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Tesco retreats in China

Tesco retreats in China
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Nine years after arriving there, British supermarket giant Tesco is to fold its unprofitable operation into a state-run company as a minority partner.

It is in now talks to team up with China Resources Enterprise.

Tesco would combine its 131 outlets with CRE’s Vanguard unit, which operates almost 3,000 stores across China and Hong Kong, taking just 20 percent of the venture.

It is the latest setback for the world’s third biggest retailer, which has pulled out of the United States after five years trying to crack the market. It has also quit Japan as it focuses on investing in its British home market.

Retail analysts said the decision was effectively a surrender by Tesco, showing the difficulty foreign companies have in negotiating with suppliers and regulators in a fast-growing but tricky market.

“This may look win-win, but in reality, Tesco is saying ‘We can’t figure out China’,” said one Hong Kong-based M&A banker.

“Tesco has been struggling in China and has been losing money. Similar to Carrefour, they had issues in their home market which they had to resolve,” he added.

Independent retail analyst Nick Bubb felt this was the best solution for Tesco: “Its partner brings formidable scale and local access, so it is hard to fault the logic of the move, even if it reads badly for the initial gung-ho expansion into China under previous management.”

China has proven to be conundrum for many foreign retailers. The world’s biggest and second biggest retailers, Wal-Mart and French retailer Carrefour are for now slugging it out alone, although there have been suggestions that Carrefour too could be seeking a local partner.