Transnational Corporation’s Failure in China: Focus on Tesco

Many of the foreign companies operating in China have claimed that they have failed and are constantly deciding on a strategic withdrawal from the Chinese market. We intend to conduct an empirical analysis of Chinese consumers in order to determine the cause of Tesco’s management failure in China. The survey was conducted on those in their 20s or older who had experience shopping at both Tesco and RT-Mart. As a result, a total of 650 copies were distributed to obtain an effective sample of 607 copies, which was used for the analysis. This paper conducted a comparative analysis on Chinese consumers who visited both Tesco and its rival company RT-Mart in China. We found through comparative analysis that Tesco was destined to fail in many areas. It was estimated that RT-Mart was more satisfactory in all factors, including product, location, brand recognition, and employee service.


Introduction
In the last three decades, many countries, particularly those in emerging economies that have opened up their economies or have been forced to do so, have witnessed an increase in activity by foreign retailers. Privatization of state-owned assets has often been key to attracting foreign participation with the aim of boosting competition and long-term efficiency. While a review of international retail literature remains beyond the scope of this paper [1][2][3][4], most studies have underlined the importance of serendipity and opportunities within the environment leading to retail growth (at home), internationalization abroad, and potentially divestment (both at home and abroad), the main argument in the retail sector being to achieve global economies of scale. Examples of opportunities abound but include Burt et al. [4], who highlighted the strength of the sterling, the Asian financial crisis, and political change in Eastern Europe as important factors in the 1990s.
After decades of expansion, Tesco has now become heavily involved with divestment strategies, particularly since the realities of trading post-sub-prime took effect. Thus, far from being a hedge against a downturn, retail internationalization is revealing mixed results. Generally, retail deleveraging is undertaken when (a) more entrenched local retail chains prevent incomers from becoming market leaders in the medium to long term and (b) difficulties arise in the home market. According to the Tesco 2012 financial statement: "Group sales, in 2012, increased by 7.4% to £72 billion, while Group trading profit was up 1.3% on last year and underlying profit before tax rose to £3.9 billion, an increase of 1.6%. Group capital expenditure in the year was £3.8 billion. Group return on capital employed ('ROCE') increased-to 13.3% (last year 12.9%) in the UK, core market, business clearly

Divestment
Success, failure, or withdrawal that is essential to an enterprise's business processes are often mentioned in retail internationalization research [14,15]. The international return distribution for corporate restructuring still continues to spread [16,17]. The international retail partition was not a very important issue until the mid-2000s, but since the mid-2000s it has been addressed as a very serious issue through the method of emotional research [9]. We found an important problem in the course of conducting our literature review: that European grocery retailers decided to withdraw within 10 years of entry and 40 stores for management reasons [9]. Of course, there are some exceptions, but the fact that European grocery retailers decided to withdraw after entering the East Asian market due to mismanagement and other non-compliance issues has significant implications for this paper. We know that when Tesco withdrew from Korea, it was not due to localization, but rather because it was forced to make up for the financial failure of Tesco's headquarters [18]. Although Tesco pulled out of the Korean market in September 2015, Tesco's withdrawal was mainly due to its strategy adjustment at Tesco's headquarters, not management failure. The relocation of TNCs is usually done in terms of strategic coordination, not management failure, and this strategy has already been supported by researchers such as Bodewyn [19], Pattnaik, and Lee [20].
