Challenges of the Business Development Strategy for Tesco - Case Study Example

Challenges of business development strategy for Tesco: A study of experiences, policies and practices within Malaysia’s market Aims of the Dissertation  Chapters 1,2 Retail shopping has changed the traditional shopping customs by introducing a western shopping culture through product variety and modern store formats. Retailing grocery is an intensely competitive, low-margin and high volume industry which has evolved over the years and now is dominated by chains utilizing the latest technology. The force driving the revolution is the changing consumer characteristics. Speed, convenience and fresh food – these are the benefits that consumers have been able to derive through shopping at retail supermarkets. Amongst these, Tesco, the UK retailer is the biggest in terms of market share and hence decided to venture into foreign markets. It has been carrying the brand image and the concept to various markets which include the Western Europe, the Asian countries and very recently even to the United States. Tesco’s UK stores are divided into five formats – Tesco hypermarkets, superstores, Tesco Metro, Tesco Express and One Stop. They have also started a non-food segment known as Tesco Homeplus. As per its annual report of 2005, Tesco serves 98% of the UK population from its 300 participating stores. It procures orders of 120,000 per week from over 1 million households and effects 1000 deliveries through its vans. During the same year it also recorded online sales up by 24.19% to £719 million. It succeeded in some markets and faced challenges in others. It has particularly attained success in the growing economies like Hungary, Poland, Czech Republic and Slovakia (Yoruk & Radosevic, 2000). It has faced challenges in the Malaysian market and there is no study on the policies and practices that it adopted in Malaysia. This study would be particularly interesting as it would serve to help other retailers in emerging economies. It is an interesting area of research but knowledge is fragmented. To fill the knowledge gap it is essential to carry out a research on how Tesco, has faced the challenges in Malaysia. Accordingly the follows: 1. To evaluate the mode of entry that Tesco adopted in entering the US, China and Malaysia. 2. To determine the challenges it faced due to local government rules and regulations in Malaysia a. The challenges from the local suppliers/vendors. b. The consumer attitudes that influence the purchasing decisions and the products/store formats in each of these countries. c. The challenges in recruiting the local people against expatriates. 2. Methods Chapters 3,4,5 Malaysia has been active in retail stores for long time. Even in 2002, 20 percent of the sales took place took place in department stores, supermarkets and hypermarkets. The GDP growth rate in Malaysia has been rapid; consumption credit advanced by the banks increased by 16.4% in 2004 and imports of consumption goods rose by 14 percent year on year in 2004. Malaysia has been reducing FDI in the retail sector and if Malaysia is used as a regional distribution centre foreign ownership can be raised from 51% to 100 percent. As retail giants like Tesco and Carrefour have penetrated the Malaysian market there has been decline in the locally owned shopping units. Foreign policies keep changing and the foreign companies are not allowed to build new supermarkets in some areas. Consumer lifestyles are evolving in Malaysia due to rise in education levels and affluence. Consumers show a preference for foreign brands in apparels and electrical goods. Foreign companies need approval to launch operations or relocate business. Tesco is amongst the top five retail players in the Malaysian market. According to Philip Kotler , “a company going abroad must study each market carefully, become sensitive to its economics, politics and culture, and make some adaptations in its products and communication to suit the foreign tastes”. Internationalization requires customized marketing in order to appeal to differing preferences across countries. Gaining competitive advantage requires building on the proven principles of effective strategy (Delaney-Klinger, 2003). Tesco did not try to attempt to build a new model of business but used existing assets to grow. Tesco has moved aggressively to improve supply chain management to balance customers’ demands with the need for profitable growth. This includes coordination within different functional levels, inventory management and cost control. Tesco has been successfully able to keep the customers locked-in. Micro-level marketing activities in e-commerce like individualized data collection allows for market segmentation (Burt & Sparks, 2003). Tesco had started 14 hypermarkets by the end of 2004 in Malaysia (Shamsudin & Selamat (2006). Supermarkets and hypermarkets are expected to perform strongly in the future. Malaysian, especially in urban areas, prefers to shop in modern retail outlets, which offer them one-stop shopping options. Due to the rising income and education level, there have been lifestyle changes. Malaysia will be a fairly mature society by 2020 and with increase in the baby-boomers proportion; this segment cannot be ignored as consumers. In Asia they are called “invisible consumers’ as purchasing decisions are taken by others in the family unlike the west and the developed nations. In times to come this segment would be making choices on their own which is of interest to the retailers in emerging and specially Asian economies. Tsesco took a strategic stand in 2005 when they targeted the Muslims during the Ramdan and the Eid