Examination of Witnesses (Questions 160-179)
TESCO PLC
7 SEPTEMBER 2004
Q160 Mr Berry: Do you encounter significant
problems from time to time where you find that suppliers are supplying
what are essentially fake goods, counterfeited goods?
Ms Neville-Rolfe: I think we probably
have less of a problem than many do because we would make it clear
that that is difficult for us.
Q161 Mr Berry: What about your Tesco
brand of retail goods, do you have a factory round the corner
that quickly spots a new Tesco brand and duplicates it and tries
to retail it in a different way?
Ms Neville-Rolfe: I do not think
that is quite the way we work with the Tesco brand. The Tesco
brand programme is a little bit more long term. It may take five
or six years to develop with the suppliers the Tesco brands and
we would want to build up a relationship with a reputable supplier
and make sure for example that the working practices and so on
are of a standard that complies with our requirements.
Q162 Mr Berry: Perhaps I was not clear.
My question I suppose was is there a problem with counterfeiting
of Tesco branded goods?
Ms Neville-Rolfe: Right. The honest
answer is we do get quite a lot of e-mails from people saying,
"I have seen a Tesco," in some country where we are
not or some Tesco product, which may of course be being resold
having been bought in Tesco in the first place. We try to work
with the lawyers locally to take action against those. I would
not say it was a major problem but it is a problem.
Q163 Mr Berry: You have got the Chinese
experience as well.
Ms Neville-Rolfe: Only from 1
September so I do not want to speak with any authority!
Q164 Mr Berry: The issue for many countries—ICI
is a classic example in China—is a mega problem but your
experience in Malaysia and Thailand has not been that this is
a serious issue?
Ms Neville-Rolfe: No, but I think
it is a good watch out for the Chinese operation. Of course in
China we are in with an experienced Taiwanese entrepreneur as
our joint venture partner and hopefully they will have already
understood how to do things. One point about copying that is advantageous
is when I was in Korea I was so delighted to find in our express
store that we had opened there meat packs and vegetable packs
that looked very like my local Tesco's and the reason was that
the people from Korea had come back, spent time and worked out
a Korean version of what was the most sensible pack to have for
that particular kind of meat. They looked quite similar and that
ability to learn is a great feature of the Asian economies.
Q165 Chairman: Do you find any problems
about shifts in factories being produced under the Tesco name
but appearing elsewhere? When we were in China we found that you
might have a plant producing legitimate paint but the management
might actually produce one shift for their own use. You have not
had any problems like that, that your suppliers are doing the
same but selling it on to somebody else?
Ms Neville-Rolfe: Not that I am
aware of. I did visit some factories while I was in China and
we tried to find factories which are well run and where we give
them good contracts. The factories in China have grown with our
business and therefore are reasonably happy selling to us. However
if you go round clothing factories, which you may have done, you
will find that they do not only sell to Tesco, they may well be
selling to Next and indeed to New York designer shops. You have
to try regarding these things and certainly we do try, we do spot
checks, we have a way of working which we share with the suppliers
and they know that and hopefully they will therefore want to observe
the rules that we would require, and obviously doing double shifts
and getting round the rules about treating people correctly would
be a problem.
Q166 Chairman: Do you have concerns about
labour conditions and things like that?
Ms Neville-Rolfe: Certainly that
is an issue that I think companies have to address and we have
in the last 18 months put in a lot of effort into checking suppliers,
taking the ones that are the most risky first and moving through
and looking at their conditions and making sure and then using
a third party, Sedex, to try and do some third party accreditation
for us so as to ensure ethical labour standards are observed.
We try to do that across the sector actually to make progress
in this area.
Q167 Chairman: What about electronic
goods? You were saying in the UK that you are adding on to your
food-related activities by selling white goods and the like. Do
you do that in that part of the world as well?
Ms Neville-Rolfe: A lot of what
you see in our bigger stores in the UK reflects what we almost
copied from the hypermarkets in Asia so they have a big range
of white goods/electrical goods, these wonderful power aisles
with thousands of TVs and obviously there are great electrical
goods to be sourced in Asia, so a huge variety of general merchandise
is the classic pattern.
Q168 Chairman: I suppose in hard terms
you could argue that by selling a lot in Asia you enable yourselves
to get the kind of discounts which means they are even cheaper
when you sell them in the UK, or they should be?
Ms Neville-Rolfe: It may have
been a factor in helping us to source very good value in the UK.
That is a good point. The businesses do tend to be a bit distinct
but we have a group resourcing office located in Hong Kong (although
increasingly we have got hubs elsewhere as well) and they are
spending time trying to find new areas of value for the business.
Q169 Chairman: So we would be entitled
to complain to our Tesco manager if the DVDs are the same price
as somebody else who does not have an operation in South East
Asia?
Ms Neville-Rolfe: I hope they
would be good value!
Q170 Linda Perham: On the issue of corruption,
The Economist published an article earlier this year highlighting
a lot of problems in South East Asia despite what governments
in the area have tried to do. Have you encountered any problems
with this or do you know of any problems other businesses have
had with corruption in South East Asia?