Divestment is an intrinsic feature in the internationalization of retail, and until recently, has been a key part of academic research [4]. Divestment-related studies can be analyzed according to two viewpoints. The first is that the division is a result of management failure. Burt et al. [3] argued that a division can be defined by an entity's lack of planning and underperformance, and that failure arises from four causes: market failure, competitive failure, operational failure, and business failure. Another viewpoint is that withdrawal occurs as part of rebalancing corporate strategies. Burt et al. [3] said that the aforementioned division represents three types of forms: closure, organizational restructuring, and exit. The ideas about withdrawal in this paper can be divided into two main perspectives. First, most studies focus on the process and reasons for withdrawal. Many studies focusing on the reasons and processes for withdrawal have said that retail companies decide to withdraw for reasons such as restrictions, poor performance, and poor management capacity [21,22]. Sachdev [21] argued in a quantitative study that the British multinational corporations decided to withdraw because of their low profitability, losses, commercial difficulties, and restrictions. Boddeweyn [22] argued that, through a theoretical analysis, foreign discrimination seems to be caused by lower barriers of divestment, less common of top management. Studies focusing on the withdrawal process claim that during the period of withdrawal, operational and non-operational measures are affected [3,23]. The papers focusing on results form an axis. In other words, companies decide to withdraw based on their management performance. Although most companies judge ROA as a key indicator when measuring management performance, they also consider these indicators as important factors in determining withdrawal. Relatively few studies have analyzed outcomes for reasons of withdrawal. Borde et al. [24] stated that the withdrawal of overseas assets by U.S. companies was a result of very positive value effects, such as the rise of stock rates. In this study, we wanted to identify preferences for the attributes of retailers as a key factor in determining the withdrawal of multinational distribution companies. To this end, a study by Kim, Hallsworth, and Kim [25] and Shin, Kim, and Kim [26] referred to the fact that preferences for the retailer's optional attributes factors that take into account the characteristics of retailing provided success factors between local and multinational distributors.

Determinant Attributes for Retail Store
In China, the entry of large retailers began in earnest in the early 2000s, with limited research applied to the theory of retailers' choice, which had become common in Europe and the Americas. In this study, the decision factors for retail outlets of foreign retailers in China are identified from the perspective of consumer behavior and the analysis of differences among enterprises to examine the factors of success or failure in localization.
The theory of retailer selection began with the assumption and demonstration that psychological, physical, and service factors are linked with each other [10,11,[27][28][29][30][31][32][33]. Monroe and Guiltinan [10] described the model of consumers' store choice by dividing consumer attributes (such as demographic characteristics, lifestyle, personality, and economic characteristics) and store attributes (such as product assortment, store area, price, and service). This explained that the importance of store properties affected the perception of store properties and formed an attitude that affected consumers' choice of stores, leading to satisfaction with the stores they visited and revisited. In a study by Engel et al. [11], a model was presented on how consumers' choice of stores distinguishes acceptable stores from unacceptable stores by comparing assessment criteria such as location, product assortment, price, advertising and promotion, service, and perceived properties from the stores with the assessment criteria. A study by Sirohi et al. [31] studied how perception of the quality of service (retail shop operation, employee service, appearance of store), promotion, relative price, and so forth affects store loyalty. Bae's [32] study analyzed the impact of store atmosphere, employee service, auxiliary facilities, product variety, and location on the shopping value and satisfaction of customers visiting large retailers, and the analysis found that store atmosphere and employee service directly affect shopping satisfaction. Although causes have been identified through the management process and performance analysis in relation to the localization and withdrawal of multinational distribution companies, consumer behavior may also be a cause.
Yoon [34] dealt with the case of RT-Mart in terms of success strategies of late-emerging retailers in the Chinese market. In this study, Yoon [34] provided suggestions on the strategy of RT-Mart having a competitive advantage in their store attributes (price, brand, location, and service) that are important in selecting retailers through joint ventures with existing TNCs in China. Kim and Ko [35] analyzed the success and failure factors of TNCs in three Northeast Asian countries based on the research of store selection attributes. This research used the cases of Walmart Inc. and Carrefour to analyze distinct features such as national entry strategy, corporate policy, management system, and entry method to figure out the main causes that contribute to the success and failure of the TNCs. Kim et al. [25] estimated the success factors by comparing local distributors and TNCs in Korea, focusing on consumer preferences for select retailer attributes, finding that the local entity's product competitiveness based on Private Brand (PB) products is a major failure factor for the multinational retailer (Tesco).

