YIPS-GLOBALIZATION-DRIVERS. 1. 25 May 09 International Business - Yip's Globalisation Drivers.
Yip’s Globalisation Drivers Team 6 Sachin Arun KA Balaji Swapnil Arobinda. 25 May 09 International Business - Yip's Globalisation Drivers International Business Terms International companies: Importers and exporters; have no investment outside of their home country. Multinational companies: Have investment in other countries; More focused on adapting their products and service to each local market. Global companies: Have invested and are present in many countries; They market their products through the use of the same coordinated image/brand in all markets. Transnational companies: More complex organizations. They have invested in foreign operations; have Decentralized decision-making, R&D and marketing powers to each individual foreign market.
25 May 09 International Business - Yip's Globalisation Drivers Introduction George Yip (1992) To know the degree of Globalisation within an industry, analyse 4 Main Categories of Drivers 1. Market Globalisation Drivers 2. Cost Globalisation Drivers 3. Government Globalisation Drivers 4. Competitive Globalisation Drivers Low (Domestic) High (Global). 25 May 09 International Business - Yip's Globalisation Drivers Yip’s Framework Technological Factor Economic & Financial Factor Social & Demographic Factor Political & Legal Factor. 25 May 09 International Business - Yip's Globalisation Drivers Market Drivers Market Globalisation Drivers Customer needs Customers & channels Marketing Leading Countries Govt.
Globalisation Drivers Cost Globalisation Drivers Competitive Globalisation Drivers. 25 May 09 International Business - Yip's Globalisation Drivers Market Globalisation Driver - Strength Low (Domestic) High (Global) Airlines Computers Automobile Soft Drinks FMCG Retail Banking Book Publishing Baked Foods. 25 May 09 International Business - Yip's Globalisation Drivers Government Drivers Market Globalisation Drivers Customer needs Customers & channels Marketing Leading Countries Govt.
Globalisation Drivers Trade Policies Technical Standards Marketing Regulations Govt. Owned Competitors Govt. Owned Customers Legal protection Cost Globalisation Drivers Competitive Globalisation Drivers.
25 May 09 International Business - Yip's Globalisation Drivers Govt. Globalisation Driver: Strength Low (Domestic) High (Global) FMCG Baked Foods Soft Drinks Computers Automobile Pharma Airlines Retail Banking. 25 May 09 International Business - Yip's Globalisation Drivers Cost Drivers Market Globalisation Drivers Customer needs Customers & channels Marketing Leading Countries Govt.
Globalisation Drivers Trade Policies Technical Standards Marketing Regulations Govt. Owned Competitors Govt. Owned Customers Host Govt.
WritePass - Essay Writing - Dissertation Topics TOC. Abstract This study explores the different theories of international entry strategies and then analyses the international strategy of Tesco Plc. Firms can enter the international markets through different strategies, including licensing technology abroad, direct investment acquisition, exporting, strategic alliance in foreign market and establishing joint ventures. The findings of this study indicate that Tesco Plc uses international joint ventures, acquisitions and Greenfield investments to enter into foreign markets. However, Greenfield investments have led to failures and as such it is recommendable that the company explores international joint ventures and acquisitions as part of its future entry strategies. Introduction International strategy is very important for all business organisations operating in the international market. This is because the strategy plays an important role in determining the opportunities present in the international market and how to exploit them (Hensmans et al., 2013).
Is one such company with significant development in the international market. The supermarket chain has managed to expand its operations across Europe, Asia and North America with huge success.
This international expansion has affected all the facets of the company like business structure, financial status, corporate culture and organisational structure (Ryans, 2013). This study looks at different international strategies, why they are important to Tesco Plc, related theories and their applications. International Strategies The current business environment is very competitive and as such companies need to venture into the international markets in order to generate more profits (Hitt et al 2008). However, choosing the right international strategy is never easy; whether it is licensing technology abroad, direct investment acquisition, exporting, strategic alliance in foreign market, or establishing joint ventures. This study will focus on a few of these strategies that are of importance to Tesco Plc. These strategies are joint ventures, foreign acquisitions, and Greenfield investments.
All these strategies have their own benefits and risks arising from the products or services being offered and the cultural, economic and political environment of the target market (Sternquist & Witter 2011). However the choice of the choice of international strategy is highly dependent on organisational resources, commitment and the extent of risk that it is willing to incur.
