ASIA HAND What's eating Thai
Tesco? By Shawn W Crispin
BANGKOK - When Tesco Lotus opened a new
superstore in the remote Thai border town of Mae
Sai, local protestors hell-bent against the
foreign retail operator's arrival sent a coffin
and petition written in blood to company
executives. Since first establishing operations in
Thailand in 1998, Tesco Lotus hypermarkets have
been targeted with grenade blasts, rocket attacks
and gunfire by various local interest groups.
Now, Tesco Plc, the Britain-based
superstore operator with over 1,200 outlets
situated across 13 different countries worldwide,
risks becoming the target of an even more potent
and widespread nationalistic backlash. As global
commodity prices surge and developing world food
shortages mount, global grocers like
Tesco
risk
slipping into the same whipping-boy category as
other multinational corporations, in league with
perceived-to-be price gouging oil firms and
unscrupulous investment banks.
That risk
exists in Thailand, where the company, known
locally as Tesco Lotus, manages over 400 stores of
various shapes and sizes and has recently rapidly
expanded its franchise deep into provincial areas
traditionally controlled by politically powerful
local business groups. Tesco's air-conditioned,
low-cost concept has been highly successful in
Thailand, profoundly transforming the local retail
scene in just under a decade.
In
mid-April, Tesco announced strong profit growth
for annual 2007, an accounting period that ended
in February of this year. International sales
contributed strongly to Tesco's 2.8 billion pound
sterling (US$5.6 billion) pre-tax profit, which
was up 11.8% year on year. Tesco’s international
revenues, of which Thailand contributes around
3.7%, meanwhile were up 25.6% year on year and
accounted for 50% of total trading profit growth,
according to company statistics. Trading margins
excluding China rose 5.8%, driven by strong growth
in South Korea, Malaysia and Thailand, according
to the same statistics.
Yet while Tesco
chief executive Terry Leahy touted those strong
financial results to investors, in Thailand senior
Tesco executives had launched a legal offensive,
swinging back against critics and journalists the
company contends have spread "misinformation"
about its policies and operations which has
damaged its reputation. In a statement, the
company said, "In Thailand, Tesco Lotus has been
seriously defamed in a sustained and malicious
campaign over a number of months."
Industry analysts note that the lawsuits
have, perhaps ironically, coincided with a recent
change from foreign to local management of Tesco
Lotus' corporate and legal affairs department. In
recent weeks and months, the company has filed at
least three punitive libel suits against
journalists and another against a former
politician and spokesman for the previous
government's standing committee on commerce and
current ranking Thai Chamber of Commerce
representative, Jit Siratranont.
In its
libel complaint against Jit, the company is
seeking US$33 million in damages over critical
comments he made to university students about the
company's rapid expansion. Jit told Asia Times
Online that Tesco's motivation for suing him was
to stifle criticism of its rapid expansion and
protect its market leadership position. "Tesco
wants to be number one in Thailand," said Jit.
"But if the Thai government can not manage fair
trade, other foreign investors will pull out of
Thailand and go to other countries."
Contested
analysis Tesco Lotus senior vice
president for corporate and legal affairs Darmp
Sukontasap told Asia Times Online that he had "no
comment" on the lawsuits and that he "won't go
into the specifics" about Jit's and others'
criticisms. He said the company was "giving all
its cooperation" to the Thai government and local
suppliers to ensure that "enough food and other
agricultural products are available to Thai
consumers" at a time of rising global food prices.
Still, the company's litigiousness marks a
shift in strategy for the image-conscious
corporation. One former employee says that Tesco
Lotus' corporate affairs department has always
closely tracked local and foreign press coverage
of its activities by maintaining a tally of
positive-to-negative clippings vis-a-vis their two
main foreign rivals, France's Carrefour and Big C.
The company has also long touted its
self-proclaimed socially responsible credentials,
including its annual multi-million baht donations
to Thai charities and rapid-response delivery of
emergency supplies to areas hit by natural
disasters, including recent flood-hit northern
Thai provinces and southern beaches struck by the
2004 tsunami. More recently, the company has
promoted a new environmentally conscious "green
store" concept. Meanwhile, the lawsuits filed
by the company are shaping up into a public
relations disaster as local media editorials and
international freedom of expression groups heap
criticism on its legal tactics. Local and foreign
bloggers have called for a boycott of Tesco stores
in protest against the lawsuits, according to news
reports. But as a foreign-owned company with an
ever-growing local profile and lots of political
enemies, Tesco Lotus' legal offensives arguably
carry higher risks than mere non-governmental
organizations and editorial opprobrium.
Foreign big-box retailers such as Tesco
were among the country's largest foreign investors
in the aftermath of the 1997-98 Asian financial
crisis. Their rapid in-country expansion has
stirred a heated and still-unresolved political
debate about whether foreign retail investments
are as beneficial to the country as more
export-oriented foreign direct investments.
