HookTesco spent £1.2bn learning that America is not Britain
In November 2007, Tesco launched Fresh & Easy — eventually around 200 neighbourhood grocery stores across California, Arizona and Nevada. It had researched obsessively, even building a secret mock store inside a Los Angeles warehouse. It still misread almost everything: Americans did big weekly shops where Fresh & Easy offered small baskets, disliked the self-service-only checkouts, found the chilled ready-meal ranges alien — and the chain launched straight into the 2008 financial crisis. Tesco announced its exit in April 2013, roughly £1.2bn poorer.
Yet in the same years Tesco was thriving in South Korea. Homeplus, entered in 1999 through a joint venture with Samsung, grew into the country's second-largest retailer — famous for its 2011 'virtual store', which let Seoul commuters shop by scanning QR codes on subway-platform posters — and was sold in 2015 for around £4bn. Same firm, same decade, opposite outcomes. The difference is this entire section: push and pull factors tell you why to expand abroad; country assessment tells you where; and the choice between going alone or with a partner decides how — and, often, whether you come home rich or £1.2bn lighter.
MechanismPush, pull, and the life-cycle escape hatch
Businesses trade internationally when pushed, pulled, or both. Push factors shove firms out of the home market: saturation — Tesco already held roughly 27% of UK grocery spending, so every extra point of share cost a fortune — and intensifying competition, such as Aldi and Lidl's march through the 2010s. Pull factors attract them abroad: economies of scale from serving bigger volumes, and risk spreading — a retailer selling in ten economies is not hostage to one country's downturn.
Two further prompts sit in this leaf. Offshoring moves the firm's own activity to another country; outsourcing contracts the activity to another firm, which may be at home or abroad. Students merge these constantly — keep them separate, because a business can offshore without outsourcing (Dyson's own Malaysian factories) and outsource without offshoring (a UK payroll contractor). Finally, selling in multiple markets extends the product life cycle: a product declining at home can still be growing elsewhere. Apple keeps older iPhone models on sale in India at lower price points years after Western attention has moved on, and Nokia's feature phones sold across Africa long after Europe abandoned them. Same product, new market, new life.
ModelAssessing a country as a market — the Fresh & Easy autopsy
The spec's checklist: levels and growth of disposable income (is there money to spend, and is it rising?); ease of doing business (the World Bank ranked countries on this for years — how long registration, permits and contract enforcement take); infrastructure (can you actually distribute?); political stability; and the exchange rate, which converts foreign revenue into home-currency profit.
Run Fresh & Easy through that list and the United States scores superbly on every line — high incomes, easy business environment, world-class infrastructure, stable politics, deep currency markets. That is the teaching point: the checklist is necessary but not sufficient. Tesco failed on what the list does not capture — consumer behaviour and timing. American shopping habits (weekly bulk trips, bagging service, coupons) did not match the small-basket format, and launching four months before the worst recession since the 1930s crushed the disposable-income assumption the whole plan was built on. When a question asks you to 'assess country X as a market', work the spec factors first, then earn the evaluation marks by asking what the factors miss: culture, the competition already entrenched, and whether the numbers will still be true by the time the stores actually open.
ModelAssessing a country as a production location
A different question needs a different list — and confusing this leaf with the last one is the classic 4.2 error. For production, assess: costs of production; skills and availability of labour; infrastructure (ports, power, roads); location in a trade bloc (produce inside the wall, sell tariff-free to the whole bloc); government incentives such as grants and tax holidays; ease of doing business; natural resources; and the likely return on investment, which is what the rest of the list adds up to.
Real decisions weigh several factors at once. Dyson moved manufacturing to Malaysia in 2002 for lower labour costs and proximity to its component suppliers. Nissan chose Sunderland in the mid-1980s for government grants, a skilled workforce and — crucially — a location inside the European bloc. Apple has been shifting iPhone assembly into India, which by 2024 was building roughly one in seven iPhones, chasing lower costs and a foothold inside a huge future market at the same time.
