UK multinational retailer Tesco is paying US$558m to own 20 per cent of a joint venture with China Resources Enterprises (CRE).
Conglomerate eneterprise CRE, which focuses on retailing, beverages, food processing and distribution in China and Hong Kong, is the subsidiary and listed company of China Resources Holdings.
The venture between the two companies will combine Tesco 134 Chinese outlets with CRE’s nearly 3,000 stores.
It will also see the companies pool Tesco’s retail practices, international sourcing and digital capabilities with CRE’s local knowledge and established brand to create a business with sales estimated at a substantial £10 billion (US$16.2bn).
Philip Clark, chief executive office of Tesco, has stated that the joint venture will assist the company in becoming profitable more quickly in China.
Industry insiders believe that Tesco, alongside other foreign retailers, have found local retailers such as Sun Art Retail Group and China Resources Enterprise tough competition and struggled to tempt consumers away from these recognised outlets.
Since last year Tesco has closed six of its stores, while US retailer Walmart closed three of its Chinese stores in April and has not discounted potentially shutting more in the future.
Tesco has been opting to exit unprofitable markets in recent times. In 2012, it paid £40m (US$64.9m) to leave its joint venture with Aeon in Japan and sold its loss-making US arm Fresh & Easy to investment group Yucaipa.