Materials and Methods
Based on a structured questionnaire to achieve the purpose of this study, surveys were conducted in nine cities, including China's Qingdao City, Shanghai City, Liaoning City, Wenzhou City, Dalian City, Nanjing City, Hefei City, Beijing City, and Tianjin City, from 12 September to 10 October 2018. The survey was conducted in these locations because they are the major cities that show signs of innovation in the success and development of China's consumer retail market. The standard in this study for major cities in China is a population size of more than 5 million. The survey was conducted by a professional surveyor who asked consumers at the store to complete a questionnaire.
Accordingly, the survey conducted was divided into two main parts. The first comprised a 5-point Likert scale (1 = very unsatisfactory, 5 = very satisfied) to collect information on the satisfaction levels related to select retail properties, and the second collected information on the demographic characteristics of the respondents.
The survey was conducted on those in their 20s or older who had experience shopping at both Tesco and RT-Mart. As a result, a total of 650 copies were distributed to obtain an effective sample of 607 copies, which was used for the analysis. The collected data were used to identify the general characteristics of the sample through frequency analysis, and a t-test was performed for analysis of the mean differences in the retail store determinants of Tesco and RT-Mart users. The causal analysis between the two groups was then estimated through the logit analysis. Logit analysis is a good method to analyze consumers' choice behavior toward distribution companies. We applied the logit analysis method proposed by Marques and Santos [41] to obtain meaningful conclusions. The question seeks to analyze the importance that consumers give to the attributes of each store by evaluating the components and another set of variables. We analyze the relations between these constructs and the dependent variable as well as those between customers' personal characteristics and the dependent variable. To accomplish this goal, we used a binary logit model to identify the determinants of the store format choice. This binary choice model assumes that individuals face a choice between two alternatives, and that their choice depends on their attributes. Thus, researchers use a qualitative choice model to determine the probability of an individual making one choice over another choice with a given set of attributes.

Differences and Causes of Satisfaction by Retail Determinants between Tesco and RT-Mart
In this study, we sought to examine the difference between Tesco and RT-Mart in terms of consumer behavior theory about the withdrawal of multinational distribution companies in China. The difference between the factors for determining the retail store of consumers using Tesco and RT-Mart was empirically identified through a causal analysis. The t-test results for differences in satisfaction by visiting elements from foreign-invested RT-Mart and the multinational company Tesco are as follows. Customers at large retailers in China were more satisfied with RT-Mart than Tesco in all variables, including products, locations, brand awareness, and service satisfaction with employees ( Table 2). These results were also found in the studies of Park et al. [33]. The causality analysis results of each factor determining a visit to a retail store in Chinese consumers' behavior of choosing a large retailer are as follows ( Table 3). The factors included product [25,34,36], location [26,34,[37][38][39], brand recognition [34,37], and service by staff [25,37].

Discussion
There has been no previous empirical analysis of the causes of Tesco's withdrawal from the Chinese market. Therefore, we successfully localized it and tried to prove it through a comparison between Tesco and RT-Mart, which is doing well in business. Several foreign companies have decided to pull out of the Chinese market, but there has been no analysis of the reasons, processes, and performance for them, which has not been very helpful to readers and researchers. South Korea's Lotte Mart decided to withdraw from the Chinese market in May 2017 for political reasons [42]. Korea's E-Mart also decided to withdraw in June 2017 due to its management failure after 20 years of operating in the Chinese market [43]. These companies have superficially shown their failure to enter the Chinese market, but the cause of Tesco's failure in the Chinese market has yet to be clearly proven empirically. Therefore, we applied the retail attributes theory and conducted a comparative analysis of Chinese consumers' interest to TNCs such as Tesco, RT-Mart, and Walmart Inc. From this, we obtained a very significant result as to why TNCs were struggling with business in the Chinese market and were forced to withdraw eventually. In response, this paper conducted a comparative analysis on Chinese consumers who visited both Tesco and its rival company RT-Mart. We found through comparative analysis that Tesco was destined to fail in many areas. The causal relationship analysis results by the factors determining a visit to the retail store are as follows in Chinese consumers' behavior of choosing large retailers. It was estimated that RT-Mart was more satisfactory in all factors, including product, location, brand recognition, and employee service.

