Tesco Plc

Tesco PlcStrategic analysis a slip of paper study of Tesco Plc with reference to Chinese foodstuffplace IntroductionThis duty assignment is relating to strategical analysis of Tesco Plc. briny focus is given on globular blowup of Tesco in europium, Asia and U.S. it is difficult to sum up wholly strategies that has been espouse by Tesco PLC in polar separate of the world therefore to be more effective emphasis allow be given on strategic analysis of Tesco in China.Furthermore this assignment is focused on the reasons why Tesco has opted to go supranationalist. I provide analyse certain aspects such as location favour, to analyse that what was the reason that Tesco has chosen Asiatic market for it business operation and will include pull ciphers such as cheap labour, low production cost and increased population, averership advantage i.e. Toscos reputation, name recognition and goodwill and so forthand Internalization that how Tesco handles it markets secrets (not to be copied by its competitors) by securing induceership control, as in Chinese market Tesco victoryfully pictureed with 51%-49% roast venture with a local gild but to secure absolute ownership Tesco increased its theatrical offices to 91%.The assignment will also concentrate upon bring down factors that what were the reason in the UK market that compelled or instigated Tesco to expand its operation to all remote markets. These reasons include UK market saturation, overseas market size, increased economic growth in the home market that enables the confederacy to invest in unlike market and less opportunities of financial growth in the local market because of high rival, exploiting re blood lines etcI will also link different theories with Tesco global strategy i.e.(1) Strategic external expansion(2) Porters five forces(3) Porter diamond model (will be exhibited in appendix)(4) Swot analysis (will be exhibited in appendix)(5) Dunnings electric theory etcIt will also analyse the enjoyment of Tesco cabaret card loyalty scheme in gathering information from its customers in separate to know customers behaviour and pauperisation.Furthermore the study also concentrates upon Toscos strategic initiatives i.e. customers focus, act local, chief(prenominal)tain focus, use multi formats, developing dexterity and build brand etc which is used by the company in its domestic market and overseas.The assignment also contains a COMPARISON OF Tesco with its market rivals i.e. Wal-Mart and crosswalk and their strategic approaches in overseas markets. too the study will also look at Tescos strategy of sourcing to low cost producers and Tescos own brand i.e. Tescos value products etc. Company backgroundTesco was founded by Jack Cohen in 1919. Since its inception the company has gone through different development stages and Tesco is now one of the UKs largest retailers and is one of the gratuity three retailers in the world. Tesco is operating business acti vities in three main regions in the world i.e. atomic number 63 ( Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland) Asia ( China, Japan, Malaysia, S tabuh Korea, Thailand and India) and U.S . The company has 3,799 hive aways located in Europe, Asia and U.S and has employed over 440,000 people around the world.1Tesco has adopted different strategies for gaining launching into foreign markets i.e. Acquisition of The Three Guys grasp in Ireland in 1979, Acquisition of Catteau in France in 1992, Acquisition of 51 per cent of Global in Hungary in 1994, Acquisition of K-Mart business in Czech Republic/Slovakia in 1994, acquisition of Savia in Poland in 1995, acquisition of ABFs Irish feed retailing business in 1997 Acquisition of 75 per cent share of Lotus in Thailand in 1998, Partnership with Samsung (81 per cent) and the acquisition of Homeplus in South Korea in 1999, Acquisition of one Makro store in Taiwan in 2000, Joint venture with Sime Darby Bhd (Tesco share 70 per cent) in Malaysia in 2001, Acquisition of HIT hypermarket from Dohle Gruppe in Poland in 2002, Acquisition of the C Two (C2) in Japan in 2003,2 Joint back in China and wholly owned subsidiary in India.Strategic analysis of TescoThe main catchr of Tescos successful business is because of overseas expansion, moving to high margin non-food merchandise and maintaining a strong UK core business. Its UK success has been built on low prices, cultivating customer loyalty, offering a range of different store concepts and expanding into retailing serve, such as banking and insurance. Tescos focus on non-food items has led virtually to wonder whether it is fair to compare Tesco with the other food product retailers at all as it seems to commence become a consumer goods company.3 Tesco long-term strategyTesco is growing with enormous speed. The company is pursuance its long-term strategy based on five main initiatives, i.e. core UK business, international growth, no.