Tesco Vietnam Market Entry: Advantages and Disadvantages
This paper evaluates Tesco's prospects for entering the Vietnamese retail market, drawing on the company's existing Southeast Asian operations in Thailand and Malaysia as a reference point. It examines key market advantages — including a large, densely populated country with only one major modern retailer (Big C), a government favorable to foreign direct investment, and logistical simplicity relative to archipelago alternatives — alongside significant disadvantages such as low per capita income, limited consumer familiarity with modern grocery retail, and competing growth opportunities in Indonesia and the Philippines. The paper concludes that, despite these challenges, Vietnam offers Tesco a viable first-mover opportunity in an underdeveloped but promising retail market.
- Introduction: Tesco's Expansion Rationale: Why Tesco needs overseas growth beyond Britain
- Market Advantages for Tesco in Vietnam: Population, logistics, FDI climate, and limited competition
- Market Disadvantages and Competitive Risks: Low incomes, underdeveloped retail culture, stronger alternatives
- Analysis and Conclusion: Vietnam justified despite challenges; first-mover case made
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What makes this paper effective
- Maintains a clear analytical structure by separating advantages from disadvantages before synthesizing both in a final recommendation, making the argument easy to follow.
- Grounds claims in concrete data — per capita income figures, GDP comparisons, store counts, and regional sales figures — rather than relying on vague assertions.
- Uses Tesco's track record in Thailand as a direct analogy for its Vietnam prospects, lending the argument credibility through comparative reasoning.
Key academic technique demonstrated
The paper demonstrates applied market analysis using a structured advantages/disadvantages framework. By anchoring each claim in empirical evidence (CIA World Factbook statistics, company data, and industry reporting), the author moves beyond opinion to support strategic recommendations. The comparative approach — benchmarking Vietnam against Indonesia, the Philippines, Thailand, and Malaysia — is a particularly effective technique for justifying why one market should be prioritized over another.
Structure breakdown
The paper opens with a brief rationale for Tesco's overseas expansion, then moves through two parallel analytical sections (advantages and disadvantages), and closes with a synthesis that weighs the balance of factors and offers a clear recommendation. This mirrors a standard business case or market-entry report structure common in undergraduate business and marketing courses.
Introduction: Tesco's Expansion Rationale
Tesco is seeking expansion opportunities in Asia and is looking closely at the Vietnamese market. Tesco currently operates in 13 markets around the world, including in the larger Southeast Asian economies of Thailand and Malaysia (Tesco, 2015). The company has been beset by challenges on the domestic front, especially from discounters like Aldi and Asda, and only recently has begun to gain ground in that battle (Ruddick, 2015). The message is clear: Tesco needs overseas expansion in order to deliver growth for shareholders, because the British market is mature at best and hypercompetitive at worst.
The Vietnamese market is especially challenging. Thailand and Malaysia are much wealthier countries, and the hypermarket business model was only moderately successful even in those places. The first mover into the Thai market was Carrefour, and the French giant announced in 2010 that it was exiting Southeast Asia altogether, having failed to gain a foothold in the region (The Economist, 2010). By contrast, Tesco entered the market late and learned from some of the mistakes Carrefour made. There are a number of different shopping formats in these countries. Carrefour had entered with the hypermarket format in major cities, while Tesco entered with smaller stores in smaller urban areas along with hypermarkets in major suburban shopping zones. So while the two would compete side by side on the outskirts of Bangkok or Kuala Lumpur, Tesco had a presence in smaller areas as well — something that attracted shoppers and helped build the brand (The Economist, 2010). As a result, Tesco has been more successful in Southeast Asia, and this is part of the reason why the company has designs on a Vietnam expansion.
Market Advantages for Tesco in Vietnam
The Vietnamese economy is at a relatively low level of development. The main draw is that the country has a large population (93 million), though per capita income is quite low at $4,000 (CIA World Factbook, 2015). This figure ranks 168th in the world. Among Southeast Asian nations, Vietnam ranks behind the Philippines and Indonesia, let alone Malaysia, Thailand, and Singapore. The growth rate of the Vietnamese economy is 5.3%, and has held at a relatively steady level for several years, indicating some growth opportunity.
One of the other important characteristics of the Vietnamese market is that the country is densely populated. There are two major cities — Hanoi and Ho Chi Minh City (Saigon) — that can support multiple hypermarkets, as well as many smaller cities that can support stores of different sizes spread throughout the country. The small geographic footprint of the country means it can be served via only two or three major warehouses (north, south, and possibly central, around Da Nang). From a logistics standpoint, Vietnam is relatively straightforward.
Furthermore, Tesco is already familiar with doing business in Southeast Asia. Shopping patterns in Vietnam are not dissimilar to those in small-town and rural Thailand. Many people shop in local markets, but Tesco offers an entirely different shopping experience and has successfully convinced Thai consumers that its offering is worthwhile, at least for some products. As a result, Tesco has become the largest supermarket in Thailand and the second-largest operator of shopping centres there. The strategy is straightforward: the Tesco hypermarket serves as an anchor for an entire shopping mall. Cities are growing rapidly, and land — as well as labour — is cheap. This results in a low cost of market entry, and the store-as-anchor model also attracts other tenants to the shopping centre. Tesco's Thailand strategy seems well suited to the Vietnamese market, since many of the same underlying conditions exist there (Ruddick, 2013).
Another advantage of the Vietnamese market is that the competitive landscape is not particularly daunting. There is one pre-existing hypermarket operator, Big C, a Thai company with which Tesco is already familiar from its Thai operations. Big C purchased Carrefour's Thai stores when the French company exited Vietnam, making it a more formidable competitor. Big C operates in a number of different formats, ranging from the premium Big C Extra to the standard Big C Market, and currently operates 27 stores in Vietnam (BigC.vn, 2015). However, beyond Big C, there are no other major competitors in Vietnam. There are several local supermarket chains and a few department stores in large cities, but retail in Vietnam is otherwise predominantly small-scale and local (Vietnam Online, 2015). A market with only one major modern competitor is generally attractive.
Surprisingly, the local government also represents an advantage. Though Vietnam is a communist state, its government has made a point of encouraging foreign direct investment (FDI). The country has reduced barriers to FDI, boasts a working-age population of approximately 60% — considered a "golden" demographic structure — and has improved internal controls to make investing more transparent and reduce risk. As a result of these factors, Vietnam has become an FDI success story (Nguyen, 2014).
References
BigC.vn (2015). Your nearest store. Big C. Retrieved April 6, 2015 from
CIA World Factbook (2015). Vietnam. Central Intelligence Agency. Retrieved April 6, 2015 from https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html
Nguyen, T. (2014). Why foreign investment in Vietnam is booming. World Economic Forum. Retrieved April 6, 2015 from https://agenda.weforum.org/2014/05/foreign-investment-booming-vietnam/
Ruddick, G. (2013). Tesco goes head-to-head with Thailand's wet markets. The Telegraph. Retrieved April 6, 2015 from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9963749/Tesco-goes-head-to-head-with-Thailands-wet-markets.html
Ruddick, G. (2015). Tesco leads way as supermarket sales turned on their head. The Telegraph. Retrieved April 6, 2015 from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11460945/Tesco-leads-the-way-as-supermarket-sales-turned-on-their-head.html
Tesco (2015). Tesco Worldwide. Tesco. Retrieved April 6, 2015 from http://www.tescopoly.org/worldwide
Vietnam Online (2015). Supermarkets and retailers. Vietnam Online. Retrieved April 6, 2015 from http://www.vietnamonline.com/shopping/supermarkets-and-retailers.html
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