Suitability, Feasibility and Acceptability of the International Strategy of an Organization - Assignment Example

?INTRODUCTION: There have been ongoing changes and technological advancements which have forced the organisations to undertake different strategies in order to remain competitive in the industry. Globalisation is a relatively recent phenomenon which has rapidly progressed in past few years. Apart from the free trade of goods, people, and services and improvement of transport, legal, and communication infrastructure, globalisation has been also supported by the ongoing efforts of the organisations in order to exploit more geographical regions and markets. This in turn has resulted in increasing internationalisation of the businesses. More and more multinational organisations are operating in different countries because of the increasing globalisation. There are different reasons and motives behind the decision of internalisation. According to Johnson and Turner (2003), the reasons and motives of the organisations behind pursuing internationalisation strategy can be divided into following broad categories: 1. Resource Seeking 2. Market Seeking 3. Efficiency Seeking 4. Strategic Asset Seeking Apart from this different approaches to enter into international market are being used by the organisations. Different market entry modes available to the organisations are presented in the figure below: (Adapted from Johnson and Turner, 2003) According to Wrigley (2000), Coe (2003), and Sanghavi (2000), the international expansion by the retail organisations started relatively later as compared to that of the manufacturing organisations but there have been considerable growth and development in the international expansion by the retail organisations in the last fifteen years. It is relatively difficult for the retail organisations to pursue the strategy of international expansion. The retail organisations do not have a single product which they can export to different markets. These retail organisations offer different products which are supplied by different manufacturers and along with this provide the shoppers with a complete experience. Hence it can be said that the business of retailing also has intangible service element. Along with this the products provided by the retail organisations have different consumer preferences and tastes in different regions. For this reason, it is not easy for the retail organisations to expand in different geographical markets and regions. The retail organisations are provided with two different strategic options in order to expand their business operations internationally i.e. global and multinational strategies. The retail organisations which implement the global strategy follow the same format and strategies all over the world. On the other hand the retail organisations which implement the multinational strategy adapt and change the practices according to local preferences. (Alexander and Myers, 2000) In this report an attempt has been made in order to analyse and discuss the suitability, feasibility, and acceptability of the internationalisation strategy of United Kingdom largest retail organisation, Tesco. COMPANY BACKGROUND: Tesco is the one of the biggest and largest retail organisation in United Kingdom. The company is not only operating in the retail industry but has also expanded in several other industries and markets. Apart from this the company is known for its rapid and successful international expansion in different regions (Palmer, 2005). The company has been successfully operating in 13 different countries of the world. Tesco is a successful multinational retail organisation and is the third largest retail organisation in the whole world on the basis of revenues. The company is still looking to further expand its international operations (Wood, 2011) INTERNATIONAL STRATEGY OF TESCO: The management of Tesco is making all possible efforts in order to make sure to achieve the strategic of ongoing expansion in the international market. Currently, the retail organization is operating in 13 different countries all over the globe including Europe, North America, and Asia. Tesco started its international operations in the year 1994 with a launch in Hungary (Palmer, 2005). Since then, the management of the retail organisation has been able to construct effective and efficient international strategy. One of the main goals of Tesco, from the start have been to become a ‘successful international retailer’. The company have been able to fulfil this goal. In the year 1997 around 1.8 percent of the total revenue of the group was generated by the international operations. This has increased to around 25 percent and along with this the retail organisation has been able to attain the first or second position in eight international markets. More than two third of the profit is being generated through the international business operations. Around, 65 percent of the floor space of the retail organisation is attributed to the retail operations outside the United Kingdom (Tesco, 2011a). (Tesco Annual Report 2011a) Tesco has been one of the retail organisations which have been able to capitalise on the basis of its successful international strategy. The key behind the success and growth of Tesco all over the world is increased focus on the needs and demands of the customers. Tesco gives due consideration to the local preferences and trends in order to make sure that the entry in new international market is successful. The retail organisation has learned from its previous international ventures and come up