Never judge labour on the wage alone — judge unit labour cost: wage per hour ÷ output per hour. A clothing brand compares two plants. Plant A pays £2.40 an hour and workers stitch 4 shirts an hour: £2.40 ÷ 4 = £0.60 per shirt. Plant B pays £10.80 an hour but automation lifts output to 24 shirts an hour: £10.80 ÷ 24 = £0.45 per shirt. The plant paying 4.5 times the hourly wage is 25% cheaper per unit — before you count Plant B's shorter shipping times, or its lower tariff exposure if it sits inside your trading bloc. Cheap labour is not the same as cheap production; productivity is the denominator.
CaseMergers and joint ventures — buying your way across the border
The spec gives five reasons for global mergers or joint ventures: spreading risk across countries; entering new markets or trade blocs; acquiring brands or patents; securing resources or supplies; and maintaining or increasing global competitiveness. Match each to a real deal. Kraft paid £11.5bn for Cadbury in 2010 largely to acquire a brand portfolio and its distribution reach in emerging markets. Jaguar Land Rover formed a joint venture with Chery in 2012 because China then required foreign carmakers to manufacture through JVs — and building inside China dodged the 25% import tariff on cars. Chinese mining groups have spent billions buying cobalt and lithium stakes to secure battery supplies for their carmakers.
Tesco's two adventures show why the mode of entry matters as much as the destination. In Korea, the Samsung joint venture supplied local market knowledge, sites and political cover — Homeplus arguably out-localised the local rivals. In the US, Tesco went in alone and learned every lesson at full price. The evaluation counterweight: most studies find a large share of cross-border acquisitions destroy shareholder value through overpayment, integration costs and culture clash — so buying your way in is fast, but far from safe.
ModelGlobal competitiveness — exchange rates, costs, differentiation
A firm is globally competitive if it can win sales against the world's best, and the spec gives three levers. First, exchange rates — memorise SPICED: Strong Pound, Imports Cheap, Exports Dear. When sterling fell roughly 10% after the June 2016 referendum, UK exporters' prices abroad effectively dropped overnight, while manufacturers importing components watched costs jump. Second, competitive advantage comes from cost competitiveness (produce cheaper — Ryanair, Aldi) or differentiation (be worth more — Burberry, Rolls-Royce aero engines). Differentiation matters doubly in global markets because a strong brand makes demand less price-sensitive, which insulates the firm from exchange-rate swings. Third, skills shortages: EngineeringUK has estimated that Britain needs tens of thousands more engineers a year than it trains, and a firm that cannot hire cannot compete — whatever the currency does.
A Midlands machine-tool maker sells a machine for £200,000. At £1 = €1.15, the German customer pays €230,000. Sterling then appreciates to £1 = €1.25. Option 1 — hold the sterling price: the machine now costs €250,000, an 8.7% rise, and German rivals suddenly look cheaper. Option 2 — hold the euro price at €230,000: revenue per machine falls to €230,000 ÷ 1.25 = £184,000, a £16,000 (8%) hit taken entirely out of margin. Strong pound, exports dear — the exporter chooses between losing volume and losing margin. This is also why differentiated exporters survive appreciations better: if customers cannot easily switch, holding the sterling price costs fewer sales.
VocabularyKey terms the mark scheme pays for
TrapsMisconceptions that cost marks
ExamWhat examiners want
Read the stem for which assessment you are being asked to make. 'Assess whether Country X is an attractive market' and '…an attractive production location' pull from different spec lists, and examiner reports repeatedly flag candidates answering the wrong one. Anchor every factor in the case data: if the extract gives wage rates, calculate unit labour costs; if it gives an exchange-rate movement, quantify the price or margin effect as in the worked examples — arithmetic in context is the cheapest analysis mark on the paper.
For 12- and 20-markers on entry modes, the strong conclusion is conditional: a joint venture suits a culturally distant, heavily regulated market where partners bring knowledge and legitimacy (JLR in China, Tesco in Korea); going it alone suits familiar markets where control and speed matter more. And keep Tesco in your pocket — one company that proves both that country assessment can fail expensively and that entry mode can rescue or doom the same strategy.