Tesco's Interest in Indonesia - Unusual Way of Doing Things - Case Study Example

?Running head: Tesco in Indonesia Insert Insert Grade Insert 19th. Oct. Outline: Introduction Historical background of Tesco Business culture & social preference of Indonesia Tesco operations in Indonesia & government requirements Conclusion Tesco in Indonesia Introduction Indonesia is a country located in southeastern Asia between the Indian Ocean and the pacific. Its capital city is Jakarta, with a population of close to 242,000,000. It consists of different ethnic groups namely, Sudanese, Madurese, & Javanese among others. The common religions vary from Protestants, Catholics, Hindus, and Muslims, with the official language of Indonesia being Bahasa Indonesia (kwitessential Para. 1). Due to their nature of co-operation and the willingness to share, competition is not very common, as it is viewed as a practice that benefits oneself. Nevertheless, business is evident in Indonesia with competitive industries from within and foreign; however, the government of Indonesia is very keen on how businesses operate such that, laws that ensure fair competition have been put in place. For instance, Law number 5 prohibits monopolistic practices and unfair business competition. The objectives of Indonesia competitive law include safeguarding the interests of the public by improving the economic efficiency. Secondly, it is geared towards creating a conducive business climate by ensuring fair business competition. Thirdly, the law prevents monopolistic practices, which may lead to unfair business practices, and finally, it ensures effectiveness and efficiency in business operations. In addition, Indonesia gives room from foreign businesses to operate in their country, as long as they abide to the rules and regulations governing business practices (Act number 5, p1). Historical background of Tesco Tesco started its operations in 1919, when its owner Jack Cohen started selling groceries in a stall, which was located in London, with only a ?1 on the first day. In 1924, Tesco become a brand after acquiring tea shipment and in 1930, Mr. Cohen built a warehouse in North London declaring Tesco a private company. Over the years, it bought rival shops, and by the 60s, the supermarket was already selling a variety of products. Tesco entered Guinness book of records as the largest store in Europe, and in the 70’s, Tesco had opened a petrol station, which was an independent retailer. In the 90’s, Tesco had already completed several takeovers, while in 1996, it introduced a 24-hour store (The telegraph Para. 10). Today, Tesco has grown to a giant supermarket, and it is visible globally. Its diversification is evident in the United States, Indonesia, Latin America, china, Scotland, china, Norway, Middle East and Mexico. In addition, Tesco is committed to corporate social responsibility such as charities for schools and communities. The company has incorporated technology and it encourages online shopping. In addition, the supermarket offers a range of products to meet the customer’s needs. Business culture and social preferences of Indonesia To operate successfully in Indonesia, a corporate requires understanding the business culture and laws governing businesses this country. Therefore, establishing of relationships is necessary; however, it takes time. Loyalty and trustworthiness are a necessity in maintaining a relationship, especially with the government officials. In this country, men are considered mature if they are over the age of 40 years; therefore, a foreign country may consider sending older executives rather than the young ones, especially in negotiations (Doing Business in Indonesia, p112). In addition, businesses in Indonesia are required to develop their surrounding community; therefore, corporate social responsibility is encouraged. Firms are encouraged to recruit carefully for their positions, as unsatisfactory performance is not regarded enough reason to lay off an employee. Dismissal for misconduct is effective only after three warnings. Developing strong relationships with government officials guarantees a firm with licenses, permits and relevant information pertaining to business operations (doing business in Indonesia, p115). Foreign businesses are encouraged to operate in Indonesia; joint ventures with Indonesia firms are also preferred by many foreign companies. Setting up a foreign business requires the submission of a business plan, which takes about ten days to approve, and a small fee. When the approval is made, the investor is required to apply for licenses from the local authorities. Understanding Indonesian culture and applying it to the business operations is necessary and beneficial especially to a foreign business. Tesco operations in Indonesia & government requirements After the withdrawal from Japan, Tesco has been finding ways to operate in Indonesia. Tesco made a move to sell its 129 stores in Japan with an aim to enter in Indonesia. Nevertheless, Indonesia has rules that govern businesses, such as law number 4 of 1999, which indicates that unfair business competition and monopolistic practices are prohibited. Tesco, over the years, has been active in taking over rival businesses, a practice viewed by many businesses as unfair. Therefore, for Tesco to