RMIT International University Vietnam

Subject Code:

BUSM3311

Subject Name:

International Business

Location & Campus

RMIT Vietnam , HCMC / Hanoi

Group Number:

Group: 04

Student name:

Bui Huu Thien

Student Number:

S3516393

Teachers Name:

Antoine Goupille

Word Count:

BUSM 3311 International Business

A1

Title
Tescos Fresh and Easy Failed in USA
Introduction
Many prestige businesses is becoming more internationalised and many more company entered into other
nations market to gain more profits and increase brand name throughout many countries. However, becoming
internationalised business required the maximum effort and many resources to enter the other countrys market
and gain more customers. There are many businesses have made successful achievement in their home country
but they faced difficulties in entering other countrys market.
This leads to the internationalization failure of many companies especially Tesco Store Limited. Tesco Store
Limited is a multinational UK company and the third largest food retailer in the world founded in 1932 by John
Cohen. Tescos market share reached 15% in Great Britain market (Reference for Business, 2016).Recently;
Tesco also operates 32 stores in Northern Ireland, 43 stores in Hungary under the Global and Tesco name and
various branches in many countries around the world. However in 2009, Tescos venture into US market with
the name Fresh and Easy shows possibilities but with the struggle they faced in 2009 (Hsu, Huang & Swanson,
2009), Tesco left the US market. The purpose of this report is to analyse the factors that leads to the failure that
Tesco have during its venture into US market followed by recommendations to be suggested in order to
overcome the issues.

Body
1/Analysis of the Issues
In November 2007, Tesco opened the first store in Los Angeles under the name Fresh and Easy. The aim of
Tesco when entering the USA market was to build large-scale business with more than 1,000 stores in many
cities across California, Arizona and Nevada. During its expansion, Tesco has overlooked the importance of
understanding the Target market. According to Walker (2012), Tescos strategy was to introduce retail oases to
the ill-served food deserts of the American west. However, Tesco had chosen the wrong time and wrong state
to commence the plan; California Arizona and Nevada were hit hard by the subprime mortgage crisis, and the
flagging economy. This shows that Tesco venture to US was bad at the beginning. Furthermore, Tescos stores
were often in working-class areas but Tescos potential customer is the upper middle-class shoppers, which
meant they have competitive disadvantage when competing with popular US store such as Trader Joes.

Beside from Economic failure, Tesco also face the culture failure when research about the US market. To
illustrate the statement, Sean Silverthorne (2010) stated that California is a car culture. Most households
undertake a weekly shopping on a large scale but not usually. This makes the company to expand quickly and
try to meet the overheads of its infrastructure. He also claimed that a small neighborhood market's success rely
on enough consumers changing behavior to purchase a moderate portion of their groceries on a more frequent
time but it is less likely to work in the suburbs. Furthermore, Tesco believed that US culture is similar to UK
culture so Tescos Fresh and Easy offered UK products but not greatly focus on the American products. Beside,
American loves to have coffee and bread in the morning which was not offered at Fresh and Easy (Ahlfeld,
2012).
2/Application
Internationalization theory can be used to analyse the Tesco venture in US and their failure. According to Hitt
(2006), Internationalization presents new opportunities for value creation by providing access to new resources,
foreign stakeholders, new institutions, and the possibility to obtain unique knowledge. Such opportunities have
the potential to translate into higher returns to those companies that possess rare resources. Aware of that
potential opportunity, Tesco entered the US market motivated by Market and Efficiency Seeking Motive (John
H. Dunning 1993). However, Tesco has failed to notice the major factor in doing the market research especially
geographic diversification of US market and they believed that UK culture is similar to US culture. Morck and
Yeung (1991) have considered simultaneously the implication of internalization, imperfect capital markets and
managerial objectives theories and their results support the internalization theory's prediction and showed that
internationalization has significant value only for firms with intangibles related to research and development
and advertising spending. Furthermore, CSR has significant impact on Internationalization process According to
Brammer (2009),The intensified pressures arising from a larger and culturally, politically, institutionally, and
economically more diverse stakeholder environment are likely to induce multinational firms to increase their
CSR activities to demonstrate their responsiveness to a wide range of stakeholders. Tesco has failed in
operating CSR project in order to show the relationship with US stakeholders and customers.
3/Recommendation
From the above review of Tescos Fresh and Easy failure in US retail market analyzed by different theories,
some recommendations can be suggest for Tesco or any UK companies thinking of venturing into the US
market. First, it is vital to carry out intensive market research. Although Tesco or other UK companies have the
same language usage and some extent shopping behavior in US companies, the US market is complex at many
levels. By understanding the fact the US customers admires the UK lifestyles but do not show every aspect of
4

the industry sector. So it crucial for Tesco to have a clear insight of US customers perception, competitive
landscape as well as essential factor of market entry strategies.
Furthermore, brand awareness plays the major factors for market entry in the new US market. There are many
competitive brands such as US exclusive Trader Joes that Tesco should aware of. By strong brand aware
campaign to raise awareness of UK brand product in the US, Tesco able to promote the ease of entry of
company in a new market. PR strategies are very important for Tesco or other companies in selling their brands
to the consumers. Using social media to reach customers in US market is highly recommended due to the High
rate of internet usage in US.

Conclusion
In general, the failure of Tesco in the US market show that the market researching about the target country is
crucial and determines the success of the International Companys venture into that market. Although some
companies share psychic distance, the cultural; political and economic values of each country is different from
each other. So Tescos main reason of failure is failing to see the major difference between US culture and UK
culture values. The valuable lesson learned from Tescos failure is it important to have deep insight of each
target market in order to introduce the brand to international customers and stakeholder

Reference

Hsu, T. (17 April 2013). Fresh and Easy Fail: Tesco exits U.S. after profit tanks 96%. Los Angeles
Times. Retrieved

from http://www.latimes.com/business/money/la-fi-mo-fresh-easy-tesco-us-

20130417,0,4342693.story#axzz2n3DALdwq
5

Hsu, M. K., Huang, Y., & Swanson, S. (2009). Grocery store image, travel distance, satisfaction and
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http://www.independent.co.uk/news/business/analysis-and-features/why-does-tesco-work-in-the-uk-butnot-in-the-united-states-8393592.html

http://hbswk.hbs.edu/item/tescos-stumble-into-the-us-market

http://www.theweek.co.uk/politics/23805/fresh-easy-tescos-great-american-disaster

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