with customised international strategy for every international market. Tesco’s Key Criteria For Entry into New International Market: The management of Tesco have defined some basic key criteria for entry into a new international market. These key criteria are as follow (Palmer, 2005): Under developed retail sector: the retail sector in the new international market should be under developed and there should be high growth potential in the market. High spending power of customers: the customers in the new international market should have high spending power. Opportunity for market growth: there should be considerable opportunity in the new international market for the growth and development. High potential for attaining market leadership: there should be high potential for Tesco in the new international market in order to attain the position of the market leader. Elements of International Strategy of Tesco: The international strategy of Tesco has evolved with passage of time. The retail organisation has build the international strategy on the basis of six main elements which are as follow (Palmer, 2005): 1. Be flexible 2. Act Local 3. Keep Focused 4. Multi-format 5. Develop Capabilities 6. Build Brands Flexibility: The retail organisation should be flexible while formulating the market entry strategy and tactics. It is important to consider that every market is different and thus requires separate and customised strategy or approach. Act Local: As mentioned above, Tesco focus on local preferences, people, cultures, supply chains, and regulations. All these factors require a customised and tailored strategy. Tesco ensures that every market is offered products and other items according to their needs and demands and by the local staff. Keep Focused: In order to make sure that the retail organisation is able to become market leader in all international markets there should be increasing focus and determination. Considerable amount of efforts are required in order to become the leading local brand in the international market. Multi-format Development: Tesco has been focusing on multi-format development. According to the management of the Tesco one format cannot provide them with the opportunity of reaching and exploiting every domain of the market. There are different needs and demands of the people and in order to fulfil the demands of large number of people there should be a mixture of all types of stores ranging from convenience stores to hypermarkets. Along with this the company is implementing the discounter approach through all formats of the stores. Develop Capabilities: In order to achieve success in international expansion it is essential to develop the capabilities and competencies of the people. At the same time it is important to improve the business processes and systems. Finally, Tesco believes in sharing all these skills and capabilities between different international markets in order to make sure that the retail organisation is successful in every international market. Building Brands: Tesco works on building brands in order to build long term and strong relations with the customers. Brands image and personality have high impact on the consumer behaviour and decision making process. ANALYSIS OF SUITABILITY, ACCEPTABILITY, AND FEASIBILITY OF THE INTERANTIONAL STRATEGY OF TESCO: Tesco has used different methods of entry in different international regions. However, it can be said that the most common strategy being used by the retail organisation is of merger and acquisitions. Tesco has been mostly buying the existing retail chain in the country and making it a subsidiary of Tesco. In the new international markets in the region of Europe, the retail organisation acquired retail stores either from the competitors like Kmart or from the government at relatively lower cost. However, in the region of East Asia the retail organisation has mostly used the strategy of entering into a partnership and joint venture contracts with the local retail organisations in the region. This strategy is highly suitable, acceptable, and feasible for the retail organisation. In this way, the company can get access to the important local information like political, financial, economical, and institutional situations and avoid the initial market risk. Apart from this the company gets the ‘local face’ in order to increase the acceptance in the new international market (Palmer, 2005). In the next phase of these partnerships and joint ventures, Tesco acquire larger shares of the retail company (Wrigley, 2005). This allows the retail organisation to minimise the initial market entry risk as the initial investments made by the organisation are small (Palmer, 2005). In its first international venture in the country which has highly related culture with the original market, Tesco followed the similar global retail model. However, when the retail organisation in the regional markets of east Asia it went for local strategy which results in the creation of multinational retail organisation. When the company expanded to Thailand it adjusted and adapted its logistics according to the local conditions, as the transportation in Thailand is relatively expensive and the labour is cheaper. Apart from this the retail organisation went for different store formats in different regional markets. For instance, in order to expand up country the company developed and designed a low cost ‘value’ format i.e. hypermarket surrounded by the space which has been leased for the vendors offering fresh vegetables and fruits (Wrigley, 2005). It is important to acknowledge here that