operate effectively in Indonesia, it should bear in mind that unfair competition is prohibited, as well as monopoly. Over the years, Tesco has enjoyed the monopolistic power in its operations, and takeovers, which are considered by the small business as unfair practices. According to BBC news, in 2006, Tesco was accused of having a near monopoly in the city of Inverness, where at that particular time it had three stores and was planning for another. This appeared to be a dominant position, as these stores had contributed to the close down of 20 small shops. Tesco has also been accused of abusing its monopoly power, thus contributing to major problems in the society, and it holds anti-competitive position by the continuous nature of buying off small shops. Surprisingly, as we have noted above, Indonesian laws prohibit monopolistic nature and unfair competition, a law that is not common in many countries. Therefore, Tesco has to abandon its monopolistic nature and unfair business operations, as the Indonesia business culture encourages a healthy business environment, with unhealthy competition being out of question. For effective business operations in this country, Tesco is required to abide by the laws of business, as failure to which may lead to criminal penalties. Unlike most countries, Indonesia is determined to create a conducive business environment, and be in the forefront in protecting and creating fair business competition, according to law number 5. Due to its democratic nature, Indonesia can be the easiest place to operate in, as the business environment is well governed. Tesco must also consider the age of its executives, as Indonesian culture encourages older men of 40years and above to deal with negotiations and decision-making. The older executive is required to have married and attained a university education. However, the foreign companies tend to send the young and brightest personnel to negotiate with an Indonesian company, hence being interpreted as an insult by the Indonesians. Tesco has been attacked in the past for being a manipulative monopoly; in 2009, Tesco was granted victory by the competition appeal tribunal over its battle against plans to introduce a competition test. This competition test was designed to boost competition in the giant grocery market; however, the tribunal agreed with Tesco that the test could have serious effects on consumers (London evening standard Para 1). Indonesia’s policies pertaining to business include policies on trade and industry that are associated with tariffs and non-tariffs on imported products. Some government policies ensure that a person is granted a business license, therefore restricting entry of other business people in a particular industry in order to ensure such an industry grows without competition that may hinder possible development (Maarif, p11). Nevertheless, the implementation of competition law is associated with several problems, such as the absence of a regulation that can represent this law. Therefore, the competition problems arising in the Indonesia market is due to the high level of market concentration and government intervention, which is uncontrolled and is applied inconsistently. Such protection and exclusive concessions has yielded to emergence of new conglomerates, instead of developing a competitive business industry (Maarif, p12). Conclusion Tesco has emerged as a giant in the business industry; however, claims of unfair business practices and monopolistic nature have been directed to the company. Tesco’s interest in Indonesia means a different way of doing things; first, the Indonesian business culture prohibits unfair competition and monopoly. Therefore, Tesco must be detached from its nature of buying off small shops and having a dominant position. The rules and laws of business in Indonesia could however affect Tesco’s ways of business, and major changes have to be made for the company to be effective and secure in Indonesia. Nevertheless, Indonesia is seen as a major economic force that is emerging and favorable for business. However, the laws governing business should be regulated, to ensure consistence and control. Work Cited Act Number 5 of 1999. Commentary by the government of Indonesia on the competition law of Indonesia. N.d. 22 October 2011. http://r0.unctad.org/en/subsites/cpolicy/Laws/indonesia.pdf BBC News. Tesco accused of 'near monopoly’. 2006. 22 October 2011. http://news.bbc.co.uk/2/hi/uk_news/scotland/4618972.stm Doing business in Indonesia. Chapter 6. N.d. 22 October 2011. http://www.dfat.gov.au/publications/indonesia/Ind_chp6.pdf Kwintessential. Indonesia - Language, Culture, Customs and Business Etiquette. 2011. 22 October 2011. http://www.kwintessential.co.uk/resources/global-etiquette/indonesia.html London evening standard. Tesco accused of 'Manipulative Monopoly. 2009. 22 October 2011. http://www.thisislondon.co.uk/standard/article-23658062-tesco-accused-of-manipulative-monopoly.do Maarif, Syamsul. Competition law and policy in Indonesia. 2001. 22 October 2011. http://www.jftc.go.jp/eacpf/02/indonesia_r.pdf The telegraph. A history of Tesco: The rise of Britain's biggest supermarket. 2011. 22 October 2011. http://www.telegraph.co.uk/finance/markets/2788089/A-history-of-Tesco-The-rise-of-Britains-biggest-supermarket.html. Read More