International Business

QUESTION 1-b. How does TESCO create value in its international operations?

TESCO is the largest grocery retailer in the UK. Today the Group operates in 13 markets
outside the UK, in Europe, Asia and North America.
The first creation of the value in the international markets by TESCO is that the company
pays its attention to transferring its core capabilities in retailing to the new ventures. It has
focused mainly on developing markets with weak incumbent retailers. The second is that
TESCO doesn’t send its employees from UK to the partner’s country in order to get a
benefit from local knowledge.
And of course, the full emergence of international retailing is not something that happens
overnight - it requires a long term approach. Since TESCO is an international retailer and
wherever it operates it focus on giving local customers what they want.

QUESTION 1-c. In Asia, TESCO has a long history of entering into joint venture
agreements with local partners. What are the benefits of doing this for TESCO? What
are the risks? How are those risks mitigated?

First of all, we should clearly understand what on earth is joint venture? Joint venture is a
partnership arrangement in which the foreign operation is owned in part by a domestic
company and in part by a foreign company. Joint ventures have a number of advantages and
disadvantages.
Now then, what were the benefits of joint venture for TESCO? I think, first of all, it was
benefit from a local knowledge which is especially important. Retailing in particular
requires an understanding of local customs and tastes. Second, when something is going
wrong a firm might gain by sharing its costs or risks with a local partner.
What are the risks? According to our textbook, there is an obvious disadvantage that a
firm which enters into a joint venture risks giving control of its technology to its partner.

QUESTION 2. Licensing proprietary technology to foreign competitors is the best way

to give up a firm’s competitive advantage. Discuss.

Licensing agreement has a number of advantages and disadvantages. Sometimes when the
firms (licensor) grant the rights of technology to foreign competitor (licensee) they have
made the mistake of thinking that they could maintain control over technology. But there is
another fact that they should include. Generally, the technological know-how is a
fundamental competitive advantage for many firms. And many firms wish to maintain their
control over their technology. So, after licensing technology, firm can quickly lose control
over it. Thereby a foreign competitor can improve its technology.

QUESTION 3. Discuss how the need for control over foreign operations varies with
firm’s strategies and core competencies. What are the implications for the choice of
entry mode?

In order to enter to a foreign market firms can use six different modes: exporting, turnkey
projects, licensing, franchising, establishing joint ventures or setting up a new wholly owned
subsidiary in the host country. And each of these modes has its own number of advantages
and disadvantages. And there are several factors affect the choice of entry mode: transport
costs, trade barriers, political and economic risks, costs, firm strategy. And each mode varies
by situation of a certain firm.
EXPORTING. There is direct and indirect exporting. If a firm is going to have a broad
control over foreign operations so a manager will choose Direct Exporting. This case
suggests a direct contact between a manufacturer and a foreign distributor. So, in the case of
Indirect Exporting there are a less opportunities of control, because a manufacturer has to
cooperate with intermediaries.
TURNKEY PROJECTS. In this entry mode a contractor bears responsibility for every
single point of the venture. So, it means that contractor takes many significant details upon
himself. Turnkey projects are a way of earning great economic returns from that asset, but
from the point of control it can be risky.
LICENSING. In this case there is a serious control over manufacturing, marketing and
strategy as the licensee has no restrictions to use, develop and improve the obtained
knowledge according to his own discretion.
FRANCHISING take a place in the services sector, but not in production. There is a serious
risk of losing control over quality.
JOINT VENTURE. Here we can note the threat of losing control too. There are two partners
running the business and therefore there is a probability that one of that will finally take up
the initiative.
ESTABLISHING WHOLY OWNED SUBSIDIARIES. In this case the main advantage is a
large control over operations and undertaking no risk of losing control over the knowledge.