festival. Malaysian media conglomerate Media Prima created the campaign which captured the viewers both on the television channel and the newspaper (Hargrave-Silk, 2005). The campaign would capture the views of consumers as they viewed fresh products in Tesco. The views were then aired on the women’s programme on the television and in women’ section in the newspaper. This is just a small technique that Tesco used in Malaysia and it would make an interesting study to understand their strategies and practices in capturing the Malaysian market. Having gained confidence in the dual currency four tranche deal, supported by several banks namely, BNP Paribas, Citigroup, Deutsche Bank, HSBC and the Royal Bank of Scotland, Tesco is now considering expansion in Malaysia (Alistair, 2006). Tesco is confident of its success as they have strong assets, almost 80% of the property is owned by them, they maintain good cash flow and the management is completely focused on the core business. Tesco can see the huge potential that Malaysia has to offer and hence are aggressive in their expansion strategies. Based on these the attitude theory would be adopted as the framework for research as it has a pervasive effect on consumer behavior. It would determine how Tesco reflects on how consumers make decisions and how Tesco alters its strategy and offers in the Chinese market. It would determine how Tesco’s decisions are influenced by the consumer responses. It would also highlight how Tesco takes up the challenges posed by the foreign policy changes that take place from time to time. Thus the study will gain insight into the challenges, policies and practices that Tesco adapts in Malaysia. 3. Feasibility A lot of literature is available through the Liverpool electronic library like the internationalization of retail markets, the status that retailers have in emerging and mature markets, the challenges that Tesco has overcome, and its plans for the future. A review of the literature would give a general idea of what needs to be done. Data Collection: An interpretative, qualitative method of research would be employed. Qualitative research is conducted through an intense and/or prolonged contact with the field of study. Qualitative data has the potential to reveal complexity. For this research a case study approach would be ideal as Tesco has experienced consistent growth. This process allows great insights into the research and helps to study the hypothesis. Other than the literature that is available, stakeholders would also be interviewed as these can bring out certain important strategies. While a lot of data is available freely, market research reports and financial profile of the company would help but these would have to be purchased. These reports along with the interview data would help a better understanding of the retail internationalization process. Case-study approach is the ideal methodology when a holistic, in-depth investigation is required. Case studies bring out details from different view points and using multiple sources of data. A case study helps to understand the complexity of a single case and its activity within a defined set of circumstances. A case study approach is an empirical enquiry and empirical evidence is essential to come to a conclusion. Case studies are multi-perspective analysis. For the purpose of case study my primary interview would be conducted from key stake holders at the Tesco management in MalaysiaOther stakeholders like the vendors would be contacted as well. Initially, email requesting interviews will be sent out. Because of distances involved, prior appointment through email would be sought. Since all may not respond at least 20 emails would be sent out, anticipating that ten might respond. Interviewing is a mode of inquiry aimed at understanding an experience and meaning that person make of that experience. The individual in-depth interview allows the interviewer to delve deeply into social and personal matters (DiCicco-Bloom & Crabtree, 2006). While 20 questions will be prepared for the interview, open-ended interviews will be conducted as they more spontaneous, offering a two-way interaction not generally permitted by the standardized approach. This method ensures objectivity, detachment and hierarchy which are more important than individualized concerns. Data obtained from secondary sources generate new understand through mirror image or knowledge integration. Secondary data like literature review saves time and high quality of data is available. Literature review distinguishes what has been done from what is to be done. Literature review helps in the synthesis and analysis of the relevant published work. It would also help in formulating the questions for the interview. Data analysis Qualitative research involves large amount of unstructured data of which the analysis is tedious and monotonous. The process involves three steps – data reduction, data display and conclusion drawing and verification. Data reduction is the same as analysis and occurs through out the process of a qualitatively oriented project. Even selection of the literature or the research design forms a part of the data reduction process. Data displays are a major avenue to valid qualitative analysis. Conclusion has been drawn after extensive literature search. What about the specific tools employed- software, coding, graphs etc? 4. How Your Work Fits Existing Published Work Chapters 6,7 A lot of literature has already been researched, some of which have been touched upon in this proposal. Some of the researches, apart from the reference list at the end of this proposal include all the published works can be found within