THE logic behind the Tesco move into Thailand - which follows a decision earlier this month by Boots - is impeccable.
Both retailers are nearing saturation point in the British market and need to spread their wings. Given the poor track record of investment in retailing in North America by both Marks & Spencer and J Sainsbury, not to mention smaller specialists such as Body Shop and Laura Ashley, the burgeoning populations of Asia have obvious appeal.
Tesco has been flirting with the Hong Kong market for quite some time. M&S has invested substantially there and is well established in Japan. Its exposure to Indonesia and South Korea has been limited to franchise operations, which is probably just as well given the recent problems in those markets.
Kingfisher has been experimenting with the B&Q format do-it-yourself stores in Taiwan.
As Tesco found in Central Europe, moving in early means prime sites can be picked up before the planning restrictions become too onerous. This is a factor blighting the out-of-town expansion programmes in Britain while store development costs in Asia are approximately a third of those in the UK.
As Tie Rack has proved in the fashion sector, British retailing skills are appreciated in Asian markets, as can be seen from its success in Japan. However, the short-term returns in countries such as Malaysia and Hong Kong have to be borne with equanimity as the development programme is continued.
One key to successful overseas expansion is strong cash flow, which can be assured from the core business, and here there are no problems as far as the major companies are concerned. The investment costs of a single store as for Tie Rack is almost inconsequential and so it has much more flexibility than Tesco and M&S.
Mistakes may be made, but shareholders can console themselves with the thought that overseas possessions should show higher growth rates than those achievable at home.
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