The Stores (Holdings) Ltd. Tesco has around 6,809

The aim of this report is to evaluate
Tesco’s expansion in an emerging market. For this report, I have taken India as
an emerging market and through the report I will analysis the political, economic,
financial, market entry, legal, cultural and social conditions of India to draw
conclusion if India is an efficient market for the company.

 

Tesco is a multi-
national grocery, homeware, electrical’ s & clothing store with its
headquarter in England. Tesco went on the stock market in 1947.

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Company
and Market Overview

Tesco is a British multi-national
grocery and general merchandise retailer. Tesco started in 1919 by Jack Cohen as
a stall selling surplus groceries in the East End of London. The Tesco appeared
as a brand after five years in 1924. In 1929, Jack opened a flagship store in
North London. Tesco has its headquarters in Welwyn Garden City, Hertfordshire.
Tesco became a private limited company and in 1947 it appeared on the Stock
Exchange as Tesco Stores (Holdings) Ltd. Tesco has around 6,809 stores around
the world.

 

The retail industry in India has
emerged as one of the most fast growing industry. It contributes for around 10%
towards the country’s GDP. India is the world’s fifth largest global
destination in the retail industry. Indian retail market is relatively
competitive as they are big retail chains such as Pantaloons, Big Bazaar,
Shoppers Stop, Hyper City etc. and they are small local retail stores as well.
This could act as a barrier for Tesco.

All the above aspects
will help us analyze the Indian market and if its right opportunity to invest
and diversify their operations in this country. These aspects cover everything
a company needs to have in mind before opening a store in a foreign country.

 

Political

The Constitution of India gives a
federal structural to the Republic of India declaring it to be a “Union of
States”. Part XI of the constitution divides the system into administrative,
legislative and executive powers between Central government and States of
India.  Up until the early 90’s the
government approach towards foreign capital has been restrictive. But it
changed with the Industrial Policy of 1991 which plays a significant role in
the Indian economic planning. Until 2011, Indian central government denied
foreign direct investments (FDI) in multi-brand retailing which did not allow
foreign groups from any ownerships in supermarkets, convenience stores or any
retail outlets. Even single- brand stores were allowed up to 51% ownership and
a bureaucratic process. In November, 2011 the government announced retail
reforms for both multi and single brand stores. This announcement started
intense activism in opposition and in support of this mov. Because of this activism,
the Indian government put a hold on this retail reforms till it reaches
consensus. Finally, in 2012, the government announced the opening of FDI in
multi-brand retailing subject to approvals by individual states and made it
effective under the Indian Law.

The Federal government of India
allowed 51% FDI in multi brand retail in India. Some states will allow foreign
supermarkets whereas some states will not, depending on state laws. The have
also stated that retail outlets can be set up only in cities with a population
of more than 10 lakhs as per 2011 census

Before 2011, India
had maintained a strategic distance from development and sorted out rivalry in
the retail business. The opening of retail industry to free
market competition, some believe it will enable rapid growth whereas some
believe it will take time to grow.

 

Economic
and Finance Conditions:

As per Central
Statistics Organization (CSO) and International Monetary Fund (IMF), India has
developed as the one of the quickest economy on the planet and it is excepted
to be in the main three financial powers on the planet over 10 years. India’s
GDP expanded by 7.1% of every 2016-17 and is relied upon to achieve a
development of 7% by September 2018. According
to the Reserve Bank of India (RBI) data, India’s foreign exchange reserves were
$404.92 billion by the end of 2017. According to A.T. Kearney’s 2017 Global
Development Index, India is considered to be the top country for retail
investment worldwide.

 

 

India’s retail market is expecting to
grow at Compound Annual Growth Rate (CAGR) of 10 percent to US $1.6 trillion by
2026 from US $641 billion in 2016. Even the India’s Business to Business (B2B)
e-commerce market is expected to reach 700$ billion by 2020. Online retail will
be on the same level with the physical stores in the following five years. The modern
retail in India is also expected to double to US $25.7 billion from $1.3
billion in three years. India has replaced China in retail expansion markets as
the result of expanding economy, increasing consumption rates, urbanizing
population. According to India Direct Selling Association (IDSA) and PHD Even
the direct selling industry in India is expected to grow by 2020. According to
the Department of Industrial Policies and Promotion, Foreign Direct Investments
(FDI) inflow totals US 1.04 billion from 2000- June 2017.

 

Year by year, the Indian government
has become more open about Foreign Direct Investments and has become less
stringent and more supportive. The current government has allowed 100% Foreign
Direct Investments (FDI) in multi-brand retail for food products. Initially,
the government had stated that the multi brand outlet in India had to source
thirty percent of all products from local suppliers but that had a negative
effect as many multinational companies were not investing. They relaxed the
rule to foreign outlets retailing food needs to manufacture thirty percent of
their goods in India. This step was very beneficial as food and grocery
accounts for around one third on India’s consumption.