Conclusions
The theoretical contribution of this paper is as follows: First, RT-Mart placed its product to suit Chinese consumers' tastes and sold the right product. In other words, Tesco was shunned by Chinese consumers because it failed to grasp the characteristics of Chinese consumers and insisted on the placement of Tesco food products. Chinese consumers preferred stores to offer many product tasting/sampling activities and preferred to visit stores frequently to buy small quantities. For example, Wal-Mart was initially able to service its customers efficiently by providing 50 small designed checkouts in Shanghai [44]. As mentioned earlier, Tesco did not sell much of its own product and sold products that did not suit Chinese tastes, when it should have sold products tailored to the local consumers. Tesco's share of private brand (PB) products in the UK's local market, which accounted for more than 40 percent of its products, was less than 10 percent in China. This in turn contributed to the failure to improve sales by failing to sell PB products, which are relatively cheaper and of superior quality than other products. Second, location was also one of the main reasons Tesco failed. Location is recognized as a very important factor for success in distribution, and location selection is referred to as a concept that includes market selection [11,25,26,32,45]. Tesco entered China in 2004, which was very late compared to the entry of rival foreign companies such as Wal-Mart from 1995 to 1997. Moreover, some foreign-invested companies, including Wal-Mart, as well as local companies in China, were forced to enter a position at a location disadvantage, because they entered at a time when they were dominating the local retail market. Wal-Mart has many stores in first-line cities such as Beijing and Shanghai as a result of its entry into the Chinese market in the early stages [46]. Wal-Mart's selection of a good position resulted in good business results. This fails to break the conventional wisdom of the retail market, where position is considered the most important among the success factors. Pederzoli [47] argued that factors such as customer characteristics, accessibility, competition, prestige, and cost were important factors in selecting the location of the store. Therefore, if TNCs are to succeed in the overseas local market, it is necessary to acquire local companies familiar with management strategies and current affairs in the local market to gain a good foothold through cooperation. Although RT-Mart entered the Chinese market later than its competitors in the late 1990s, it is a very good example in that it has set the stage for growth in the Chinese market in collaboration with Auchan, a French international retailer. Third, Tesco also fell behind RT-Mart in terms of brand recognition. The fact that Tesco is a British company has been very helpful in terms of management. In fact, it can be seen that the high brand recognition of multinational companies in the industry such as electronics and automobiles is a testament to the fact that they play a big role in achieving management performance [48], but not in distribution companies. Tesco brought its own brands and sold them in the Chinese market like Wal-Mart, but the impact of the existing Tesco brand was not great in the Chinese market. Therefore, doing business based on the brand's global reputation itself contributed to the failure of its management. Usually, brands have a positive impact on consumers' intention to revisit [34,37]; however, we find that although global brand awareness is usually very advantageous in inducing consumers to revisit a retailer, it does not apply in the special market environment of China.
Fourth, it is apparent that the level of satisfaction among Chinese consumers about the service level of the staff at Tesco was lower than that of local companies. It is true that improving the level of employee service plays a critical role in improving consumer satisfaction and the success of distribution companies [25,26,31,32,35,37,49]. Tesco used a mix of British and Chinese customer response methods. In other words, it responded to customers without 100 percent localization. As mentioned earlier, by hiring and operating Chinese CEOs and Chinese financial officers, it seems to have given rise to the opportunity to understand the Chinese market properly. In 2011, 99% of the 20,000 executives and employees were Chinese, with 25 of them being foreign managers. The problem with Tesco, however, appears to have been that the chief executive was frequently replaced, which served as a major obstacle to Tesco's development.
Once again, we can confirm empirically that success in the distribution industry requires a 100% localization strategy, regardless of the place/region, to induce consumers to revisit. Matusitz [50] and Shin et al. [26] both argued that firms must implement a localization strategy to meet local demand as part of a successful strategy.
