Tesco will spend $2.6 billion in developing its South Korean retail operations. The stock market remains skeptical over the UK retailer’s chances of international success, but it has so far managed the profitable growth of its Asian operations far better than other retailers. It has only been operating in Asia for a short while, and is already making a profit. The strong economic outlook in the country is yet another reason to be positive.
South Korea is to be the main focus of investment in the Asia-Pacific region for Tesco, reported at a press conference in the capital Seoul. The company is set to invest $2.6 billion by 2005, following its $383 million expenditure last year in South Korea, according to the Korea Economic Daily.
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This adds immense weight to the company’s Asian business operations where it already has stores in Taiwan and Thailand.
Many retailers have burnt their fingers trying to get their international retail strategy right. However, Tesco appears to have been successful in cutting a profit within a relatively short space of time. The company’s Asian operations made an operating profit of $6 million in 2001 after making a loss in the previous year. Although the 2001 operating profit only represents 0.5% on sales excluding VAT compared to the global figure of 5.6%, the ability to produce profit after such a short period of time is an achievement in itself. Other retailers who have tried to expand internationally have often failed to make enough profit to stay and have withdrawn with their tails between their legs.
Nevertheless, some fear that Tesco’s recent international success may not be so easy to replicate over the next four years. A reported decline of sales in Poland seemed to hit a nerve even though sales in the rest of Europe rose by 27.8% between 2000 and 2001. The company’s share price has been sliding since April and is now trading at 242p – near its low for the year of 2001 – even though Tesco is currently one of the most successful British retailers.
The future of South Korea looks rosier, however. South Korea’s projected 49 million consumers in 2005 offers a sizeable client base for the retailer and economic forecasts cite over 5% growth in the economy over the next few years. Even Tesco’s first two stores in the country are selling over $3 million of goods per week. Surely the company’s Asian operation is something to shout about.
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