Tesco Thilad

International Business Management

INB 528

Project Report

Titled:

Tesco Lotus Expanssion

A Struggle between Modern and Traditional Retailers.

Group Members:

1. Mr. Lloyd C. Nwafor 006330003

2. Sarun Thamsarorat 006330002

3. Ms.Patcharaporn Klubyim 006330004

4. Pimvalai Changmai 006633005

5. Shylah Marie Antone 006330010

Background Information

Since the economic crisis of 1997/98, the Thai economy has been recovering despite a global economic downturn in the first years of the current decade. Like in other emerging markets in Southeast Asia and worldwide, some has perceived that modern retail infrastructure in Thailand is developing to the detriment of traditional channels of food and grocery distribution. However, representatives of traditional structures call for government intervention, especially to curb foreign retailers' expansion

The battle against hypermarkets had developed an increasingly anti-foreigner subtext, to some people, that was indeed a "bad signal" for international investors in Thailand. Promised new government regulations, will probably offer some more mild restrictions and fail to resolve fuzzy enforcement, which helps hypermarkets skirt current laws as needed. After the financial crisis in Asia and Thailand in particular, a need for investments, especially Foreign Direct Investment of FDI, was critical. As a result, the Foreign Business Act was enacted, allowing major foreign retailers to enter Thailand. Several competitive advantages to foreign retailers enter Thailand at that time such as;-

* Regulations restricting retail FDI eased

* Costs of land, construction, labour fell

* Local conglomerates urgently needed cash injections

Thailand small retailers everywhere fear and loathe hypermarkets. Urban officials decry hypermarkets' devastating impact on main street shops.

Basic Questions:

1. Will the new retail business legislation satisfy both parties?

2. Will the perception of Thai shoppers change by these protesters?

Our report segments retailing into two groups: modern retailers and traditional retailers. "Modern retailers" refer to large, technically advanced retailers: hypermarkets, supermarkets, department stores, discount stores and specialty chains. "Traditional retailers" are small, independent retailers, counter stores (often called 'mom-and-pop shops'), wet markets, non-franchised convenience stores, and street vendors.

Finally, we'll review in this report, the struggles between the modern and traditional retailers. Traditional retailers' wrath, under the auspices of the "Confederation of Thais Opposing Foreign Retailers". (reasons for protests and demands). And the Tesco Lotus view, the legislative laws guiding the retail markets, including our prescribed solutions to this important issue.

The Confederation of Thais Opposing Foreign Retailers

In August 2006, dissatisfied representatives of traditional food stores established the "Confederation of Thais Opposing Foreign Retailers". This confederation fiercely protests against the shakeout of traditional mom & pop stores due to foreign retailers' modern formats that drive small, local entrepreneurs out of business.

The confederation set it hopes on the new military-backed government who ousted the government led by former Prime Minister Thaksin Shinawatra, who is accused of illegal business practices. The old government did fit well in Thailand's tradition to reasonably deal with its Foreign Business Act.

This law defines a 'foreign company' as any venture with more than 49 per cent foreign equity and it does not allow such foreign firms to partake in many sectors of the economy. For decades, however, Thai authorities turned a blind eye on foreign businesses operating in Thailand by pragmatically distinguishing between nominal equity ownership and actual control of companies. According to a Financial Times report, the Thai allowed multinational firms to preserve an aura of Thai ownership over companies they controlled. Via a loophole of complex, multilayered shareholding structures, foreign investors theoretically complied with the law, while in practice controlling their Thai businesses.

The new government should be a new broom that sweeps clean. However, Thailand's new rulers also seem to struggle with the situation created by Thailand's ambiguous foreign investment framework.

WHAT ARE THE REASONS FOR THE PROTEST?

It is this uncertainty, combined with pressure on the new government from the Confederation of Thais Opposing Foreign Retailers, which currently captures the mood of foreign retailers in Thailand. The confederation appealed to the new government to force foreign retailers to suspend their expansion plans for five years, while setting up a central agency to educate Thai people on the impact of multinational retailers on the Thai economy. In September 2006, Carrefour - which operates a network of 23 hypermarkets in Thailand - appealed on international retailers represented in Thailand to stop opening small stores in the country. "They directly compete against local retailers, which have been forced out of business," the hypermarket operator emphatically said in a statement issued mid October 2006. Other foreign hypermarket operators such as the cash & carry retailer Siam and Big C Super centre (a subsidiary of French retailer Casino) agreed to a request by Thailand's Commerce Ministry to suspend all store opening plans for 30 days pending implementation of new retail-business laws. The only exception was Thailand's leading retailer Tesco Lotus, who stated early October last year