Tescos Market Entry Strategy in Brazil - Research Proposal Example

Tesco’s market entry strategy in Brazil Introduction Background – Brazil economy and the retail sector Brazil is one of the world’s largest retail markets. Sales have been increasing since 2003 but as per experts this trend will continue only for another five years as constantly expanding declining rate allows for continued expansion of real incomes and relaxation in credit terms. Nevertheless, due to dynamic economic activity and increasing GDP, the industry is anticipated to reach around US$ 391.6 Billion in 2011 from US$ 322 Billion in 2007 at a CAGR of 5.01% (RNCOS, 2007). The continued growth in retail sales in Brazil demonstrates the trend of private consumption which has been robust due to income growth and firm credit growth. Sales at hyper markets, super markets and other food and beverage stores have picked up by 6.4% in 2008 since October 2007 (EIU ViewsWire, 2008). The retail market in Brazil is fragmented although consolidation in the industry has started. The top 5 supermarket chains account for only 25% of the sales, which signifies that there is huge untapped potential in this sector. Brazil's Pão de Açúcar, France's Carrefour and US's Wal-Mart currently dominate the market while the rest are local chains and each of them accounts for about 1% of the national market (RNCOS, 2007). International retail chains are entering the market to expand their market base and attain economies of scale. The local players are adopting technology and new retail format to compete with the international chains. In Brazil, the supermarkets capture nearly 80% of the retail market. Foreign owned retailers are expanding and strengthening their market positions as Brazil’s retail industry benefits from a healthy macroeconomic environment and vibrant consumer demand (Country Monitor, 2007). Rationale for research Tesco, the UK retailer is the undisputed leader and has been carrying the brand name to the developed as well as the developing nations. Many chains have now entered the Brazil market and the UK based retailer Tesco is now an international chain. It plans to enter Brazil and with its expertise and low-priced strategy, coupled with its internationalization policies, which could benefit a country like Brazil. A supermarket chain must be conscious of the country’s needs and all its actions should be geared accordingly. Tesco can leverage advantage by utilizing the country’s resources and thereby working towards mutual gains. Tesco’s approach in most developing economies has been to take over local chains that have not been functioning well and then expand through construction of new hypermarkets in suburbs (Yoruk & Radosevic, 2000). This business strategy allows them to have influence over the production and distribution structure within these countries. Tesco has been late in entering the Brazil market. Of the various modes of entry, joint venture with a local partner or acquisition of an existing chain would be ideal for Tesco but this warrants some investigation and research. The political, legal, regulatory and cultural laws in Brazil would have to be taken into consideration. According to Kotler (1998), “a company going abroad must study each market carefully, become sensitive to its economics, politics and culture, and make some adaptations in its products and communication to suit the foreign tastes” (cited by Vignali, 2001). Internationalization requires customized marketing in order to appeal to differing preferences across countries. The retail outlets in Brazil have to adapt to local tastes. When Wal-Mart opened in Brazil, in the initial years, it was stocking leaf blowers and American footballs but has now learnt that they need to sell goods suitable for the local taste (Jordan, 2001). As such, now they stock Brazilian pastries called “pastel” and black beans. Winning customer loyalty is important in Brazil as studies have revealed that 68% of all shoppers prefer to buy their groceries from the same outlet. Hence opening in Brazil would be a challenge especially as Tesco does not have the first mover advantages. Research aims and objectives The existing literature gives diverse opinion about the retail sector in Brazil. Retailers that have entered Brazil with joint ventures have met with both success and failures. This requires an in-depth study of the consumer attitudes and also to determine the location. There are also diverse opinions on whether new entrants should target the bigger cities of aim for a larger section of the society by opening outlets in the smaller towns and the rural areas. This is also in view of the fact that rural income has increased. There is no strong empirical evidence to allow the company to take a definite decision. Knowledge is fragmented which gives a distorted impression. Tesco has attracted considerable attention because of its ambitious overseas strategy. Many retailers have tried and failed to establish themselves away from their home market. It is an interesting area of research because joint ventures in retail industry in Brazil have experienced both successes and failures. To fill the knowledge gap it is essential to carry out a research on how Tesco, a multinational retailer, should enter a developing economy like Brazil. With this aim, the research would determine: a. The reasons for success or failure of the retailers that have entered the Brazil market. b. The method employed by