Tesco in India: Its Joint Venture with Tata - Essay Example

Tesco in India of the Tesco in India Introduction India is amongst the largest countries based on size and population across the world. Its population is more than 1 billion. There is a wide range of economic, as well as, social classes, religions, cultures, languages and geographies within India. Therefore, it is important for any business operating in India to meet the wide range of consumers’ needs. The extremely large population reflects the opportunities for global businesses, especially the retail stores to invest within the country. Tesco started its operations in 1929, in Britain. It is the leading food retail chain in the country and the third largest globally. In 1980s, it was amongst the global retail chains that tried the concept of large supermarkets out-of-town. The company has come up with several innovations since the 1990s, including new store concepts, i.e. Tesco Metro and Tesco Express (Butler, 2011, p. 132). Tesco Metro is a city store that serves all the needs of the consumers. Tesco Express was the petrol station store in the United Kingdom. In 1995, the company introduced a Clubcard, which is a shopping card for its loyal customers. It was the first card of the kind in the United Kingdom. The company launched online selling in 2000, through its website Tesco.com. It started spreading globally in 1994. Currently, more than 50 percent of the company’s space is its international operations (Hunt, 2011, p. 76). Since 2000, the company has started focusing on non-food items, which, for example, has made it the leading retailer of CDs. Tesco in India The company’s operations within India include sourcing, as well as, its service center. The retail chain as well has franchised with the Tata Group. Having operations in India has contributed to ensuring smooth operations across the globe (Devonshire-Ellis, 2012, p. 219). For example, it enables the company to stock its stores across the world, with products coming prom suppliers in India. The retail chain has a global services arm, i.e. the Hindustan Service Centre. HSC offers key services for the company’s operations globally. It participates in the creation and execution of strategic innovations, which covers IT, commercial, financial and property. The retailer sources products worth over £300 million, from suppliers in India every year (Nelson, 2012, p. 133). This account for 7 percent of the company’s, global sourcing of goods and services. It helps in keeping its offices within Delhi and Bangalore extremely busy. The company signed a franchise contract with Trent Limited, a Tata Group member. The contract was to facilitate the supply of Star Bazaar. The retailer offers 80 percent of the stock that Star Bazaar sells (Bowles, 2011. P. 39). The stock is both food, as well as, nonfood. The food sourcing is through a Mumbai’s distribution center. The distribution center as well offers wholesale products the traditional retailers in India, restaurants, Kirana stores among other businesses. The retailer stores allow small farmers to sell their produce to local and international consumers (Kotwal, & Hansraj, 2010, p. 46). The company welcomed the move by the Indian government to support foreign investment within multi-brand retail. Tesco Joint venture with Tata Recently, the retailer sealed a deal with Tata Group. The two have agreed on a joint venture agreement. The retailer will invest over $140 million in the agreement, which will make it the first global and foreign supermarket to invest in India’s retail sector (Eastham & Sharples 2013, p. 97). The retail sector is approximately $500 billion. The joint venture will result in the formation of Trent Hypermarket Limited or THL (Seth & Randall, 2005, p. 45). After the transaction is over, the company will be operating 12 retail stores across the country selling food, grocery, home and personal care products, kitchen, fashion, as well as, accessories (Davey, 2014). The two companies have been working together under different deals i.e. franchises, and Tesco recognize the fact that their partnership has been productive. The two companies are certain that they will work together in efforts of offering excellent products and services to the Indian consumers. Before the government of India liberalized its economic policies to accommodate foreign investors, it was extremely difficult for a foreign company to start operations in India (Humby, Hunt, & Phillips, 2004, p. 113). Amendment of policies has made the business environment attractive to the foreign firms. Tough retail laws resulted in the termination of a deal between largest retailer, Wal-Mart, and India’s Bharti Enterprises (Dasgupta, 2013, p. 63). The government of India has given investment approval within the country to a couple of other companies including H&M. The Swedish retail shop has plans of investing more than 7 billion rupees by opening over 50 stores across the country (Hiscock, 2013, p. 38). Mark and Spencer, as well has an interest in the country. It has been working on growing its market share in the retail sector within the country. The business already has a sizeable market share within the sector and is now planning to double its number of stores to 80. This will make India its largest overseas market. Before amending the retail sector, a foreign retailer with investment in India was supposed to purchase 30 percent of its products from India’s small firms (Paliwoda, & Andrews, 2012, p. 158). The amendments of the law have given a five year grace period to the foreign retailers in India to comply with that directive. Culture compatibility of the joint venture Culture has a lot of components in it including knowledge art, beliefs, morals, as well as, customs. It as well includes other capabilities, as well as, habits that the human being within the society acquire. Culture not only not only influences the way of life, but as well influences people’s decision-making i.e. in the buying process. People acquire the culture. One may acquire culture from his or her family or the surrounding (Dwyer & Pinney, 2001, p. 52). In other words, an individual acquires culture from the surroundings, i.e. the environment in which parents brought them up. Culture forms a boundary of thinking of an individual. When an individual acts or behaves past, such a boundary, he or she may be copying a cross-cultural behavior. Every individual across the world is a consumer. Every consumer consumes a wide range of goods and services in his or her everyday’s life. Every individual has his or her distinct taste and preference (Mahajan, 