-food , retailing services and community plan are the main objectives of achieving its long term success.Tesco has adopted an effective and constant growth strategy which has enabled the company to strengthen its core UK business and expand into peeled developed and developing markets around the world. The rationale for the strategy is to develop the scope of the business to enable the company to deliver strong, sustainable long-term growth and competitiveness by following the customer into large expanding markets at home and overseas by help their needs through merchandising a wide range of products and services such as food products, financial services, non-food products and telecoms etc.4The strategy of diversification and global expansion of Tescos business operation was laid down in 1997 and has been the foundation of Tescos success in recent years. The new businesses which have been established and developed over the stand up decade are competitive and profitable and have enabled the company to lead largest market outside the UK. Core UK businessUK is the biggest market for Tesco and the company aims to provide all its customers with excellent value and choice. The company has developed a range of formats such as Tesco Express convenience stores, Tesco Metro stores, Tesco Super stores and Tesco Extra Hypermarkets.5The UK grocery retail market remains the largest source of r in timeue for Tesco, representing some 50% of last years (2008) 59.4 billion of gross sales.6 International growthTesco is expanding its presence across the world with main focus on customers need. For the purpose of better understanding of local customers and providing excellent services Tesco employees local staff which helped the company to achieve market leading s gradation in Asia and across Europe. The company is giving more emphasis upon developing a range of local formats i.e. Express stores and Value stores in order to coif the needs of smaller communities.The companys overal l action of overseas businesses was very strong in 2009, particularly against the background of increasely challenging trading conditions in international markets as the effects of the economic downturn on consumers have grown and spread around the world. 7 Non-foodIn the beginning Tesco was popular as a food retailer but with the passage of time non-food remains an important part of Tescos strategy and the company continue to grow both sales and market share. Tesco has adopted the policy of differentiation and has now extended its policy to selling non-food items such as clothing, electrical goods, books etc.8Similarly Tescos online non-food business, Tesco Direct, continues to grow rapidly, increasing sales by more than 50% in 2009. The company is also supplying to introduce an online clothing offer making fashionable, affordable clothes easier to buy for many more customers.9 retail ServicesDeveloping Retailing Services has been part of Tescos strategy for over a decade with th e aim of bringing value and simplicity to customers through services such as telecoms and financial products. After ten years of success, we have given it a renewed focus and in July we announced that Andrew Higginson would relinquish his role as groupFinance Director to take on the role of Chief Executive of Retailing Services. He has assembled an experienced team to really motility forward this part of the strategy, which we believe has the potential to deliver 1 billion of annual profit in the next hardly a(prenominal) years.10 With the rapid changing spiritedness style for satisfying customers needs Tesco provides new products and services like online shopping, personal finance and telecoms etc. Community planTesco is also playing an active role to be a good neighbour in the communities where the company operates its business activities.We understand the importance of behaving responsibly in all our operations. Over the past year, we have worked even harder to be a good neig hbour and have strengthened our contribution to the wider communities we serve.11All communities have their own individual concerns and priorities and so each of our countries has its own Community Plan. Whilst the goals and targets are tailored specifically to each country, each plan is underpinned by five core promises actively supporting local communities buying and selling our products responsibly caring for the environment giving customers healthy choices and creating good jobs and careers.12Tesco believes that its success depends on listening to the customers, and responding to their feedback by giving them what they want. Often the most significant contributions the company can make to communities are at the truly local level and so over the past year the company have appointed over 250 Community Champions in stores and depots across six countries. These members of staff are dedicated to working with local schools, charities and services to support the causes that matter most of its customers.13 Tesco in Europe Tesco in Asia Tesco in U.S Tesco FDI abroad Direct Investment plays an important role in global economic growth and development. Due to global economic governing body competition increased and different governments are making strategies to reduce or remove trade barriers and encourage foreign companies for investment. Multinational companies are trying to enter new emerging economies to gain competitive advantage over their competitors. Tesco JV sourcingTo ensure that we offer the best doable prices for customers we buy many products globally so that we benefit from our scale. We have an international sourcing office based in Hong Kong which is responsible for buying 100,000 non-food products for the Group. The international sourcing operation has seen rapid growth in the last few years and now sources 60% of our clothing in the UK and 40% of hardlines, including electricals, homewares, entertainment, toys and books. In Europe it provides over 25% of our hardlines and 85% of our clothing and we have recently started to source products for Asia. In the last year our international sourcing team shipped 72,000 containers from 54 ports.14We also have sourcing centres in China, India, Sri Lanka, Bangladesh and Turkey, with smaller offices in Thailand, Czech Republic and Italy. 