Transnational Corporation's Failure in China: Focus on Tesco - MDPI
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sustainability
Article
Transnational Corporation’s Failure in China:
Focus on Tesco
Kim Woohyoung 1 , Hyun Kim 2, * and Jinsoo Hwang 3, *
1 Graduate School of Technology Management, Kyunghee University, Yongin, Gyeonggi-do 17104, Korea;
kimwh@khu.ac.kr
2 Sejong University, 98 Gunja-Dong, Gwangjin-Gu, Seoul 143-747, Korea
3 The College of Hospitality and Tourism Management, Sejong University, 98 Gunja-Dong, Gwangjin-Gu,
Seoul 143-747, Korea
* Correspondence: koeil@daum.net (H.K.); jhwang@sejong.ac.kr (J.H.)
Received: 31 July 2020; Accepted: 30 August 2020; Published: 2 September 2020
Abstract: 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.
Keywords: consumer behavior; Tesco; China; retail internationalization; retail store attribution
1. 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 [1–4], 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
Sustainability 2020, 12, 7170; doi:10.3390/su12177170 www.mdpi.com/journal/sustainabilitySustainability 2020, 12, 7170 2 of 11
did not meet with expectations. High petrol prices and falling real incomes affected customers’
discretionary spending in the year. The combination of disappointing sales in the second half of the
year and our decision to increase investment into the shopping trip meant that our UK performance
was weaker than planned. Sales grew by 6.2%, supported by excellent new store performance, but
trading profit declined by 1%” [5]. Nevertheless, Tesco shares made a good start in 2013, rising 27%
despite the widely-reported horse-meat scandal affecting most of the UK retail trade, but its pre-tax
profits slumped by 51% after it took an expected £1bn charge for exiting its US business, Fresh &
Easy, and an unexpected charge of £804m on property write-downs in the UK. The latter raised our
suspicions that the hypermarket/superstore format may be suffering serious structural problems. The
situation after tax was even worse, with profits collapsing by 95.7% to £120m (first profits fall since
1990). Many companies in the developed world have failed to gain a foothold in China [6]. In other
words, 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 [7].
Several reasons for Tesco’s failure in the Chinese market have been noted. The main reasons are a
lack of understanding of Chinese consumer purchasing habits, late entry into the Chinese market, and
tough competition. Therefore, we will first take a theoretical look at what strategy Tesco applied in the
Chinese market and try to derive theoretical and practical implications by analyzing factors that are
considered important to Chinese consumers when shopping. In particular, we would like to focus on
the theory of consumer choice [8] through comparative studies among foreign companies in the form
of retailers.
Rather than quantitative research, qualitative research is the main trend in studying transnational
corporation (TNC) withdrawals. Burt et al. [9] proposed a theoretical framework that focused on
the withdrawal of European grocery retailers from Northeast Asia, estimating that there was a lack
of longitudinal studies. Burt et al. [9] argued that TNC divestment is caused by different internal
and external factors and different time periods, depending on the strategic priorities of each entity.
Strategies that fit regional characteristics or a global corporate-centric mindset must be implemented
for these conditions to proceed.
The objectives of this study are as follows: analyze the reasons why Tesco, a TNC, was forced to
withdraw from China, and draw conclusions as to why it was always doomed to fail. In particular,
we would like to look for the factors in which Tesco failed in the special environment of China and
report them as examples of management failure. Second, we intend to conduct an empirical analysis
of Chinese consumers in order to determine the cause of Tesco’s management failure. We would
like to shed light on why Tesco, which failed to localize based on the retail attributes theory [10,11],
was forced to withdraw from the Chinese market.
If empirical analysis is conducted based on retail attributes theory, it will be possible to ascertain
through quantitative analysis why Tesco has been shunned by Chinese consumers. Through the
empirical analysis, we intend to thoroughly analyze localization strategies that fail to meet the
preferences of Chinese consumers and draw theoretical practical implications from the analysis. First,
the theoretical contribution is as follows: compared with studies on globalization, studies on exit or
divestment from abroad are far less common, and few have been conducted [12,13]. In particular,
there is no further study dealing with the reasons and consequences of Tesco’s withdrawal from the
socialist country. Through this study, a growing number of companies that have entered the unknown
Chinese retail market and tasted failure rather than success are empirically analyzed. This will help us
understand why foreign companies that decide to withdraw are affected by certain factors. This study
aims to thoroughly understand where Tesco was less competent than RT-Mart and thus provide
implications for foreign companies that are planning to enter the Chinese market or are currently
operating in China.Sustainability 2020, 12, 7170 3 of 11
2. Materials and Methods
2.1. 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.