2009, p. 66). We all possess different behaviors that we portray when making buying decisions every day. Many factors influence how individuals in society live. External factors, i.e. the culture has a substantial influence in people’s lives (Chhikara, 2010). Studying culture encompasses the many aspects within the society, including knowledge, religion, customs, language, laws, art, music, traditions, and work patterns. Culture is a key influence in consumers’ lives. Over the last ten years, there has been a remarkable alteration amongst the Indian consumers. A decade ago, consumers in India were more concerned about saving their income (Dwyer & Pinney, 2001, p. 63). In other words, they only used a small proportion of their income to spend the basic goods and the largest proportion to save. In today’s world, their buying behavior has changed. Amongst the key reasons for the change in buying behavior is the fact that they are now armed with huge incomes, the western shopping, culture influence, credit cards, desire to improve their standard of living and to reflect the status (Mooij & Hofstede, 2011). In other words, Indians consumers have substantially increased their spending in terms of consumption. As a result, the retail sector is growing rapidly within the country. Culture change in India There is a significant change in culture amongst the Indian people, for example, in terms of convenience. Many women in India have become part of the country’s workforce. Traditionally, women were required to stay home and take care of children and other household chores and these roles may be as a result of the religions (Nussbaum, 2006). However, following the cultural change, i.e. a large number of women joining the workforce, there has been a growing need for making life convenient within the home (Budhwar & Varma, 2011, p. 92). There have been efforts of relieving and lightening the household chores. This has resulted in a speedy increase in the demand for kitchen equipments i.e. the microwaves, the washing machines, the food processors, mixers, and frozen food (Chhikara, 2010). The joint venture will greatly benefit from this cultural change. For example, the demand for the kitchen, electronic has been growing rapidly over the last a couple of years. The substantial demand will translate into a significant increase in sales for the joint venture retail shop. There is as well culture change in terms of education. In other words, unlike before, there is a high demand for education. People want to invest in education and the number of institutions and courses within India has grown rapidly over the last one decade. Education has helped many consumers to benefit from high incomes (Kumar & Sethi, 2005, p. 48). As a result, the demand for consumer goods and services in India has grown rapidly. The joint venture as well will gain a lot in terms of increase in sales. Another key change in the culture of the Indian people is the physical appearance. People in India are now concerned about their physical fitness, smart appearance, as well as, good health (Manikutty, 2013). The number of beauty parlors and slimming centers has been growing rapidly. Women and men cosmetics are growing in numbers and sales. The demand for the designer clothes as well has grown rapidly (Hillary, 2011, p. 176). The giant retailer will as well benefit from this i.e. in terms of the growth in sales. Additionally, there is a shift in individuals’ culture value. For example, are now more materialistic as opposed to spiritualism (Andrews, & Lysonski, 2010). Consumers are keen in buying products such as CD players, air conditioners, and other electronic goods that build their status or add to physical comfort. This as well amounts to the growth in sales in any retail shop. Key strategic benefits of implementing the project The retail sector in India ranks second, after the agriculture sector, as the largest employer. Change in culture of Indian people means a lot for the joint venture retailer. A decade ago, the majority of Indian consumers preferred the local brands to the foreign brands (Kumar & Sethi, 2005, p. 54). In today’s world, cultural changes, as well as, the cross culture has changed the consumer’s perception that the local goods are better than foreign goods. Consumers i.e. the high-income earners in India are more fretful about their status in the society. In other words, they want to associate themselves with brands that would boost their status. One of the behind this change is the influence of the western cultures (Manikutty, 2013). Some types of automobile are in more demand compared to others amongst the high-income earners because of the class association. Another key reason why Indian consumers now prefer foreign brands is the belief that they are of a higher quality than the local brands (Piercy, 2012, p. 47). Tesco’s move to enter into a joint venture is prudent and strategic. India is one of the top countries in terms of the middle class size. Middle class consumers are amongst the key drivers of spending within an economy (Hillary, 2011, p. 203). The $110 million investment is strategic. It will help the two companies grow in terms of profitability. India has a multicultural environment. Migration patterns across the world and media development have created multicultural populations. This, in turn, has exposed Indian consumers to new buying behaviors, preferences, and tastes. The main determinant of consumer behavior is the culture (Christie, & Kwon, 2003). Since the environment in India has become multicultural, buyers no longer shop in a specific way or behavior. This translates into growth in demand for a wide range of products within a retail shop. Both local products and global products stocked in a retail store have high demand. Conclusion The above discussion reflects how the joint venture will register revenue growth and profitability within India. India is an emerging economy with an extremely large consumer base. The demand for consumer products has been growing rapidly over the last one decade. Cultural changes and the element of the cross-cultural environment have fueled demand for goods and services in the retail shop. The locals in India are adopting new buying behaviors, which they copy from the westernized cultures. For example, a large proportion of the population is concerned about the class unlike before. Convenient, education, and a shift in cultural values have initiated changes in the Indian culture, which has fueled demand for consumer goods. References Andrews, J. C., & Lysonski, S. 2010. 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