The practical contributions are as follows: first, a foreign company performing business in the Chinese retail market is itself a big challenge. If foreign companies are to succeed in China, they will have to go closer to Chinese customers through localization. In the case of large discount stores, store-style stores should not be arranged as in the U.K. Chinese stores place their products within reach because it increases customer satisfaction with their purchases, which can induce continued loyalty. Thus, foreign companies seeking to enter the retail market in China will have to find joint partners who are familiar with the retail environment in China and conduct business to reduce the possibility of failure [51]. Second, the China distribution market is so complex and monopolized by several large companies that foreign-invested companies have a lot of difficulty entering and successfully carrying out business. Northeast Asia's distribution markets, including Korea, Japan, and China, all have complex systems and unique distribution market characteristics. China's distribution market is often dominated by certain conglomerates such as Suning Co., Ltd. and Huarun Co., Ltd.
That is why few foreign companies that have entered these countries have succeeded by entering the country on their own. Instead, they have had strong connections with political and business officials in these countries from the past and have engaged in joint ventures with local companies that have long accumulated knowledge on the local distribution market. Thus, companies seeking to enter the Chinese retail industry need to carry out their businesses based on close cooperation with their local joint venture partners. Third, the CEO should be well aware of the Chinese market and hire people with human networks in China to take full advantage of these networks. Unlike other countries, China is a market where the importance of the human network is emphasized in carrying out business. It is clear that the so-called guanxi culture is an important means to induce joint partners to succeed in the Chinese distribution market. Chuang et al. [46] emphasized that guanxi is a very important means of doing business in China. In particular, they noted that Carrefour was quick to learn the concept of guanxi compared to Wal-Mart, which was doing business in China. Carrefour argued that after establishing good relations with the local government, it had adapted itself to the Chinese market in a way that would allow it to obtain approval quickly from the local government, promising local governments that it would create extra tax monies and jobs without waiting for approval from the central government. In particular, establishing relations with the Chinese government is a difficult task. Companies with a good guanxi network cannot deny that there are many benefits to expanding their businesses [44]. If human networks are abundant in China's political and economic sectors, it is highly likely that companies can find ways and solve problems no matter what they might be. In particular, because China is a socialist country and can control politics and industry according to the will of the government, it is necessary to select an optimized CEO or joint partner to carry out business. Thus, foreign-invested enterprises should take advantage of this particularity of the Chinese market and apply it to their businesses. Although many studies have assessed the overseas failure of TNCs, this research is original because it is an in-depth comparative analysis of the success factors of TNCs that succeeded in localization in the Chinese retail market. The implications and limitations of the study presented in this paper are as follows. First, the UK retailer Tesco confirmed through withdrawal from China that the Chinese market is complex and large. In other words, entering the Chinese market without a thorough understanding of the Chinese distribution market and local consumers puts a company at the risk of failure. Because China's retail market is so large and complex, Tesco may have recognized that Chinese consumers also form very diverse layers, and that its venture would inevitably fail if it failed to meet various requirements in a timely manner. Although Tesco will not enter the Chinese market again, we must consider the empirical analysis results presented in this paper when Tesco or other European granary retailers enter a third market similar to China. Second, TNCs require efforts to understand local consumers by 100% thorough localization in order to increase their chances of success in overseas markets. Tesco was essentially limited in understanding the Chinese because its CEO came from the British market. RT-Mart, on the other hand, entered the Chinese market through a joint venture with the French Auchen Group, which was already carrying out business in the Chinese retail sector, and it successfully landed in the Chinese market by reducing its business risk. Thus, foreign companies seeking to enter the Chinese retail market should successfully carry out the business by hiring reliable local officials and granting them full operational power. For example, the Chinese people like to have employees present in their stores and available to perform services to customers, but Tesco did not place a large number of employees in its stores, simulating what it did in the U.K., which alienated the stores from Chinese consumers [44]. In China, if a company does not cater to the local customer, it is highly likely that it will fail by carrying out its business without a good understanding of the Chinese character tamed by Asian and socialist culture.