them. c. The location that Tesco should consider while opening in Brazil. d. The consumer attitudes that influence the purchasing decisions. Literature review Retailing grocery is an intensely competitive, low-margin and high volume industry which has evolved over the years and is now dominated by chains utilizing the latest technology (Keh & Park, 1997). The force driving the revolution is the changing consumer characteristics. Speed, convenience and fresh food – these are the benefits that consumers have been able to derive through shopping at retail supermarkets. Tesco, the largest UK retailer, has been innovative by being the first food retailer to develop large supermarkets in the UK. It was the first to launch the cut-price policy which led to price wars; it was the first to launch the Club Loyalty program and was the first to add financial services to it. It was also the first to launch online shopping in the mid-1990s (Yoruk & Radosevic, 2000). Tesco has now expertise in hypermarkets, supermarkets, superstores, e-commerce, and gas stations c stores. Gaining competitive advantage requires building on the proven principles of effective strategy (quoted by Porter, cited by Delaney-Klinger et al, 2003). Tesco does not try to attempt to build a new model of business in entering new markets but uses existing assets to grow. Tesco has moved aggressively to improve SCM to balance customers’ demands with the need for profitable growth. This includes coordination within different functional levels, inventory management and cost control. Tesco has been successfully able to keep the customers locked-in. Micro-level marketing activities in e-commerce like individualized data collection allows for market segmentation (Burt & Sparks, 2003). Brazil's Pão de Açúcar, France's Carrefour and US's Wal-Mart are the main competitors for Tesco in Brazil. Wal-Mart had only two percent of the market share as of 2001 and has the sixth position in the supermarket operation, while the other two dominated the market. To compete in the market, Wal-Mart even started smaller, stripped down versions of the supermarket and named them Toda Dia which means ‘everyday’ in Portuguese. They sell goods at 5% cheaper than the neighborhood stores although they do not have the fancy décor and air-conditioning (Jordan, 2001). Carrefour, one of the two most popular supermarkets in Brazil, is also concentrating on opening smaller neighborhood stores like Wal-Mart in Brazil. Carrefour has been in the Brazilian market since mid-70s. Its store base in Brazil consisted of 74 hypermarkets and 115 supermarkets as of 2001 (DSN Retailing Today, 2001). Companhia Brasileira de Distribuicao (CBD) is the number two player in the home grown retailer and has grown its store base from 284 units in 1998 to 349 in 1999 and more than 400 in 2000. Big retailers are lowering the ceiling on what they will sell on credit. Wal-Mart and others now offer purchase plans even for things where the monthly payments do not exceed 1 or 2 reals (Boom, 2005). The idea is to squeeze more spending from the cash-strapped customer base of Brazil. The low-income Brazilians are benefited because they can now buy things like radio, blenders and clothes. Past decisions and strategies have to be used as a base for future plans and actions. Tesco strategy is to buy successful companies abroad but also ensure neighboring markets are targeted (SD, 2005). Its expansion strategy included eventual market domination. Tesco decided to enter into markets where local competition was soft. It adopted different entry modes in order to develop knowledge. To succeed in the international market, it decided to have its strategies right and knowledge was on hand in foreign markets. Retailers have to be ready for sudden shifts in foreign market behavior. Tesco showed that it was not afraid to make mistakes and in fact drew lessons from them. Research Methodology Research relies on facts, experience and data, concepts and constructs, hypotheses and conjectures, and principles and laws (Amaratunga et al., 2002). According to Taylor et al., (1995) quantitative data is numerical in form. Questionnaires and interviews are the usual research methods used under this paradigm. Some researchers claim that unless human behavior can be expressed in numerical terms, it cannot be accurately measured (cited by Jones, 2004). Qualitative data covers a range of material collected from previous research, literature review, case studies and unstructured interviews. As far as this research is concerned, the qualitative method would be applied. A lot of literature is available, with diverse opinions. This would enable to understand the totality of the situation and multiple methods can be used to establish different views of the phenomena. With qualitative data it is possible to preserve chronological flow, see precisely which events lead to which consequences and derive fruitful explanations (Amaratunga et al., 2002). In qualitative study any number of approaches may be used to generate theory. This research aims to get an in-depth understanding of the situation in Brazil which includes the governmental support, the stringent laws, the consumer attitudes, and most importantly the mode of entry that Tesco should take taking into consideration all of these factors. Apart from literature review another qualitative data collection method would be interviews. Interviews can capture some of the subtle complexities underlying the