the electronic library of Liverpool University. These are all recent academic journals and which can be relied upon. 1. Chow, C. K., & Tsang, E. W., (1994), Distribution Reform in China, International Journal of Retail & Distribution Management, Vol. 22 No. 2, 1994, pp. 27-33 2. Hackney, R., Grant, K., & Birtwistle, G., (2006), The UK grocery business: towards a sustainable model for virtual markets, International Journal of Retail & Distribution Management Vol. 34 No. 4/5, 2006 pp. 354-368 3. Mai, L., & Zhao, H., (2004), The charecteristics of supermarket shoppers in Beijing, International Journal of Retail & Distribution Management, Vol. 32. No. 1 pp. 56-62 4. Reardon, T., & Swinnen, J. F. M., (2004), Agrifood Sector Liberalisation and the Rise of Supermarkets in Former State-controlled Economies: A Comparative Overview, Development Policy Review, 2004, 22 (5): 515-523 4. Saimee, S., Yip, L. S. C., & Luk, S. T. K., (2004), International marketing in Southeast Asia, International Marketing Review Vol. 21 No. 3, 2004 pp. 247-254 6. SD (2007), The dragon awakens, Strategic Direction, VOL. 23 NO. 3 2007, pp. 6-9 5. Why You Are Doing This Topic Chapters 1,2,6 There have been shifts in age. Wealth, ethnicity, culture, life stage patterns, and value systems that make customers hard to define, categorize and reach (Gagnon & Chu, 2005). In the next decade retailers would have to compete fiercely for the youth segment which is much more aware of the market place options and are quick to switch brands or embrace new trends. Thus by 2010 retail market leadership will be determined by how quickly a company’s value network can respond to shifting consumer brand. The research data would help develop a concept and framework for retail internationalization process. Since the retail market is poised for growth, this would benefit the multinationals who are vying to open in overseas countries. It would help them decide which a better option is for them taking into consideration the local culture, the local government rules, taxations availability of human resources and economic viability. From what Tesco has learned, it would help others who intend to expand. The research is of particular importance because as per the Kearney (2006) report 30 retail companies entered new markets but retailers left 17 markets in 2005 and another 19 in 2006. Many others are struggling to generate profits. A case study of Tesco has been selected because they have been experiencing phenomenal and consistent growth not just in UK but several other markets. Kearney contends that market attractiveness usually follows the same consistent pattern and any market takes 5 to 10 years to progress through four stages as they evolve from emerging to mature markets. How Tesco has seen itself through these stages and taken strategic decision would be a lesson for those retailers intending to internationalize. The retail sector has grown phenomenally in recent years and many firms have internationalized their operations. The motivation for this study has arise out of an interest to understand what gives Tesco the competitive advantage and how it has coped with the challenges that it encountered in Malaysia. Since I am working, this retail sector has always been of particular interest to me. References: Alexander, N. & Myers, H. (1999), Europena Retail expansion in South East Asia, European Business Review, Vol. 99 No. 2 91-104 Alingod, K. (2007), British Retail Giant, Tesco, Enters U.S. Market, 29 Nov 2007 Alistair, D., (2006), Retail gorilla sits where it likes, Euroweek 9/8/2006 Supplement, p56-56 Burt, S., & Sparks, L., (2003), E-commerce and the retail process: a review, Journal of Retailing and Consumer Services 10 (2003) 275–286 Butler, S. (2007), Tesco faces fresh challenge in America, 29 Nov 2007 Delaney-Klinger, K., Boyer, K. K., & Frohlich, M., (2003), The return of online grocery shopping: a comparative analysis of Webvan and Tescos operational methods, The TQM Magazine, Vol. 15 No. 3 pp. 187-196 DiCicco-Bloom, B., & Crabtree, B. F., (2006), The qualitative research interview, Medical Education 2006; 40: 314–321 Glaister, D. (2007), Tesco enters US to take on Trader Joe, 29 Nov 2007 Hargrave-Silk, A., (2005), Tesco in first cross-media buy, Media: Asias Media & Marketing Newspaper 11/18/2005, p7-7 Shamsudin, M. D. & Selamat, J. (2006), CHANGING RETAIL FOOD SECTOR IN MALAYSIA, 29 Nov 2007 SD (2005), The secrets of Tesco’s expansion success, Strategic Direction, VOL. 21 NO. 11 2005, pp. 5-7 Wong, G. K., & Yu, L., (2002), Income and social inequality in China: impact on consumption and shopping patterns, International Journal Of Social Economics, Vol. 29 No. 5 pp. 370-384 Yoruk, D. E., & Radosevic, S., (2000), International Expansion and buyer-driven commodity chain: The case of Tesco, 29 Nov 2007 6. Timing Mileposts You must reach stage 8 at least three weeks before your deadline; a month contingency provision is also advisable to allow for slippages. You should produce this proposal in between one and two months from classroom date. After three months your progress may be put before the Academic Progress Committee Milestone Description Due date Remarks 1 Stage 1: Area of interest identified March 14 2 Stage 2: Specific topic selected March 14 3 Stage 3: Topic refined to develop dissertation proposal March 15 4 Stage 4: Proposal written and submitted April 3 5 Stage 5: Collection of data and information June 10 6 Stage 6: Analysis and interpretation of collected data/information June 20 7 Stage 7: Writing up June 25-28 8 Stage 8: Final draft prepared – submission of dissertation July 1 9 Final Deadline – eight months from classroom date. Read More