Wednesday, 8 January 2020

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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