decision-making process that can be missed by large-scale statistical analyses (Herod, 1993). Qualitative interviews can be structured, semi-structured or unstructured. Structured interviews produce quantitative data while unstructured interviews produce data collected through participant observation (DiCicco-Bloom & Crabtree, 2006). It would not be possible to identify the key personnel or informants and interview them on an ongoing basis and take notes while observing and questioning. Data collection and analysis . The data would be collected from the different firms that are currently operating in Brazil, from the local retailers which are functioning well or nor functioning well, from the local and the central authorities, and from the parent company of the foreign retailers in Brazil. At random, and at frequent intervals, the shoppers too would be interviewed on different locations. This would bring to light the discrepancies if any that exist between the opinions of the shoppers and the retailers. It would also bring to light the difficulties that the shoppers might be facing. Open-ended interviews would be conducted as they tend to be more spontaneous, offering a two-way interaction not generally permitted by the standardized approach (Herod, 1993). Such interviews allow interviewees to introduce topics and speak in their own words rather than in categories dictated by the researcher. Qualitative research involves large amount of unstructured data of which the analysis is tedious and monotonous. The process involves three steps – data reduction, data display and conclusion drawing and verification (Amaratunga et al.,). Data reduction is the same as analysis and occurs through out the process of a qualitatively oriented project. Even selection of the literature or the research design forms a part of the data reduction process. Data displays are a major avenue to valid qualitative analysis. Conclusion will be drawn after extensive literature search. Ethics It is essential to maintain secrecy because the local representatives of the retailers in Brazil would be interviewed. The shoppers as well as the retailers would be informed of the purpose of the research and all names and data would be destroyed as soon as it has been tabulated. It is likely that the local representatives do not reveal the truth or their strategies but all efforts would be done to derive reliable results. Proposed chapter outline 1. Introduction 2. Research Methodology 3. Literature Review 4. Data collection 5. Findings 6. Discussion 7. Conclusion and Recommendations Time line Literature Review 1 week Interviews (5 per week total 20) 4 weeks Data input and analysis 3 weeks Findings and conclusion 1 week Resources required Access to online academic journals would be required and this requires access to libraries like sage Publications, EBSCO, Emerald, JSTOR. Funds may be required for membership to these libraries. Interviews would be conducted over phone after prior appointment made via email. Because of the distance involved, this would require finances. Limitations and Conclusion There is no unique research method and each method has its own difficulties. This research is expected to add to the existing body of knowledge and help Tesco take a decision on its future investment plans in Brazil. . It is expected that the results would match the goals of the study which would confirm that what was proposed was actually executed. References: Amaratunga, D., Baldry, D., Sarshar, M., & Newton, R., (2002), Quantitative and Qualitative Research in the built environment: application of mixed research approach, Work Study, Vol. 15 No. 1 2002, pp. 17-31 Boom, A., (2005), Brazil's supermarkets give poorer clients more options, 18 February 2008 Country Monitor (2007), Shops go shopping. 2007. Country Monitor, November 26, 5. http://www.proquest.com/ (accessed February 18, 2008). Delaney-Klinger, K., Boyer, K. K., & Frohlich, M., (2003), The return of online grocery shopping: a comparative analysis of Webvan and Tesco's operational methods, The TQM Magazine, Vol. 15 No. 3 pp. 187-196 DiCicco-Bloom, B., & Crabtree, B. F., (2006), The qualitative research interview, Medical Education 2006; 40: 314–321 DSN Retailing Today, (2001), Organic growth reflects long-term commitment - Wal-Mart operations in Brazil - Brief Article, 18 February 2008 EIU ViewsWire (2008), Brazil economy: Quick View - Strong retail sales could boost inflation. 2008. EIU ViewsWire January 18, http://www.proquest.com/ (accessed February 18, 2008). Heord, A., (1993), Gender Issues in the Use of Interviewing as a Research Method, Professional Geographer, 45(3) 1993, pages 305-3 17 Jones, C., (2004), Quantitative and Qualitative Research: Conflicting Paradigms or Perfect Partners? 18 February 2008 Jordan, M., (2001), Wal-Mart Gets More Aggressive In Campaign to Dominate Brazil, 18 February 2008 Keh, H. T., & Park, S. Y., (1997), To Market, to Market: the Changing Face of Grocery Retailing, Long Range Planning, Vol. 30, No. 6, pp. 836 to 846, 1997 RNCOS (2007), RNCOS: Brazilian Retail Sales Reflecting Upward Trend, 18 February 2008 SD (2005), The secrets of Tesco’s expansion success, Strategic Direction, VOL. 21 NO. 11 2005, pp. 5-7 Vignali, C., (2001), Tesco's adaptation to the Irish market, British Food Journal, Vol. 103. N0. 2 pp. 146-163 Yoruk, D. E., & Radosevic, S., (2000), International Expansion and buyer-driven commodity chain: The case of Tesco, 18 February 2008 Read More