15 We have invested in buying hubs where we have a critical mass of suppliers and shipment volumes. It helps to be close to our suppliers so that we can ensure great quality products, delivered from ethical sources, on time and at the best price.16Where possible we try to source products direct from factories rather than through agents or middlemen. This way we can ensure the lowest possible cost price as well as making sure that our products are sourced safely and fairly. We also manage to strip out more cost by consolidating freight volumes. This gives us the best shipping and transportation rates, which can be passed on to the customer in the form of lower prices.17Strategic analysis of Tescos expansion to china to look at Tescos expansion strategy into Chinese market there are many factors involved. Reasons of Tesco global expansion Tescos expansion was spatially characterised as being largely regional in nature and less global oriented. Cautiously, Tesco had clear-cut to dominate the smaller central European markets that were unlikely to allure much attention from the large retail multinational peers such as product and Wal-Mart who preferred to focus on the larger markets. The company incrementally entered markets rather than ledger entry several markets at the same time.18Tescos huge growth in this country is a hard act to follow. With the domestic market increasingly saturated, some UK supermarket chains, viz. Tesco, Sainsbury (who have now sold their interests in the USA) and MS have looked to overseas markets to maintain their positions. This is a whole new ball game, bringing into play competition with large firms f rom other countries, such as US retailing giant Wal-Mart and French multinational product.19Main reasons for an organization to expand their business operation to overseas markets include saturated markets, growing economies and improving transportation systems and in some countries business environment seems more attractive than others. Most recently, Tesco has moved into China and the USA, and its rivals i.e. Carrefour has started pulling out of some eastern European countries while focusing on its Chinese strategy and Wal-Mart is also expanding business operation aggressively worldwide.20Determinants of foreign market entry modesThe choice of entry mode into a foreign market has a great impact on the success of a firms international operations, so consequently, related theories and critical determinants will be represented in the following section as to understand the relationships between MNEs and different factors.Mode of entry into foreign marketTesco used a combination of mu ltinational entry mode strategies within one country. As previously discussed, Tesco entered the central and eastern Europe by acquiring a relatively small chain of convenience stores in Hungary, a supermarket business in Poland and a department store chain in the Czech Republic and Slovakia (see Table II). It was certainly unusual for such a large public company to become involved in these operations, and even competitors at the time questioned the logic of their approach. However, the use of seed acquisitions with a view to develop knowledge of the market before expanding organically through store-by-store development allowed Tesco to background their own kind-hearted and financial capital in the face of potential economic and political uncertainty.21 in that respect are a number of strategies that can be adopted by an organization as a mode of entering into foreign market i.e. foreign direct investment, wholly owned subsidiary, colligation venture, franchising, licensing and bring manufacturing. Some of these strategies are associated with high risk such and needs high investment and management skills i.e. wholly owned subsidiary and direct acquisition and some of them are exposed to minimal risks from overseas markets i.e. licensing, franchising, contract manufacturing and joint venture. Joint venture is a lowest risk strategy that accompanies greater benefits for the organization such as gaining overseas market knowledge and knowing consumers behaviour from overseas partner, risk sharing and gaining quality management capability.22Tesco has opted joint venture in order to gain entry into Chinese market. The company has gained a substantial presence in China in 2004 by signing an agreement of 51%-49% joint venture with a host company Shanghai Hymall Commercial Retail Group which was subsequently increased to 90%-10% in 2007.23Market attractivenessReasons of global expansionThere are a number of push factors and pull factors that plays an important role in an organizations decision of expanding business operation to foreign markets. The following are the main factors that motivated Tesco to invest in China.Push FactorsHome market saturationWhen a business organization decides to enter into a foreign market there are a number of push factors that instigates such organization to invest in foreign market. In the case of Tesco the main factor of its global expansion is home market saturation as there is no room for further expansion because of large number of retailers and high competition.increase capital gain from home marketAnother reason of business expansion to Chinese market could be increased capital and better performance of Tescos business in the UK market which has enabled the company to expand its business to more profitable regions i.e. china.Pull factorsForeign market attractionThe existence of potentials and financial gains in overseas markets are important pull factors that attract foreign companies to invest in such ma rkets. Chinese market is expanding with enormous speed and it has been predicted