Joint ventures involve cooperation among different companies. The partners often come together to consign risks, allocate resources and delegate responsibilities (Krafft & Mantrala 2010).
These ventures are often disbanded once the project is completed. Joint ventures can enable an organisation to market its products or establish its manufacturing plants in a foreign country with the assistance of the local foreign partners. These local partners equip the foreign organisations with the relevant knowledge on government regulations, workings, local markets and the available channels of distribution. Joint ventures are ideal for Tesco Plc. As it will help it in understanding the foreign markets and mitigate risks (McLoughlin & Aaker 2010). In foreign acquisitions a foreign organisation acquires an interest in a local firm through foreign direct investment (Hensmans et al 2013). In most cases foreign acquisitions occur only in proven markets after years of exporting or success experienced through existent joint ventures.
Once an organisation has obtained controlling interests, it attains full authority over policies regarding aspects like quality control, finance, production, marketing strategies and expansion programs. Foreign acquisitions are ideal for Tesco Plc.
As it will help it acquire other companies that are already performing well in foreign markets. The last strategy is Greenfield investment which is a type of foreign investment that entails investing in foreign markets by starting new subsidiaries and then fully owning them.
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This is a strategy that is suitable for Tesco Plc. Because it allows it to venture into new unexploited markets and exploit the opportunities present. Theories of International Strategies There are different theories that explain the reasons why an organisation opts to pursue a specific international strategy in a specific target market. This is the reason why organisations pursue different foreign markets using different strategies depending on their unique characteristics (Hitt et al 2008). These theories are monopolistic advantages, transaction cost, internalisation, strategic behaviour, internationalisation, bargaining and eclectic theories. These theoretical perspectives at times hold divergent perceptions on the relative importance of the different factors that influence choice of entry into foreign markets.
The monopolistic advantage theory was proposed by Hymer and represented a major shift from the previous theories of capital investments and international trade (Sternquist & Witter 2011). The previous theories like that of Heckscher and Ohlin had restrictive assumptions on the immobility of the factors of production. Hymer argued that organisations could use their firm-specific advantages or monopolistic advantages that other organisations do not have to expand into foreign markets. These advantages are things like superior technology, economies of scale, superior knowledge in finance, marketing or management (McLoughlin & Aaker 2010). Therefore foreign direct investment was made possible by product and market imperfections. These market imperfections are structural and are as a result of control ownership advantages like proprietary technology, economies of scale, special access to inputs, product differentiation and gathered managerial expertise. According to this theory, the direct investor is often a monopolist or an oligopilist in product markets.
Therefore these organisations pursue market power and monopolistic advantages in the foreign markets leading to the increased growth of international trade. Internationalisation theory builds on the monopolistic advantage theory and it holds that firms often expand into foreign markets whenever there are market imperfections and they can gain advantage by internalising markets across countries (Seth & Randall 2011).
This results to the growth of the firms as they increase their operations across the borders to take advantage of the existent opportunities. As the organisations increase their efficiency through internalisation of transactions, the vertical integration of operations across the world lead to efficiencies and economies that include long term contracts, opportunity to exploit tax differentials and better quality control. The theory perceives the internalisation process and entry strategies as being products of series of incremental decisions that result in increases involvement in international operations (Alexander & Doherty 2009).
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Therefore firms move from exporting to foreign production as they continually gain international experience. This experience enables the firms to build their knowledge and developing deeper understanding of the foreign markets. The transaction cost theory holds that firms try to minimise the costs associated with exchanging resources with the environment and the bureaucratic costs of exchanges within the firm (Krafft & Mantrala 2010). Therefore they weigh the costs of exchanging resources with the environment against the bureaucratic ones that arise from performing the same operations within the firm. It perceives institutions and markets as possible forms of organising and coordinating economic transactions. Firms grow whenever the external costs exceed the internal bureaucratic costs because they are able to operate more cheaply compared to performing the same operations in the market (Seth & Randall 2011).
