Greenfield Investment or Acquisition: a Case Study on Tesco’s Strategy of Entry into China Market
|School||Shanghai Jiaotong University|
|Keywords||greenfield investment acquisition Tesco supermarket|
Academically, the choice of entry mode between greenfield investment and acquisition has garnered a lot of attention from international business researchers for the past two decades. This study, however, will use both statistical analysis and case study methods to analyze a landmark market entry case in China’s supermarket industry: Tesco’s entry into China market by acquisition of Hymall in year 2004.The paper conducts statistical analysis of past successful and failed market entry cases in supermarket industry in different countries from year 2000 to year 2006 and then based on statistical results, tests Tesco’s China entry strategy by considering industry- and firm-specific factors. And the conclusion is that Tesco chose the wrong strategy and it should have chosen greenfield investments to enter China market. Tesco China was having a bad performance after its entry by acquisition of a local player. Based on statistical analysis, its bad performance was directly linked to its wrong entry strategy. Statistical results show that to enter a high-growth, fragmented, ever increasingly important market with high acquisition multiples like China supermarket industry, Tesco should have been better to choose greenfield entry, which also could haven given it higher chances to conduct afterwards acquisitions. As a supporting test, valuation analysis for greenfield and acquisition scenarios is also conducted and the results support the statistical findings. So for Tesco, there is no need to quickly jump on board by acquiring a big player at the beginning with substantially high price, and Tesco China could have first chosen greenfield entry and then acquired a local player after 3-5 years of its entry.The paper can give recommendations to many foreign companies that want to enter China market but do not know what the optimal way is. My thesis can provide them with many dimensions in thinking this ultra-important issue.