that the market will worth $596bn by 2010 which gives an insight to foreign companies i.e. Tesco and its rivals, to exploit the existing potentials in Chinese market.24High quality production at low costSimilarly high quality production at lower cost and the availability of cheap labour is another pull factor that attracts foreign investment. To look at China labour is very cheap and the country is capable of producing high quality products at competitive cost, there for it is very advantageous for Tesco to invest in Chinese market. China is the prime location of sourcing for Tesco products within china and for its business in the rest of the world.Tesco club card loyalty schemeTesco is using club card loyalty scheme as a marketing tactics in order to know customers behaviour in purchasing products from Tesco25 and in bring around this scheme leads to customers dedicatement to do business with the orga nisation, to purchase their goods and services repeatedly, and recommend the services and products to others.26DunningsTo make an effective strategic analysis of Tesco in Chinese market it would be better to take into consideration the Dunnings Electric theory. This theory includes location advantage, ownership advantage and internalization.Motives of International ExpansionMany companies expand their business internationally, and manage within the globe market. They know their domestic market better than abroad, and they may face the customs, language, tariff regulations, transport systems and volatile foreign currencies for international operation. This means they will have to face many new challenges, if they decide to enter into a new foreign market, but why do they do so? There are several motives for international expansion (Jobber, 2001).Saturated domestic markets There are few opportunities for the company to expand in the domestic market with sales and profit pressure. Thi s is one of the major drivers of international expansion. Many of the European supermarket chains were fuelled by the desire to take a proven retailing formula out of their saturated domestic market into overseas market.Small domestic markets For some industries, survival means broadening scope beyond small national markets to the international arena. Companies cannot compete against with other strong global competitors. Therefore, internationalisation is the fundamental condition for them to survival.Low-growth domestic markets when economy is in recession at home, companies want to seek new marketing opportunities in more buoyant overseas economies. Customer drivers Customer expectation is also one of the factors, which affect the companys decision to go international. This is increasingly greens in advertising, with clients requiring their agencies to coordinate international campaigns.Competitive forces when the several companies in the same industry go abroad, this cause other s to follow in order to keep the market share and growth rates. This is particular in oligopolistic industries. The attack of the foreign competitor entering into the domestic market is also another factor affecting a companys decision to go abroad.Cost factors High national labour costs, shortages of skilled workers, and rising energy charges can raise domestic operation costs to uneconomic levels. These factors may stimulate the company to choose foreign direct investment in low costs areas, such as Asia, Central and Eastern Europe. Foreign market expansion can also reduce costs by gaining economies of scale through an enlarged customer base.Portfolio balance Marketing in different regions provides the opportunity of achieving a portfolio balance, and each region may have different growth rates. By marketing in a selection of countries, the problems of recession in some countries can be balanced by the opportunities in more buoyant economies in other countries.FirstBuy successful companies abroad, not ones that need turning aroundThere followed a strong expansion overseas in the 1990s, with ever more significant movement into growing markets such as Hungary and the Czech Republic, Thailand and South Korea. Here Tesco was buying into successful companies, but also ensuring neighboring markets were targeted and that its expansion strategy included eventual market domination. Hence the assist lesson for internationalization successSecondIt is all more or less market synergies and market share Internal strategic processes. One of the chief concerns for retail strategists is market selection. Tesco decided to enter into markets where local competition was soft, hence the initial forays into Eastern Europe and South East Asia, away from the harsh gaze of other expanding giants such as Wal-Mart. Tesco also adapted to opportunistic events, and decided on different entry modes in order to develop knowledge. Hence the next lessonThirdYou will neer learn anything u ntil you open some kind of store somewhere External strategic processes. Tesco were comparatively weak internationally compared to bigger, more experienced rivals, despite their increasing dominance in the UK, but it nevertheless decided on an aggressive, organic expansion strategy in its target markets that left some analysts wondering about its long-term prospects. However after sticking with the strategy, it has been paying off, with its vulnerable period seen as a necessity for long-term growth internationally. It also had problems over planning procedures in foreign countries, particularly Ireland, but negotiated with central government for mutual benefit.Also key were Tescos dealing with shareholders, who were initially wary of