first hypermarket of Tesco was not built in United Kingdom but in Asia. The expansion of Tesco in USA is being pursued with different brand name. The internationalisation strategy of Tesco has been highly suitable, feasible, and acceptable because of the fact that the retail organisation entered into every market with considerable prior planning and strategy formulation. According to Palmer (2005, p.35) the period of nineties was one of the most intense and severe era for the mergers and acquisitions in the retail industry in order to increase the international presence. But Tesco had been sensible in taking considerable amount of time before entering into any new international market and implemented a sequential market entry as oppose to the simultaneous market entry. This has allowed the company to minimise the risk of major loss or bankruptcy. Another positive point of the international strategy of Tesco has been that it has learned from the mistakes of other retail organisation and also from its own previous mistakes. There have been several cases in which the competitors retail organisations had to leave the market like Carrefour international expansion in Slovakia and Czechoslovakia was unsuccessful, Wal-Mart expansion in Germany was a failure, and Kmart expansion in Czechoslovakia and Singapore was unsuccessful. Similarly, Tesco had to face some unsuccessful international market expansions like that of acquiring Catteau in France in 1990 which was later divested and in 2005 the store in Taiwan was swapped with Carrefour. But the strategy of learning from previous experiences and the adapting the local preferences and culture have allowed Tesco to achieve considerable amount of market share in several international markets and attain the level of market leader. The multinational strategy adopted by Tesco results in relatively slower expansion as compared to the global strategy of the global retailers but provides the retailers with the opportunity to attain larger learning effect (Palmer, 2005; Sternquist, 1997) as the retailer is able to broaden the knowledge base by mastering every country. Tesco has ensured that in every international expansion the strategy undertaken is according to the local conditions and environments. Hence, it can be said that Tesco has implemented ‘intelligently federal’ method for international expansion as opposed to the ‘aggressively industrial’ approach of Wal-Mart. (Adapted from Wringley and Lowe, 2002) For this reason, Tesco has been able to achieve considerable success in different international ventures. This is also visible through the financial performance of the retail organisation in all countries and geographical regions. As visible in the tables and graphs below: Market Share in Asian Markets (Tesco Preliminary results 2011b) Market Share in European Markets (Tesco Preliminary results 2011b) Revenue Generated in US (Tesco Annual Report 2011a) Revenue Generated in UK (Tesco Annual Report 2011a) Revenue Generated in European Markets (Tesco Annual Report 2011a) Revenue Generated in Asian Markets (Tesco Annual Report 2011a) CONCLUSION: The internalisation strategy of Tesco has been successful and the retail organisation is earning considerable amount of profits from its international operations. The key to success of Tesco internalisation strategy is to adapt the practices and offerings according to the needs and demands of the local market. However, there are some negative experiences like that of Taiwan and France. The international expansion results in diverting the attention of the management from the competitive retail industry in United Kingdom to other foreign markets and the management has to take care of several markets and industries. Apart from this, as Tesco has relatively low brand image as compared to other well recognised international competitors the company have to face more risk during the international expansion (Palmer, 2005, p.35). Works Cited Alexander, Nicholas, and Hayley Myers. ‘The retail internalisation process,’ International Market Review 17 (2000): 334-353 Coe, Neil. (2003). ‘The internalisation/globalisation of retailing: towards an economic geographical research agenda,’ Environment and Planning A 36 (2003): 1571-1594 Johnson, Debra, and Colin Turner. International Business: theme and issues in the modern global economy. London: Routledge, 2003. Palmer, Mark. ‘Retail multination learning: a case study of Tesco,’ International Journal of Retail and Distribution Management 33.1 (2005): 23-48 Sanghavi, Nitin. Internalisation of Retail/Service Business Strategic Opportunity and Challenges. Manchester Business School, 2000. Sternquist, Brenda. ‘International expansion of US retailers,’ International Journal of Retail and Distribution Management 25 (1997): 262-268 Tesco. Annual Report and Financial Statements 2011. 2011b. 29 Mar. 2012. Tesco. Tesco Preliminary Results. 2011a. 29 Mar. 2012. Wood, Zoe. ‘Every Little brand helps: Tesco boss unveils new global retail strategy.’ The Guardian. May. 2011. 29 Mar. 2012. Wrigley, Neil and Michelle Lowe. Reading Retail: a geographical perspective on retailing and consumption spaces. London: Arnold, 2002. Wrigley, Neil. ‘The globalisation of retail capital: themes for economic geography,’ in Clark, Feldman, and Gertler (eds.) The Oxford Handbook of Economic Geography. Oxford: Oxford University Press, 2000, 292-313 Wrigley, Neil. ‘Transnational food retailers and emerging markets: what Tesco’s experience tell us, supermarkets and development,’ Summary of the IDS/IIED Workshop, University of Sussex, 12-13 October 2005. Read More