However, the firms should be downsized whenever the bureaucratic costs exceed the external transaction costs. Therefore the firms will keep expanding for as long as they can perform their operations cheaply within the companies compared outsourcing them to external market providers. The bargaining theory was advocated by Fagre and other scholars and holds that the choice of entry is a function of the bargaining processes between the firm and the host countries (Ryans 2013). The interaction between the host country and the firms is often characterised by power struggles. Although the host country can exercise its bargaining power through controlling market access, the bargaining power of the firms lie in the ownership advantages that they have (Hensmans et al 2013). Therefore the relative power determines the entry strategy of a firm into a foreign market. The last theory is the strategic behaviour theory and it is based on the premise that firms derive comparative advantage from the resources that contribute towards giving them the advantage over the others (Thain & Bradley 2012).
This is particularly true when some resources are worth more to an organisation owing to the special linkages between the firm and such resources. When the firms have such resources, they are more likely to opt for high control strategies for instance wholly owned subsidiaries. This decision is mostly made with the assumption that such linkages will be influential in enhancing the relative position of the firm in the new foreign market. In addition to the highlighted theories, the integrative theoretical perspective on foreign market entry holds that the firm’s decision to enter into a foreign market and its choice of entry are functions of multiple factors that arise from location and ownership-specific advantages (Alexander & Doherty 2009).
Although these theories differ in many important aspects they allow for broad generalisations on the factors that influence an organisation to enter into a foreign market and the entry strategy. The next section analyses the international strategy of Tesco Plc based on the integrative framework. Tesco Plc International Strategy The company enters foreign markets mainly through joint ventures with local firms, acquisitions and Greenfield investments (Mosley & Barrow 2013). The company aims at being the market leader in the foreign country it enters within a period of five years.
It has registered huge successes in Asia and most of the European markets. However, the situation in America has been different because the company has struggled to gain market control (Harrison 2013).
The success of Tesco Plc in the international market has been aided by its sensitivity to the local culture of the host countries and the market environment. This has mainly been done through partnerships, mergers and acquisitions which have made it easier for the company to offer the local markets with what they want by serving their unique needs. This has been particularly helpful in high context cultures like in the Asian market.
The global expansion and diversification of Tesco Plc are based on the long-term desire for the company to develop sustainable growth and development. Morschett (2011) claims that one of the main reasons why the company decided to pursue the international market was that the local UK market had reached saturation and maturity making it very difficult to grow without exploiting overseas opportunities. This was therefore the only viable solution for the company if it was to remain relevant for the economy in the long run.
The main factors influencing the choice of entry for Tesco Plc are the different threats that it may encounter in the international markets. Some of the common threats are industrial structures and cultural factors. Nonetheless, the primary influencers of the choice of entry for the company are based on cultural factors (Harrison 2013). Tesco Plc has consistently preferred to use international joint ventures as an entry strategy in the Asian market. This is partly because these countries have high context cultures that require organisations to build interpersonal relationships (Alexander & Doherty 2009). In these cultures, relationship networks among business associates, colleagues and even clients tend to be close and personal.
As a consequence, it is important for firms to build trust and relationships during business interactions. The importance of these relationships arises from the fact that they have high uncertainty avoidance levels; therefore relationships and trust reduce the level of uncertainties, risks and ambiguities (McLoughlin & Aaker 2010).
For instance in South Korea, the international joint venture with Samsung helped the company establish contacts with the local suppliers and manufacturers. This was very important in penetrating the market in South Korea because the customers there often shop frequently as they prefer fresh and quality products like vegetables and meat which is different from the customers in the UK who like piling stock. Based on the internalisation theory, Tesco Plc gained advantage by internalising the market in South Korea. This was done through building local networks to ensure that the company sales remain as high as possible. Therefore it employed all the employees of Samsung to ensure that the normal operations were not interfered with. The local managers were also given the authority to make decisions on behalf of the company because of their experience with the local market.
Additionally, this was part of the company’s plan to deal with the challenges associated with the competitive environment by positioning itself using localisation and decentralisation while the other players in the industry pursue globalisation strategies (Hitt et al 2008). According to the bargaining theory, localisation and decentralisation gives the company a local image thus making it highly responsive to the tastes and lifestyles of the local consumers. This gave Tesco Plc a competitive advantage in the South Korean market compared to the other foreign firms like Wal-Mart and Carrefour. The entry strategies of Tesco Plc have also been shaped by cultural factors like psychic distance. Psychic distance refers to the extent to which a firm is uncertain on the nature of the foreign market (Thain & Bradley 2012).