Local trade groups and other vested
interests have long complained that Tesco's
big-box stores threaten the survival of
traditional wet markets and individual-run
mom-and-pop groceries, which they characterize as
integral to the country's unique grassroots
culture. Nationalistic politicians meanwhile have
taken populist aim at Tesco's franchise,
threatening at one point to jail company
executives if any discrepancies showed up in their
accounts.
The Thai Retailer's Association,
a trade group, estimates that so-called "modern"
retailers, including the hypermarket likes of
Tesco, Carrefour and Big C as well as convenience
store operators such as 7-11, control around 34%
of Thailand's total retail market. According to
recent company figures, Tesco operates 65
hypermarkets, 22 smaller-scale hypermarkets, 25
supermarkets and 300 Express convenience stores in
Thailand. Company executives quoted in the local
press estimate that Tesco Lotus has a 6% market
share of the country's retail market, though that
percentage is expected to grow with the company's
ambitious expansion plans.
Breakneck
expansion Tesco Lotus is the largest
of Thailand's big three foreign hypermarket
operators and last year it earmarked 100 million
pounds for future expansion, including the opening
of 10 new hypermarkets in the final quarter of
fiscal 2007, according to company statistics.
That expansion leverages the company's
modern supply chain concept, which through
computer-driven inventory management has
profoundly influenced the sector's pricing
mechanism. In particular, Tesco and other
hypermarket operators have been able to squeeze
the margins of traditional wholesalers and
suppliers, including politically powerful
corporations like the Sahapat Group, which
historically commanded prices to fragmented,
small-scale retailers.
Industry insiders
and analysts say it is those interest groups,
rather than mom-and-pop groceries, many of which
have modernized their operations, which have led
the political charge to legislate against foreign
hypermarkets' expansion. The Retail and Wholesale
Act, now pending in parliament, provisionally
attempts to bar big-box foreign retailers from
establishing new hypermarkets in city center areas
while limiting the number of hours per day they
may operate.
As drafted, the legislation
will not have retroactive effect, meaning already
established super stores in urban areas will be
allowed to continue their operations. One
independent analyst who closely tracks industry
developments contends that the pending legislation
has had the unintended effect of accelerating
rather than impeding hypermarket expansion, as the
three big foreign chains have ramped up
construction before the bill’s passage.
For instance, Carrefour has announced 1
billion baht (US$31.5 million) investment plans
for six to eight new stores this year and has
earmarked an additional 3 billion baht for 20 more
hypermarket outlets through 2010. The planned
expansion aims to double the company's local
presence from 27 to 54 branches over the next
three years. The French company says it expects
its Thailand-derived revenues to grow 12% this
year, up from last years 23.7 billion baht.
In view of that fast growth, some industry
analysts speculate that the hypermarket sector
will be nearly if not fully saturated by the time
the retail legislation is finally passed, giving
incumbents an advantage over new market entrants.
Until now Tesco Lotus has countered nationalistic
criticisms by arguing that its stores are net
creators of jobs and provide convenient and
efficient outlets for locally produced foods and
products.
The company also frequently
points out that it promotes Thai food exports,
providing a profitable global platform for local
producers. Tesco Lotus vice president Darmp told
Asia Times Online that the company has fully
cooperated with a Commerce Ministry directive to
temporarily cap rice prices and limit individual
purchases per shopping trip to avoid the
panic-driven runs on supplies seen in other Asian
countries.
That jibes with Tesco's global
cost-cutting policy, where the company recently
claimed to have reduced the price of more than
7,500 food and non-food products since January.
Those price interventions have so far deflected
grassroots criticism of Tesco, though Thai Chamber
of Commerce officials like Jit are now more
aggressively playing the foreign bogey card
coincident with rising global food prices.
Headline consumer inflation in Thailand was 6.2%
year on year in April.
During these
sensitive global economic times, profitable
multinational corporations face new and
potentially volatile risks in the developing world
countries where they operate. That's particularly
true in Thailand, where the government's open-door
investment policies are often counterbalanced on
the ground by always close-to-the-surface
xenophobic sentiments, particularly against
foreign companies which compete for lucrative
local markets.
Tesco Lotus has until now
countered its local critics with hard facts and
figures, including statistical proof of its huge
popularity with cost-conscious Thai shoppers. At
the same time the mother company reiterated in its
mid-April financial results its strategic
commitment to "put community at the heart" of its
global business. But if the company's Thailand
operations weren't already a convenient foreign
whipping boy, its newfound litigious streak risks
making that a self-fulfilling and potentially
profit-eroding prophesy.
Shawn W Crispin
is Asia Times Online's Southeast Asia Editor. He
may be reached at swcrispin@atimes.com.
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