Big commitment

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Tesco CEO Sir Terry Leahy outlined his commitment toChinathis week. OPI+ speaks to the company’s international corporate affairs manager Greg Sage on Tesco’s plans for the world’s fastest growing retail market

This week, the CEO of UK supermarket giant Tesco, Sir Terry Leahy, spoke of the company’s plans to scale up in China. "It’s such a big place that you either have to ease out or commit quite a bit," he told The Observer.

Given the sizeable range of PCs, office products and stationery that Tesco now stocks in many of its stores worldwide, and the supremacy it enjoys over the supply chain in many of its global markets, this "commitment" is big news for China’s burgeoning OP retail sector.

 

At the same time, the retailer ruled out making a significant acquisition in the US, despite persistent rumours over the last few months.

 

Greg Sage, international corporate affairs manager for Tesco, told OPI+: "We are aiming for 10-15 stores in China per year. There is a big opportunity for us in China….the US on the other hand is an advanced market and we would need the right opportunity."

 

In July last year, Tesco announced a £140 million ($247.7 million) investment by buying 50 per cent of China’s Hymall chain, a Chinese mainland subsidiary of the Taiwan-based Ting Hsin International group, after having eyed the Chinese market for a number of years. The chain, which at the time Sir Leahy described as a "profitable business" with sales of £330 million ($613 million), had 25 stores when the joint venture (JV) agreement was signed. This number has now swelled to 39.

 

Sage said that Tesco has no plans at present to increase its stake in Hymall or go alone in China. "We are committed to working with our partner Hymall and for now, both parties are happy with that. As part of this JV, we will look at other opportunities in China together."

 

Exact numbers of planned stores and their locations will be announced in April when the company comes to the end of its financial year.

 

There are three areas of China that Tesco is focusing its attention on, said Sage. These are the southern region in and around Guangdong province; the eastern region around Shanghai; and the northern region encompassing Beijing and Dalian.

 

The Beijing area holds particular promise for retailers thanks to the 2008 Olympic Games. And in preparation, Tesco has just signed off a store in China on one of the city’s ring roads, which is set to open in 2007. "This is very exciting for us," said Sage.

 

Getting serious in China is part of Tesco’s four-pronged strategy that was laid out in 1997. The plan outlined the retailer’s move into non-food, retail services, branching out into new areas such as banking and insurance, and international expansion.
From its first overseas store in Hungary 11 years ago, Tesco now has 2,318 stores in 12 countries, 179 of which are in Asia. Tesco is currently growing steadily in Thailand, Malaysia, South Korea, Taiwan and Japan. The retail giant is also waiting in the wings to conquer India for when the country relaxes laws on foreign retailers, which is expected to happen soon.

 

Emerging markets have become particularly important for Tesco in recent years as British and EU law has closed in around supermarket dominance and its ability to distort the supply chain. When asked if this is the case, Sage replied: "All our international markets are very competitive and we enjoy competing with them."

 

If only the feeling from competitors was mutual.