risking their investment abroad, and there were reports that the metropolis held back expansion within European in the 1990s. However as initial forays such as Catteau became successful, however gradually, soon the debate surrounded the pace of expansio n. Tesco initiated a What is apparent from the completed study is that despite concerns from analysts and shareholders about its internalization strategy, and despite negative local press and resources issues, Tesco got it right. public relations exercise to get shareholders more on board with their internationalization strategy, although this was seen through by many, and exerted debatable influence. Internal operation functions. Many international ventures founder on the failure to commit enough human capital to a project, and this constituted Tescos next lesson.FourthUse strength and size at home to secure the best human resources overseas In order to compete with the likes of Carrefour in their own jardin, Tesco had to make sure it had the very best people on hand to drive its expansion. Experience with financial capital and marketing were also imperative, ensuring that the correct strategies and knowledge was on hand in foreign markets. This is particularly the case in the la tter(prenominal) category, where expansion can be seen as an invasion by the home press. While Tesco almost inevitably suffered some bad press initially, the adoption of an intensifier PR campaign once business success started to develop overseas highlighted the need for an evolutionary marketing strategy. 27Factors underlying Tescos successAn analysis of the UK online grocery market highlights five factors that have been critical to Tescos success profit model focus smart mover entry leveraging reach, richness and affiliation (Evans and Wurster, 1997) strategic positioning (Mintzberg and Waters, 1985 Hamel, 1997) and brand power. 28The first Fresh Easy Neighborhood Market opened in Hemet, 75 miles east of Los Angeles on 1st November 2007. As the monetary Times commented Tescohas staked its fortunes on an innovative new store that is about a quarter of the size of a traditional US supermarket, building on the success in the UK and Europe of its Tesco Express local stores. Some e lements of the Hemet store will be familiar to UK shoppers. But the store also includes a kitchen table where a staff member heats up samples of prepared foods such as pizza and chicken curry. In a further innovation, all the check-out registers require customers to scan their own goods with staff on hand to assist (Financial Times, 4 November 2007). Conclusion1 Tesco Introduction cited at http//www.cn.tesco.com/en/aboutus/aboutus_history.htm2 P. Mark (2005), Retail multinational learning a case study of Tesco, Aston Business School, Aston University, Birmingham, UK, International Journal of Retail Distribution charge Vol. 33 No.1, 2005 pp. 23-48 Emerald Group Publishing Limited3 corporeal Watch UK, Tesco a Corporate Profile Cited http//www.corporatewatch.org.uk/?lid=2524 Tesco p yearly address and Financial Statements 20095 Tesco Introduction Cited http//www.cn.tesco.com/en/aboutus/aboutus_enterprise.htm6 Tesco p Annual Report and Financial Statements 20097 Tesco p Annual Report and Financial Statements 20098 Tesco p Annual Report and Financial Statements 20099 Tesco p Annual Report and Financial Statements 200910 Tesco p Annual Report and Financial Statements 200911 Tesco p Annual Report and Financial Statements 200912 Tesco p Annual Report and Financial Statements 200913 Tesco p Annual Report and Financial Statements 200914 Tesco p Annual Report and Financial Statements 200915 Tesco p Annual Report and Financial Statements 200916 Tesco p Annual Report and Financial Statements 200917 Tesco p Annual Report and Financial Statements 200918International Journal of Retail Distribution Management Vol. 33 No. 1, 2005 pp. 23-48 Emerald Group Publishing Limited 0959-0552, p 3019 Corporate Watch UK, Tesco a Corporate Profile Cited http//www.corporatewatch.org.uk/?lid=252world20 Wal-Mart, Tesco and Carrefour do battle in the East, VOL. 24 NO. 2 2008, pp. 5-7, Emerald Group Publishing Limited, ISSN 0258-054321 International Journal of Retail Distribution Management Vol. 33 No. 1, 2005 pp. 23-48 Emerald Group Publishing Limited 0959-0552, p 3122 Wal-Mart, Tesco and Carrefour do battle in the East, VOL. 24 NO. 2 2008, pp. 5-7, Emerald Group Publishing Limited, ISSN 0258-054323 Wal-Mart, Tesco and Carrefour do battle in the East, VOL. 24 NO. 2 2008, pp. 5-7, Emerald Group Publishing Limited, ISSN 0258-054324 Wal-Mart, Tesco and Carrefour do battle in the East, VOL. 24 NO. 2 2008, pp. 5-7, Emerald Group Publishing Limited, ISSN 0258-054325 Tesco American Dream, Doing it differently, Emerald insight, VOL. 24 NO. 2 2008, pp. 11-15, Emerald Group Publishing Limited, ISSN 0258-0543, p 1326T. J. Jason. W. Karen (2006), University of Abertay, Dundee, UK, British Food Journal Vol. 108 No. 11, 2006 pp. 958-964 Emerald Group Publishing Limited 0007-070X (originally cited in (McIlroy and Barnett, 2000, p. 348).27 The secrets of Tescos expansion success, How the UKs largest supermarket is creeping up on Carrefour and Wal-Mart DOI 10.1108/02580540510630650 V OL. 21 NO. 11 2005, pp. 5-7, Emerald Group Publishing Limited, ISSN 0258-054328 The UK grocery business towards a sustainable model for virtual markets Ray Hackney Manchester Metropolitan University, Manchester, UK, and Kevin Grant and Grete Birtwistle Glasgow Caledonian University, Glasgow, UK, International Journal of Retail Distribution Management Vol. 34 No. 4/5, 2006 pp. 354-368, Emerald Group Publishing Limited