Lack of Cultural Understanding sees Tesco leave China

tesco-store-china.jpg

Lack of Cultural Understanding sees Tesco leave China

Recently, Tesco made the decision to pull back from the Chinese market due to disappointing results. According to marketing expert Qing Wang, Tesco could have been a lot more successful if it made a bigger effort to understand the Chinese culture and especially the Chinese consumer.

In an article on FoodManufacture.co.uk, Rick Pendrous investigates the reason for Tesco’s decision to leave the Chinese market as an individual player. He calls in the help of Qing Wang, who teaches marketing and innovation at Warwick Business School.

Wang believes Tesco’s biggest mistake has been that the company did not research Chinese culture before it dove into the new market. This isn’t the first time Tesco have made such a mistake – read about the closure of their American operations which was also put down to cultural differences and a lack of localization.

Tesco opened its first Chinese store in 2004 – which was relatively late, as major retailers such as Walmart were already present in the country. According to Wang, Tesco believed they would have an advantage over their competitors; after all, they could lure in the Chinese consumer by offering them a Tesco club card!

chinese tesco employee standing in front of club card display in china

Unforturnately, the Chinese were not impressed; Wang says club cards do not appeal to Chinese consumers very much. She refers to a research conducted by herself and a number of others, in which it became clear that especially in Chinese cities, consumers are not particularly drawn to shops that have a club card.

This does not mean the Chinese refuse to apply for club cards. According to the report, almost all of the surveyed Chinese participated in a loyalty programme. This might sound promising, but 63 per cent of these people participated in four or more programmes, which means these programmes do not tie the Chinese consumer to a certain chain.

Tesco might be pulling back from the Chinese market as a single player, but Pendrous informs us that the company is talking to China Resources Enterprise to discuss the possibility of merging their Chinese shops. With it 131 Chinese shops, Tesco would obtain a 20 per cent share in this chain; CRE, which has 3,000 shops in China, would obtain the other 80 per cent. In addition to this collaboration, news has also been made public that Tesco and CRE have been meeting up with supermarket chain ParknShop. These talks involved the acquisition of the Hong Kong supermarket chain, which would be acquired for 3 billion dollars.

Does the role of culture in the success/failure of big business interest you? Have a read of our article on the impact of culture on international mergers and aqcuisitions.

Katia Reed
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