Acquisitions and international joint ventures with the local businesses in the high context cultures are important in reducing risks, adaptation costs, psychic distance and cultural barriers. The acquisition of the local distribution channels gave the company a huge advantage over the other multinationals like Wal-Mart which were struggling because the Korean market is characterised by a strong nationalist outlook. The company pursued the same strategies in Thailand and China and this enabled it to penetrate the market with ease compared to other multinational companies. Therefore international joint ventures and acquisitions enabled Tesco Plc. To succeed in markets where Carrefour and Wal-Mart had failed eventually being forced to exit the market in 2006 (Mosley & Barrow, 2013).
In Thailand for instance, after the acquisition of Lotus, Tesco Plc has managed to grow and is currently the market leader as it has pumped huge investments into organic management. The company also diversified its operations in Thailand to include smaller express stores so as to reach more customers. Tesco Plc has made huge successes whenever it chose to enter foreign markets through strategic alliances and acquisitions; however Greenfield entries have proved to be costly and inappropriate. Although Greenfield entries provide the company with full control and ownership over its operations, it has proved to be unsuitable because of the dismal results. Despite the extensive research that the company made prior to joining the US market, its failure there demonstrates that the research was either flawed or inadequate (Krafft & Mantrala 2010). Additionally, its operations in the US were an attempt to duplicate its operations in the UK because it tried to standardise instead of localising them. Part of the problem with the market research was that it only concentrated on the buying behaviour of the Americans and ignored other important variables like shopping experience, value, aesthetics, store atmosphere and quality.
This was a great mistake because corrective investments should have been made in response to these marketing aspects (Morschett 2011). For instance the Tescosells pre-packaged fruits was a big mistake because Americans prefer selecting their own fresh fruits. Tesco failed to appreciate the US customer base because it underestimated it. This is the reason why the company handled its operations in the US as an extension of the UK market. The company was attracted to the US market by the booming economy and the ever rising property value (Ryans 2013).
These are the factors that prompted it to go for Greenfield investments in US. This was a viable option; however the company failed to account for the deeper financial dynamics that could have saved it from the 2009 financial crisis. In addition to this, the choice of Tesco Plc to enter the US market through Greenfield investments was partly influenced by managerial short termism and egoism. As a consequence, several mistakes can be pointed out from its entry and post entry strategies.
The first mistake that the company made at the point of entry is that it increased its exit barriers by aggressively increasing more stores despite the fact that it was making huge losses. Secondly, the company may have been driven by managerial subjective interest for power emanating from the previous international successes. This led to overconfidence therefore blurring the vision of the managers to see that they were driving the company in the wrong direction (Morschett 2011).
However, the biggest mistakes that Tesco Plc made was that it failed to plan and strategize for post entry and this led to flaws in its quest to compete in the home market of the world’s largest retailer. As a result the company made huge loses in the US and was eventually forced to exit without ever recording any profits. In Taiwan, the situation was the same as that of the US; Tesco entered the market in 2000 without partnering with the local companies. The company was able to establish six hypermarkets through organic growth. However, just like in the US the Taiwanese retail market was hugely dominated by Carrefour which had the advantage of having all the strategic positions. Just like in the US, the company was unable to attain the market scale necessary for building central distribution centres.
Therefore in 2005, it was forced to exit the market through a divestment deal with Carrefour. Recommendations Based on the findings of this study, the following recommendations can be made for Tesco Plc for it to succeed in its quest to establish its presence in other international markets. First off, the company should abandon Greenfield investment strategies because they have proved to be very costly in the past.
The company struggled in the US and Taiwan and was eventually forced to exit because lack of local partners made it very difficult for it to succeed in markets that are dominated by the two retail giants. The company should have strategies that fit into the culture of the target market like it did in South Korea. The retail industry is very sensitive because it represents the daily necessities of the consumers and as such must be responsive to their cultural habits. For a multinational company to succeed in a foreign market it must have strategies that are responsive to the needs and culture of the local people.
Therefore Tesco Plc. Should continue incorporating localisation strategies and respond to the culture of the local markets. It should be more innovative and proactive in its marketing strategies in the international markets. For instance the company should enhance its market intelligence and customer database in order to be able to customise service delivery to the customers. References Alexander, N., & Doherty, A. International retailing. Oxford: Oxford University Press.
Cunningham, J., & Harney, B. Strategy & strategists.
Oxford: Oxford University Press. Business environment in a global context. Oxford: Oxford university press. Hensmans, M., Johnson, G., & Yip, G. Strategic transformation: Changing while winning.
Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. A., Ireland, R. D., & Hoskisson, R. Strategic management: Competitiveness and globalization. Mason, Ohio: South-Western. Krafft, M., & Mantrala, M.
Retailing in the 21st century: Current and future trends. Heidelberg: Springer. McLoughlin, D., & Aaker, D. Strategic market management: Global perspectives. Hoboken, N.J: Wiley. Morschett, D.
European retail research: Volume 25, Issue I. Wiesbaden: Gabler Verlag. Mosley, R., & Barrow, S. The employer brand: Bringing the best of brand management to people at work. Hoboken, N.J: Wiley.
Beating low cost competition: How premium brands can respond to cut-price rivals. Hoboken, N.J: Wiley. Seth, A., & Randall, G. The grocers: The rise and rise of the supermarket chains. London: Kogan Page.
Sternquist, B., & Witter, G. Retail strategic international expansion (SIRE²) theory and cases. Haslett, MI: BSC Publisher.
Thain, G., & Bradley, J. Store wars: The worldwide battle for mindspace and shelfspace, online and in-store. Chichester, West Sussex: John Wiley & Sons.
WritePass - Essay Writing - Dissertation Topics TOC. INTRODUCTION Tesco plc is the food and drink retail sector represents the major industry in the UK, providing, manufacturing, employment for over three million people in the main production and retailing. In 2004 retail accounted for 9% of (GDP) gross domestic product (Datamonitor, 2003). In latest years UK supermarkets have come under increased analysis over their management of suppliers, yet the increase of strategic supply networks has been essential part of largely supermarket strategies for the past decade. This report is provides Tesco, with emphasis on its external environment and company’s analysis of resources, competence and culture strategic and the resources based on strategies. One of the largest food retailers in the world, Tesco operating about 2,319 stores and employing over 325,000 people.
It provides online services through its subsidiary, Tesco.com. The UK largest market company where it operates under four banners of Superstore, Extra, Metro and Express.
The company sells about 40,000 food products, non-food lines, clothing and other. The company’s own-label products are at three levels, normal and finest, value. As well as convenience produce, several stores have gas stations, becoming one of Britain’s largest independent petrol retailers. Other retailing services Tesco Personal Finance.
PESTEL FRAMEWORK 2.1 Political Factors the company Operating in a globalized environment. Tesco has stores around the world now operates in the Republic of Ireland, Europe, Slovakia, Poland, Czech Republic, Hungary and Turkey. It also operates in Asia in Thailand Japan Taiwan, South Korea, and Malaysia it is performance is greatly influenced by the political and legislative situation of these countries, including the (EU).
For employment the government encourages retailers to provide a mix flexible job opportunities, lower-paid and locally-based jobs to highly-skilled, higher- located jobs paid and centrally- (Balchin, 1994). Moreover to meet the demand from population categories such as working parents senior citizens and Students. 2.2 EconomicalFactors Tesco economic factors are of concern, because they are likely to influence demand, prices profits, and costs. One of the mainly influential factors on the economy is high unemployment levels, which decreases the effective demand for several goods.
The economic factors are largely outside the control of the company, but their effects the marketing and performance can be deep. While international business is still increasing (Appendix A), and is expected to contribute better amounts to Tesco’s income over the next few years, the company is still highly dependent on the market. Therefore, it would be badly affected by any slowdown exposed to the market concentration risks and in the UK food market 2.3Social/CulturalFactors present trends show that British customers have moved towards ‘bulk’ shopping, which is due to a range of social changes. Tesco have, therefore, improved the quantity of non-food stuff available for sale. Demographic changes such as the aging of people, the female workers are increase and a decline in preparation home meal mean that UK retailers are also focusing on services and added-value products. Adding, the focus is now towards; the share of the own-label in business mix, the operational improvements and supply chain, which can drive costs out of the business.
National retailers are increasingly reticent to take on new suppliers (Datamonitor Report, 2003Clarke, Bennison and Guy,1994;). The type of goods and services demanded by customers is a meaning of their consequent attitudes and beliefs and social conditioning. Customers are becoming more and more aware of their attitudes towards food are constantly changing and health issues. For instance to accommodate an increased demand for organic products Tesco adapting the product mix, and also the first company to allow customers to pay in cash and cheques at the checkout.
