Tesco restructures its Chinese exposure

Due to dwindling sales, Tesco is in the process of merging its Chinese operation with China Resources Enterprise Ltd.

The past year has seen Tesco re-assess its global structure and policies. In the first part of this year, the company took the decision that after several years of trying to break the US market with its Fresh & Easy chain it would sell the enterprise. At no point had this exposure to the US broken even, let alone made a profit, and as such the decision to pull out was widely approved by traders.

Tesco’s exposure to the Chinese market has been somewhat different, and in the ten years since opening the first Tesco store in the country it has made a considerable profit. The problem now is that the Chinese economy has been cooling over the last year or so, and as such Tesco’s profits have been drifting. Rather than reduce or end its exposure to that market, the company has decided to form a joint venture with a local partner, China Resources Enterprise (CRE). As Tesco already has 131 stores in mainland China, this will give it a 20% stake in the new venture, compared to CRE’s 80% stake.

This move will enable Tesco to once again focus more of its attention on the UK market, as well as reducing its annual costs.

Tesco plc chart

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