Retail Business in Korea - TESCO's Success

Tesco’s entry into the Korean market contains valuable lessons for anyone doing or wishing to do business in Korea. While other foreign brands like Wal-Mart and Carrefour have failed, Tesco’s Korean brand, Homeplus, is moving from strength to strength as it closes the gap with the market leader, E-mart.

From its early partnership with Samsung, to an extraordinary level of office culture localization, as well as matching uniqueness of the Korean consumer market, Tesco and Homeplus have achieved an amazing success.

What has done TESCO in  Korea?

After careful deliberation for Korean retail market TESCO’s head office made the surprising decision to add “Homeplus” to the store’s name, reflecting its heavy emphasis on non-food, household goods.

What happened was a wholesale adoption by TESCO of know-how that had been accumulated in running its Homeplus store, a joint venture with Samsung Corporation, in Korea. The two-door layout, product line selection, product display, and even the name of Homeplus were all imported from the Korean store. The know-how of store management accumulated in the Korean operation had been recognized as superior in efficiency and taken on board whole. 

Korean customers are considered by many to be the hardest in the world to please and are a highly demanding customer group in that they want both the low prices of discount stores, and the high level of service typical of department stores. Wal-Mart and Carrefour, the two main competitors for the top spot in the global discount industry, were unable to meet the demanding requirements of Korean customers, and eventually had to withdraw from the Korean market. Korea was even called the grave of global retailers at one time. Samsung TESCO expanded rapidly despite the tough conditions. In four years, the company jumped from 12th to second in the discount retail segment.

‘Value Store’

Jumping into a Red Ocean as a late comer, Sam-sung TESCO prepared a fresh concept. At the time, other discount warehouse stores emphasized two strategic features to market them-selves: a wide variety of products and low prices. However, this strategy required trade-offs. Reacting decisively to consumer demands, Homeplus executives decided to create a completely new discount market through brand positioning analysis. This led to the new concept of a “Value Store,” which implied a store that provides customers with a new, higher level of value.

‘Artience’

Homeplus’ marketing edge was eventually lost as rivals imitated the concept in their subsequent store openings. The adoption of Home-plus’ innovations by its rivals turned the Blue Ocean into a Red Ocean. This led Samsung TESCO to try to create a new Blue Ocean through another transformation. Homeplus’ third-generation discount store integrated emotion and culture. It was characterized by “Artience,” the integration of art and science.

Homeplus introduced the next generation store with four concepts – Art, Well-being, Touching, and Hi-tech – to appeal to customers’ eyes and hearts. The entire fourth floor was an art gallery that is not operated or intended to generate revenue. This was first for a discount store in the world. The store also contained a culture center, which offers evening and weekend courses. The purpose was not to grab customers, but become a local center for continued education. It was unprecedented to find a store offering fresh produce and organic foods and also provide a fitness club, sauna and golf driving range. Finally, a high-end wine bar allowed customers to enjoy their purchases in the store itself.

Scientific Approach to Distribution

Homeplus is also famous for retaining information and communication technology. The stores introduced a self-checkout system and a smartcard system which automatically counted products in a shopping cart, for the first time in discount industry.

The self-order and self-pay system in a food court was another distinguishing change. Through the product positioning system, by which customers could find the location of products with a touch screen, and an auto product supplement system. TESCO headquarters in England quickly saw the benefits of adopting high-tech in running its stores. Indeed, during 2002-03, Samsung TESCO sent around 70 experts of this high-tech management system to transplant it in TESCO’s operations in other countries.

Customer focus management

Homeplus places great importance on seven types of customer surveys conducted 200 times annually. Homeplus thus listened to the customers’ voices, which competitors had failed to heed attentively, employing many consumer surveys and elaborate analysis. Based on the results, they were able to create new stores with the new concepts that customers wanted.

Synbaration and global management

The pairing of Samsung and TESCO meant two distinctive corporate cultures had to be bridged, as Asian corporate culture stresses personal connection, self-sacrifice and teamwork while Western business culture emphasizes rationality, individual expectations, principles, and transparency. To reconcile the differences, Samsung-TESCO launched “synbaration,” combining the Korean word “synbaram” and English word “rational.” Synbaram expresses the high spirits or high emotion that leads a person to overachieve.

Another important combination is “glocal,”. This reflects the idea that Samsung will pursue localization while making the greatest possible use of the advantages of a global corporation. The example of glocal management is the combination of British store management with Korean-style format and techniques of dealing with customers. A major factor behind the failure of Wal-Mart and Carrefour in Korea was the lack of localization.

Source : "Tesco enjoys a Korea break with homeplus", September 9. 2009  The Sunday Times

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