2.4 Technological Factors Technology is a main macro-environmental changeable which has influenced the increase of several Tesco products. The new technologies benefit the company and customers satisfaction raises because services can become more personalised and shopping more convenient, goods are readily and available.The launch of the Efficient Consumer Response initiative provided the shift that is now apparent in the management of food supply chains (Datamonitor Report, 2003 2.5 Environmental Factors In 2003, there has been improved pressure on several companies and managers to admit their responsibility to society. (Johnson and Scholes, 2003) The major societal concern threatening food retailers has been environmental issues, a key region for companies to proceed in a socially responsible way.
Therefore, by recognizing this tendency in the broad ethical stance, the company corporate social responsibility is concerned through the ways in which an organization exceeds the minimum obligations to stakeholders particular through regulation and business governance PORTER’S FIVE FORCES Threat of New Entrants The UK grocery market is mainly dominated by competitors, including the major brands of Tesco,Sainsbury’s Safeway,and Asda, that take a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years, Ritz (2005), the grocery market has been changed into the supermarket-dominated business. The Majority of the large chains have built their power due to operating efficiency, major marketing-mix expenditure and one-stop shopping. This power had a large impact on the small traditional shops, such as, bakers, butchers and etc.
Therefore, these days it possesses a strong barrier for new companies who want to enter the grocery market. For example, it becomes rather difficult for new entrants to increase sufficient capital because of large fixed costs and highly developed supply chains. In advanced technology This is also evident in huge investments done by large chains, like Tesco, for stock control systems that impact new entrants and the existing ones and checkouts.
Other barriers include economies of scale achieved by Tesco. Bargaining Powerof Suppliers This force that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. Therefore, this consolidates more leading positions of stores like Tesco and Asda in negotiating better prices from suppliers that small individual chains are unable to match Ritz (2005). UK based suppliers are also threatened by the rising ability of retailers to source their products from abroad at cheaper deals. The relationship with sellers can have same effects in constraining the strategic freedom of the company and in influencing its margins. The forces of competitive rivalry have reduced the profit margins for suppliers and supermarket chains. Bargaining Power of Customers Porter M.
(1980) more products that become standardized or undifferentiated, the lower the switching cost, and therefore, more power is yielded to buyers. Tesco’s famous loyalty card – Club card remains the successful customer retention strategy that increases the profitability of Tesco’s business.
In meeting customer needs, better choices, customizing service, ensure low prices, constant flow of in-store promotions like Tesco enables brands to control and retain their customer base. In recent years the food retailing has changed due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a larger need for supermarkets to sell non-food items.
Also it has provided supermarkets with a new strategic expansion into new markets of banking. Moreover Consumers have become more aware of the issues surrounding fairer trade and the influence of western consumers on the expectations and aspirations of Third World producers. Ethically and ecologically benign sound production of consumer produce such as coffee, tea, and cocoa is viable, and such products are widely available at the majority of large chains. Threat of Substitutes for a particular product General substitution is able to reduce demand, while there is a threat of consumers switching to the alternatives Porter M. In the grocery industry this can be seen in the form of the substitute of need or product-for-product and is further weakened by new trends, such as the way small chains of convenience stores are emerging in the industry. In this case Tesco is trying to acquire existing small-scale operations and opening Express and Metro stores in city centres and local towns Ritz (2005).
3.5Bargaining Powerof Competitors The grocery environment has seen a very significant growth in the size and market dominance of the larger players, with greater store size, increased retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the sector. As it was mentioned above, the purchasing power of the food-retailing industry is concentrated in the hands of a relatively small number of retail buyers.
Operating in a mature, flat market where growth is difficult (a driver of the diversification into non-food areas), and consumers are increasingly demanding and sophisticated, large chains as Tesco are accruing large amounts of consumer information that can be used to communicate with the consumer Ritz (2005). This highly competitive market has fostered an accelerated level of development, resulting in a situation in which UK grocery retailers have had to be innovative to maintain and build market share. Vray 3.5 crack for maya. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behaviour. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service.
SWOTAnalysis mus, Tesco is the top grocer and leading retailer in its home market of the UK. Pitched at the broad middle mass-market, it has maintained its position through a clear focus, well targeted product offer and excellent record both in product and format innovation.
Tesco also leads the world in online grocery retailing. In the UK the company concentrates on running grocery superstores, c-stores and an online service.
