisis induced the Korean government to change its policies from protectionism toward
liberalization due to pressures for economic reforms. Until the mid-1990s, traditional small shops, called
mom-and-pop stores, dominated Korean retailing with a market share of almost 80 per cent. The growth
and liberalization of the Korean retail market attracted several Western multinational retailers beginning
in the early 1990s, and the competition between foreign and local retailers intensified. Carrefour entered
the Korean market by opening its first store in 1993. Walmart followed in 1998. While the Korean retail
industry was largely underdeveloped until these giant foreign retailers entered the market, the effect of the
liberalization of the 1990s on the Korean retail sector was truly dramatic. The retail market size grew
rapidly from 90.9 trillion Won (US$113 billion) in 1996 to 217.3 trillion Won (US$196 billion) in 2011
(Exhibit 3). Also, retail formats became much more diverse after the entry of large foreign distribution
stores. While department stores held a strong position in Korean retailing until the 1990s, discount stores
gained market share thereafter. Moreover, online shopping had shown a rapid increase in the past few
years due to the high number of Internet and smart phone users in Korea.
In contrast to Walmart and Carrefour, which entered Korea on their own, Tesco used joint venture as an
entry strategy to tap into the Korean retail market and opened its first two hypermarkets in 1999. It agreed
on a partnership with Samsung, one of the largest chaebols (business groups) in Korea. Samsung had
launched a retail business in 1994 but was facing liquidity problems because of the Asian financial crisis.
At the same time, Tesco was looking for a local partner to establish a foothold in the Korean retail market
and to create synergy effects by using the local partner’s regional network. Tesco had a 51 per cent stake
initially but took over an additional 30 per cent of Samsung’s ownership share in July 1999 and thereby
became the dominant partner in the joint venture.2 However, Samsung also made important contributions
to the collaboration. Both companies agreed to appoint executives and directors from Samsung
Corporation, notably CEO Lee.
The joint venture had difficulties initially. The morale of the employees was low due to cultural
differences, language barriers and communication difficulties. In particular, there was much uncertainty
among employees about the consequences of the merger, since they had suddenly become part of an
unfamiliar foreign company.
To overcome the conflict between the two different organizational cultures, CEO Lee launched a special
task force, which created a new hybrid organizational culture, called “Shinbaration.” It pursued harmony
between the teamwork culture of Korea, “Shinbaram,” and the professional culture of the West,
“rationality.” Shinbaration aimed to allow employees to develop and maintain an emotional attachment to
the company and to go beyond their apparent limits, while seeking to introduce rational management
practices by adopting elements of British business culture. The former encouraged teamwork and helped
create an exciting working environment while the latter deterred the corporate culture from leaning
toward cronyism.
2
Later on, Tesco acquired full ownership through subsequent equity purchases in 2002, 2007 and 2011.
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company was the first retailer to build self-service checkout counters that saved labour costs and reduced
waiting lines for customers.
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Tesco and Samsung developed a new brand name, “Homeplus,” in order to avert the potentially negative
effects of nationalistic sentiments of domestic buyers toward foreign retail brands. These negative
attitudes were particularly prevalent outside the main cities. Many customers believed that foreign firms
were not only driving out small local stores but were also transferring the wealth derived from the local
economy to their overseas headquarters. However, notwithstanding this widespread nationalistic
sentiment among Korean customers, Samsung Tesco managed to grow quickly and become a leading
player in the Korean retailing industry. Within 10 years, Homeplus had become the second largest retail
company in the Korean market. By 2011, it had 124 discount stores and employed more than 27,000 associates
(Exhibit 4).
As Homeplus was a latecomer in Korea, its CEO advocated different strategies and approaches compared
to Western retail giants and strong local competitors that had connections to large conglomerates.
