Tesco’s Organisational Shift Faces Close Scrutiny
We have examined Tesco and some of its organisational
policies on a number of occasions here in Financial
Regulation Matters. Most recently, we looked at how it was adopting a more
regional approach to its business by acquiring companies like Booker, and
moving away from its previous, more global ambitions. One element that clearly
illustrates this once global ambition, and subsequent retreating from it, is
the company’s Asian endeavour. Tesco
Lotus, which saw the firm expand out into Thailand and Malaysia mainly, has
proven to be successful for Tesco, relatively speaking – it has been suggested
by experts that from the nearly 2000 stores it has in the region, Tesco Lotus accounts
for more than 9% of the company’s global retail sales, with the division
reporting nearly £2.6 billion in sales last year alone. However, as part of
an operational turn-around, Tesco is looking to sell the division.
Yet, according to a recent Financial Times article, that plan may not be as straightforward as
Tesco might have hoped. The company aims to generate more than £9 billion from
this sale, with it being suggested by onlookers that this sum will be given
over to shareholders. Before those shareholders can think about obtaining that
money however, the declarations coming from Thailand’s Office of Trade
Competition Commission should be a worry. Historically a weak outfit in
relation to the regulation of Thailand’s largest financial players (mostly
families), the regulator is seeking to assert its dominance. Sakon
Varanyuwatana, the Chairman of the Commission, has said recently that whilst
the proposed deal to sell Tesco Lotus would be a very big task for the
regulator to regulate, ‘we have
to build public trust in our operation’. The list of suspected bids for
Tesco’s Asian empire grows by the day, and with it grows the regulatory task
for the Commission. According to reports, there are three Thai family-owned
enterprises in the queue – Charoen
Pokphand (CP), Central Group, and the TCC group (all of whom have stakes in
retail empires within the region themselves – while the retail unit of Thailand’s
biggest energy company PTT is reportedly interested.
What this has done is stoke fears of a monopoly being
created in the vacuum left by Tesco. All three retail giants lining up a bid
would be catapulted into the lead of the marketplace were they to be
successful, whilst the looming presence of the country’s largest energy
supplier will do little to calm the nerves of the regulators. The Commission
has already set up a specific task force that is tasked with assessing the
implications of the deal, and also the connections that exist already between
Tesco and the bidding entities. There are a number of factors that will need to
be considered – like, for example, the fact that CP owns major cash-and-carry
brands that could affect other competitors were it to take the lead in the
market – and all of them together are steadily increasing the pressure on the
regulator. If the regulator is conscious of how it itself is perceived by the
public throughout this deal, then the fears for Tesco are that it may be
inclined to take a more forceful approach then Tesco would want. It will be
worth monitoring, although the historical trend perhaps tells us that big
business will prevail in this particular deal, and that the Thai marketplace will
have to cope as best at it can with the fallout.
Keywords – Tesco, Tesco Lotus, Asia, Retail, Business, @finregmatters
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