Elsewhere the focus is usually on hypermarkets. In 2003, the group’s trading record around Europe and UK has been outstanding. The full SWOT analysis of Tesco is presented in Appendix B, summarizing the key issues from the business environment and the strategic capability, including resources and competence, of the company that are most likely to impact on strategy development Strengths Increasing market share: Tesco holds a 13% share of the UK retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food.
Tesco’s general growth and ROI show no sign of abating: In the UK, Tesco’s late 2002 investment into West-midlands based convenience store group T&S was billed as the most aggressive move into the neighborhood market by a big-name retailer so far. The deal has turned Tesco into the country’s second biggest convenience store chain after the Co-operative Group, and the company also plans to open up 59 new stores in the UK this year. Tesco has grown its non-food division to the extent that its revenues now total 23% of total group earnings. Tesco’s international business segment is growing steadily, and is predicted to contribute nearly a quarter of group profits over the next five years.
If geographical spread continues to grow, this will ensure Tesco’s continued regional strength. Insurance: In fiscal 2003 Tesco Personal Finance reached the milestone of one million motor insurance policies, making it the fastest growing motor insurance providerever.The group’s instant travel insurance allows Clubcard holders to buy their holiday insurance conveniently at the checkout. Pet insurance now has over 330,000 cats and dogs covered, while the life insurance policy followed on from the success of last year, when it was voted The Most Competitive Life Insurance Provider in the MoneyFacts Awards 2003. Tesco online: Tesco.com is the world’s biggest online supermarket and this year the group had sales of over £577 million, an increase of 29% on last year. Tesco online now operates in over 270 stores around the country, covering 96% of the UK. With over a million households nationwide having used the company’s online services, the company has a strong platform to further develop this revenue stream. Brand value: Profits for Tesco’s operations in Europe, Asia and Ireland increased by 78% during the last fiscal year.
The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. Tesco’s innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalized on this. UK market leadership reinforced: Since acquiring number one ranking in 1996, Tesco has developed a successful multiformat strategy that has accelerated its advantage.
Its UK sales are now 71% larger than Sainsbury’s. Also the Competition Commission’s report makes it very difficult for a competitor to challenge its scale and has effectively scuppered Wal-Mart’s chances of stealing UK leadership. Therefore, Tesco is in an enormously strong position in its domestic market. Weaknesses Reliance upon the UK market: Although international business is still growing, and is expected to contribute greater amounts to Tesco’s profits over the next few years, the company is still highly dependent on the UK market (73.8% of 2003 revenues). While this isn’t a major weakness in the short term, any changes in the UK supermarket industry over the next year for example, like the Morrison’s group successfully purchasing the Safeway chain could alter the balance of UK supermarket power, and affect share.
Key Drivers Of Globalisation
Debt reduction: Tesco is not expected to reduce its debt until at least 2006. Tesco has a large capital expenditure program mainly due to its huge investment in space for new stores. Since its expansion is so aggressive, Tesco has little free cash for any other operations. Signs point to serial acquisitions: With an enterprise value of £23 billion, Tesco clearly has enormous firepower. Also, its product range is vast and almost any acquisition can be justified, particularly in the UK.
While ‘fill the gap’ strategy would be useful to the company, as has been the case with the UK convenience market, there is the danger of Tesco becoming a serial acquirer, as this tends to reduce earnings visibility and quality. 8.0 CONCLUSION The success of the Tesco shows how far the branding and effective service delivery can come in moving beyond splashing one’s logo on a billboard. It had fostered powerful identities by making their retiling concept into a virus and spending it out into the culture via a variety of channels: cultural sponsorship, political controversy, consumer experience and brand extensions.
In a rapidly changing business environment with a high competitors’ pressure Tesco have to adopt new expansion strategies or diversified the existing in order to sustain its leading market position in an already established retailing market. The company must constantly adapt to the fast changing circumstances.
Yips Drivers Of Globalization
Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and execute these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Tesco’s cognitive and behavioural learning processes. In large organizations as Tesco strategy should be analysed and implemented at various levels within the hierarchy.
Yips Drivers Of Globalisation Tesco
These different levels of strategy should be related and mutually supporting. Tesco’s strategy at a corporate level defines the businesses in which Tesco will compete, in a way that focuses resources to convert distinctive competence into competitive advantage.
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