Carrefour and Walmart adopted the strategy of “mass supply at low price” by utilizing their own intrafirm global networks. Those two Western retailers focused on providing many standardized products at
low prices but with limited consideration of local consumers’ needs. Koreans are among the most
demanding consumers in the world and like to purchase a small quantity of groceries at very frequent
intervals. A manager from Homeplus headquarters commented:
Korean customers have very high expectations in general and are quick to change their retailer
when they are unsatisfied. However, due to Korea’s homogeneous culture and society, they are
quite similar regarding their shopping preferences. The only strong discriminating factor among
them is the disparity of their income levels. In contrast to other countries where Tesco has
operations, such as the United Kingdom, India or China, we use an “inclusive strategy” in every
store, which means that we provide products for customers of all income levels, regardless of the
store location. In other words, our hypermarkets have a standardized format and have something
to offer for every Korean customer.
One way Samsung Tesco had worked towards a high local acceptance in Korea while maintaining high
efficiency had been its emphasis on glocal (global + local) standard. Glocal was a compound word that
expressed what CEO Lee advocated: it combined localized marketing and a globalized management and
administration system. This approach emphasized that the company and its managers should not be
indifferent to local stakeholders when trying to achieve full-scale globalization. Korean customers put
more emphasis than Western buyers on everyday fresh food such as meat and vegetables. The warehousetype stores of Walmart and Carrefour had very limited offerings of fresh food items and Korean-style
food such as kimchi, a traditional and highly popular dish based on fermented vegetables. Also, Korean
consumers have a strong preference for buying goods displayed within their range of view rather than
shopping from the high stockpiles that are common in the warehouse type of Western discount stores.
Walmart and Carrefour suffered from slow growth, and both of them ended up pulling out of the Korean
retail market in 2006 and selling their outlets to local retailers. Homeplus, in contrast, continued to grow
rapidly in Korea.
LOCALIZATION
Homeplus used a “localization” strategy to lure local consumers. It appointed a local employee from
Samsung Corporation, Lee, as CEO and gave him considerable autonomy to determine a wide range of
strategic issues. Tesco only provided an operating platform, and important decisions such as where to
locate new stores, how to choose the right format and what kinds of goods to be displayed were delegated
to local managers. In fact, only four managers out of 7,509 employees in Korea were sent from Tesco
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9B13M050
CEO Lee wanted Homeplus stores to become “value stores” that not only offered a wide range of
products at low prices but also a high quality of service and value to customers. Homeplus expanded its
product range to pursue the localization of distinct products, which ranged from fresh food to clothes,
home appliances, sports items and even live pet animals and live seafood in water tanks. Also, Homeplus
put many convenience facilities such as hair salons, food courts and culture centres inside their stores.
The goal was to build stores that provided a more pleasant shopping environment for customers by
making “you can do it all in one stop” possible. Homeplus stores bore little resemblance to any of Tesco’s
domestic supermarkets in the United Kingdom. CEO Lee even placed service facilities and culture centres
on the first floor, the heart of the store. Rather than just becoming a discount store that sold products,
Homeplus sought to provide a wide range of high quality services to customers and to promote their
cultural lives. The number of annual members at Homeplus’s cultural centres exceeded 100,000 by 2013,
and they participated in educational programs catering to children as well as adults on a wide range of
topics including music, arts, cooking, foreign languages, fitness and dance. For its efforts, the company
had been awarded the highly prestigious Korea Service Award for five consecutive years. Overall, the
company secured a high level of customer loyalty due to its membership program and its general
approach to customizing services to the needs of every customer.
An important feature of the Korean retail environment was that manufacturers had very strong bargaining
power over retailers. This was because most best-selling products were provided by a few dominant
manufacturers controlled by chaebols. These manufacturers had strong market power and the leverage to
pose credible threats to discontinue business with retailers that did not accept their prices and other terms
of doing business. For example, Carrefour had such problems with large domestic food manufacturers CJ
and Pulmuone, which withdrew all their products from Carrefour’s stores.3 As the demand for fresh food
was very high in Korea, retailers had to buy most of their food products locally. So Carrefour and
Walmart’s advantage of having a …
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