Plc and China Resources Enterprise Limited (CRE) have entered into a memorandum of understanding on their plan to combine their Chinese retail operations to form the leading multi-format retailer in China.The projected partnership would see state-run CRE combining its CR Vanguard business, which currently operates 2986 stores across China and Hong Kong with Tesco China's 131 stores and shopping mall business.
The proposed joint venture would create a business with sales of £10 billion, in which CRE and Tesco's effective interests are expected to be 80% and 20% respectively.
According to Tesco, while there is no certainty that a transaction will occur, 'The partnership would bring together CRE’s deep understanding of local customers, established nationwide infrastructure and proven track record as a partner with Tesco’s global retail expertise, international sourcing scale and supply chain capabilities'.
'The intended partnership follows a series of highly successful joint ventures between CRE and other multi-national corporations and is consistent with Tesco’s stated strategy of focusing on profitable routes to growth in fast-growing but less mature markets, with a disciplined approach to the allocation of capital'.
Tesco is now focusing its efforts on the turnaround of its domestic operations, after falling market share and intense competition prompted the chain's first profits warning in 20 years in January 2012.
Tesco's first quarter trading update for 2013 revealed difficult trading conditions in China, as like-for-like sales dropped by 4.9% in the region. Tesco is present in nine Chinese provinces and has grown its Chinese portfolio from 56 stores to more than 130 in just five years.
