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International Business Strategy Report: Tesco’s Expansion into China
Introduction
In today’s globalised economy, emerging markets such as China offer vast opportunities for multinational corporations (MNCs) seeking long-term growth and diversification. China’s transformation from a centrally planned to a market-oriented economy has positioned it as one of the most significant global trading partners. For a retail MNC like Tesco, which has already established strong operations across Europe, entering China represents both a strategic opportunity and a considerable challenge. This report critically analyses China’s international business environment and explores how Tesco could develop and implement effective strategies to penetrate and expand within the Chinese market.
The analysis applies key international business frameworks, including PESTLE, Porter’s Five Forces, and the CAGE Distance Framework, to evaluate China’s external environment. It also assesses possible entry modes and strategies such as localisation, transnational, and global standardisation, and concludes with recommendations tailored for Tesco’s sustainable success in China.
Importance of External Environments for International Firms
Understanding external environments is fundamental for international business strategy because they directly influence decision-making, competitiveness, and market viability. External environments include political, economic, social, technological, legal, and environmental factors that collectively shape business conditions. For MNCs like Tesco, these factors determine risk levels, entry barriers, and operational flexibility.
According to Hill and Hult (2019), successful global expansion depends on aligning a company’s internal strengths with external opportunities while mitigating environmental threats. For instance, government regulations, trade policies, and cultural preferences affect how firms localise their operations. Therefore, international strategy formulation must be evidence-based, integrating continuous environmental scanning and adaptation.
Analysis of the Chinese Business Environment
Political Environment
China is a one-party state governed by the Chinese Communist Party (CCP). While the political environment is stable, it remains highly centralised and regulated. Government involvement in business operations is substantial, and foreign companies must comply with strict trade and investment laws. Tesco must navigate policies promoting domestic consumption and state-owned enterprises while adhering to local regulations like joint venture requirements (Peng, 2021). However, China’s membership in the World Trade Organization (WTO) since 2001 has encouraged greater openness to foreign investment and trade liberalisation, providing opportunities for large-scale retailers.
Economic Environment
China has experienced rapid economic growth for the past four decades, becoming the world’s second-largest economy. Rising disposable incomes, urbanisation, and the expansion of the middle class have fuelled consumer demand. Despite recent slowdowns due to global uncertainty, China remains an attractive retail destination. The IMF (2024) projects GDP growth to stabilise around 4.5%, indicating resilience and steady demand. However, inflationary pressures, competition from domestic firms, and currency fluctuations pose challenges for foreign investors.
Social and Cultural Environment
Chinese consumer behaviour is deeply influenced by cultural values, social hierarchies, and preferences for quality and brand reputation. There is also a strong emphasis on digital convenience, as online shopping through platforms like Alibaba and JD.com has reshaped retail dynamics. Tesco must therefore adapt its product mix, pricing, and marketing strategies to align with Chinese lifestyles. Using local partnerships and adopting a “glocal” (global yet local) mindset will be crucial for acceptance.
Technological Environment
China is a leader in e-commerce, fintech, and artificial intelligence. The integration of mobile payments (e.g., WeChat Pay and Alipay) and data-driven retail innovation presents both opportunities and expectations. Tesco could leverage technology for supply chain efficiency, customer analytics, and omnichannel retail experiences. Digitalisation is not optional in China; it is a core competitive requirement.
Legal Environment
The Chinese legal system has improved significantly in protecting intellectual property rights and enforcing business laws. However, transparency and consistency in enforcement can vary. Foreign retailers must navigate complex compliance requirements, including licensing, taxation, and labour laws. Building strong relationships with local authorities and ensuring corporate governance transparency is essential to avoid legal risks.
Environmental Considerations
China’s government is increasingly committed to sustainability and environmental protection. Retailers are encouraged to reduce carbon emissions, minimise packaging waste, and adopt green logistics. Tesco’s existing sustainability commitments could serve as a strong competitive advantage if adapted to Chinese environmental standards.