Ms Neville-Rolfe: The way we approach
this is we do not tolerate corruption in our own business and
where there are issues of corruption we take steps to address
those, and I think people in the business understand that. The
culture is a bit different in South East Asia. There is a practice
where people give each other gifts. We try to make sure those
are not too expensive. There are issues but what we do is we try
to deal with them when they come up.
Q171 Linda Perham: Is it your experience
that it is perhaps more of a problem in one country than another
or within the region is that culture more or less something which
comes up from time to time?
Ms Neville-Rolfe: I think it is
an issue that does come up from time to time in any one of the
businesses but I would not say that any one was particularly—
Q172 Linda Perham: —One country
was worse than another?
Ms Neville-Rolfe: —Was particularly
a problem, no.
Q173 Sir Robert Smith: Can I just go
back to one thing you were talking about and that is having local
people in to make it more of a local feel to improve your relationship
with customers. Thinking in this country where there is often
a "Buy British" campaign but customers will go towards
the best bargain or the best product rather than necessarily a
national loyalty, in general the consumers you are serving in
these markets, are they driven by consumer issues in terms of
what they are wanting to buy or are there national issues in terms
of loyalties?
Ms Neville-Rolfe: I think it varies.
When I explained "local" at the beginning I really meant
within the country, ie ranged and chosen so that it was for the
particular people. In the UK stores you will know the range varies
a bit according to where you go to the store so in Brixton we
will try to have more ethnic lines and all the rest of it. That
principle of looking at the local catchment and trying to stock
the store within certain reason continues abroad. On the "Buy
British" point some consumers in Britain will buy British
or buy Scottish and some are not interested because they only
care about the price being low. You find exactly the same phenomenon
abroad. The Koreans are particularly keen on buying Korea. It
does vary a little bit from country to country.
Q174 Sir Robert Smith: But on the whole
it is the market?
Ms Neville-Rolfe: On the whole
people will take some interest in where it is sourced but less
than you might expect.
Q175 Sir Robert Smith: On your assessment
of the market in South East Asia—because obviously one of
the things we are looking at is what is the potential out there
still—do you see it as a mature market for UK goods or are
there parts of the region with significant potential still to
be tapped?
Ms Neville-Rolfe: Is this from
our goods and exporting services and exporting supermarkets or
are you talking about biscuits from the UK in South East Asia?
Q176 Sir Robert Smith: Both would be
interesting, whichever one you prefer.
Ms Neville-Rolfe: In terms of
the supermarket investment we obviously see continued scope to
grow in the markets that we are in and we keep the radar on on
other markets. We are tending to try to concentrate to get bigger
in these markets but if you take a five or ten-year view some
of the other countries one would hope would become more prosperous
and would become more politically stable and might offer opportunities
for investment. We have a lot on our plate having recently gone
to China, Japan and Turkey. I think there are opportunities
and obviously you had the boom in the 1990s and then that fell
back a bit but there is no reason why Asia should not move forward
and grow very strongly. They have got huge populations which are
well educated and very hard-working, and lots of resources. I
think the outlook for the region is good. I think the question
of British exports to some extent would go with that because if
the countries can become more prosperous and you build up good
links then you are able to export and clearly the exporting of
services, which is in a way what we are doing, does seem to me
to be a huge area of potential for Britain.
Q177 Sir Robert Smith: And on the biscuit
front?
Ms Neville-Rolfe: There will be
a few biscuits in some of our stores in places where you have
a very high concentration of British or Europeans but the huge
majority of sales will tend to be local.
Q178 Sir Robert Smith: Do you think UK
companies are fully alive though to what potential might still
be out there or are their radars not on?
Ms Neville-Rolfe: I think you
would have to ask others. It is a lot to do with the companies
and their attitude generally. We have been a bit unusual in the
retail sector, although there are some others, in deciding to
put in big investment overseas even though the returns obviously
take time to come, and now they are beginning to come through.
Five or six years ago that was thought to be quite a challenging
thing to do but we are pleased so far.
Q179 Sir Robert Smith: In an earlier
answer from the Chairman about dealing with bureaucracy you mentioned
in passing that the British embassies were helpful. Do you have
any formal use of the services from UK Trade and Investment?
Ms Neville-Rolfe: I tend not to
know. When we get there I rather assume they are backing Britain
overseas rather than any of the particular services which often
we are never quite sure which one belongs to which, but what they
do is they have on the whole an ambassador in the political section,
which is extremely useful because if you are going into a country
you need to understand the politics and if there is a change of
government you need to understand the politics and they seem to
have a marvellous way of keeping links with everybody whatever
their political colour so over time they are able to give some
good advice. That is the political bit which we find valuable.
I have talked to other FTSE companies who say exactly the same
thing. Then you have got the commercial section where you have
got expert people who are expert in commercial practice and often
there the people who are most useful are people who have been
there a really long time, perhaps even local staff who are able
to tell you a lot about what is going on and perhaps assist smaller
companies who are trying to get on and get out there.
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