2.2. 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 theSustainability 2020, 12, 7170 4 of 11
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 [10,11,27–33]. 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).
2.3. 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.
The main variables used in this study—store attributes—are measured according to the overall
satisfaction with the product [11,25,28,32–34,36] and location, including transportation convenience
and accessibility. Location [11,26,32–35,37–39] and brand [33,34,37] comprise brand preferences and
service [25,31–33,35,37,40], which are measured according to the overall satisfaction with employee
service delivery (Table 1).
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.Sustainability 2020, 12, 7170 5 of 11
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.
Table 1. Explanation of Variables.
Division Variable Description Frequency/Mean Ratio (%)/Std.
RT-Mart = 1 304 50.1
Mall
Tesco = 0 303 49.9
Overall satisfaction with product
Product 3.49 0.92
(5-point Likert scale)
Overall satisfaction with location
Location 3.07 1.14
(5-point Likert scale)
Brand awareness higher than other marts
Brand 3.52 0.88
(5-point Likert scale)
Service satisfaction with employees
Service 3.34 0.72
(5-point Likert scale)
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.
3. Results
3.1. Demographic Characteristics
The general characteristics of the respondents in this study are as follows. First, 155 respondents
were in their 20s (25.4 percent), 152 in their 30s (25.1 percent), 144 in their 40s (23.8 percent), and 156
in their 50s or older (25.7 percent). The regional distributions of respondents were Qingdao City
(16.5%), Shanghai City (12.9%), Liaoning City (13.9%), Wenzhou City (6.9%), Dalian City (6.9%),
Nanjing City (12.9%), Hefei City (10.9%), Beijing City (8.6%), and Tianjin City (10.6%). Broken down by
profession, 607 samples showed that office workers had the highest ratio of 335, with 114 housewives,
80 professionals, 48 students, and 30 unemployed workers. Finally, the analysis of household monthly
income showed that 94 participants made over 10,000 Yuan (US1538 dollars), 168 made between
10,000 Yuan and 5000 Yuan (US769 dollars), 328 made between 5000 Yuan (US769 dollars) and 2500 Yuan
(US384 dollars), and 17 made under 2500 Yuan (US384 dollars).
3.2. 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 inSustainability 2020, 12, 7170 6 of 11
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].
Table 2. Difference of Visiting Factors between Retail Stores.
Section Mean (Std) t-Value
RT-Mart 3.88 (0.81)
Product 11.468 *
Tesco 3.10 (0.85)
RT-Mart 3.89 (0.80)
Location 25.764 *
Tesco 2.23 (0.77)
RT-Mart 3.84 (0.78)
Brand 9.974 *
Tesco 3.18 (0.84)
RT-Mart 3.60 (0.68)
Service 9.593 *
Tesco 3.07 (0.66)
*: indicates values at the1% significance level.
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 [26,34,37–39], brand recognition [34,37], and service by staff [25,37].
Table 3. Results of model analysis.
Section β S.E. Wald Sig. Exp (β)
Product −0.848 0.182 21.646 0.000 * 0.428
Location −2.199 0.208 112.194 0.000 * 0.111
Brand −0.683 0.186 13.512 0.000 * 0.505
Service −0.778 0.176 19.556 0.000 * 0.459
Constant 17.544 1.632 115.517 0.000 * 21.589
model χ2 = 510.647, −2LL = 330.832 *, % of Right prediction = 88.8%
*: indicates values at the 1% significance level.
4. Discussion and Conclusions
4.1. 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 comparativeSustainability 2020, 12, 7170 7 of 11
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.
4.2. 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 andSustainability 2020, 12, 7170 8 of 11
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 notSustainability 2020, 12, 7170 9 of 11
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.
Author Contributions: All authors have contributed to this paper. K.W. designed the research and wrote the
manuscript. H.K. designed the research and helped revise the manuscript. J.H. analyzed the data and wrote the
manuscript. All authors have read and agreed to the published version of the manuscript.
Funding: This research received no external funding.
Acknowledgments: The authors would like to thank the editors and referees for their helpful and
constructive comments.
Conflicts of Interest: The authors declare no conflict of interest.
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