A Discussion of Strategies that a Firm Might Adopt to Exploit Opportunities in an Overseas Market - Essay Example

Supervisor A discussion of various strategies that a firm might adopt to exploit opportunities in an overseas market. Tesco’s strategy/strategies for entering/main October, 2008 Table of Contents 1.0 Introduction 2.0 Tesco Environmental analysis 2.1 Tesco and the PESTLE Framework 2.2 Tesco and the Five Forces Analysis 3.0 Tesco Strategy Analysis 3.1 Tesco and the SWOT Analysis 3.2 Tesco and Porters Value chain Analysis 4.0 Tesco Strategies with respect to the US China and Malaysia market 5.0 Conclusion 1.0 Introduction In the phase of increasing complex network of activities, customer’s flexibility, market volatility and increase in natural disaster, present day companies must have to think and rethink their global operations (Cheng, Lai & Gunasekaran 2006). In the changing state of global politics, the war on terror and changing consumers’ pattern it has become imperatively necessary that companies be more responsive in their activities and operations to customers and other stakeholders (Bowlby 2001). Cheng, Lai, & Gunasekaran (2006) echo that, today the challenges for companies is not just providing high quality product but the ability to provide these products at a lower cost and price (Prahalad & Hamel 1990). These must be incorporated in the company’s strategies. Against this background companies have increasingly search for different ways and measures to remain competitive and comply with the rational behind the theory of investment (Hamel & Prahalad, 1994). Faced with the increasing complexities, conflicting and multiple objectives and capital constraint common to businesses, organisations have to make important choices taken into consideration the time value for money (Blocher, Chen, Gary & Lin 2005). Having said this, the remaining part of the paper will be structured as follows, in section one, I will provide an overview of the company under investigation (Tesco) through an environmental analysis of its resources, in section two, using the SWOT and Porters models the company will be analysed to identify the strategies used with respect to different market. Part three provides a way forward for future actions of the company by using Porters competitive advantage to provide a conclusion and recommendations. 2.0 Tesco Environmental Analysis Figure 2: LAYOUT OF THE PESTEL FRAMEWORK According to Johnson et. al (2005), the PESTEL framework can only be used to look at the future impact of environmental factors and how this impact might be different from the past. Thus an understanding of how the factors in the above framework may drive change is only a starting point to an organization strategy management (Johnson et al. 2005, Birkinshaw, 2000).There is a need for an understanding of the key change drivers and this will be explained in section below with respect to TESCO. In China and Malaysia, the activities of Tesco will be affected by the entire factors outline above. Under political the TESCO Plc is affected by both taxation and social welfare policies in these countries. Given the fact that consumer’s income is dependent on government taxation policies, it is evident that take home income might either increase or reduce depending on the taxation policies adopted by the government at anyone time. In addition, government spending is greatly affected by its taxation policy. What is the future budget situation of China and Malaysia? Is the government striving at a surplus, deficit, or balance? The political situation of the China,, Malaysia and the United States is currently unstable; with the present government loosing popularity because of the war in Iraq, and the tit for tat with Iran are all going to affect TESCO. This is because current faith of world politics depends on the US and the United Kingdom (UK) with the two countries likely to be targets of terrorism attack. China, on the other direction is seen as a rival. Under environmental factors I consider waste disposal, energy consumption and environmental protection laws in the US to have a great impact on TESCO. In China and Malaysia, weak environmental policy can be used to the institution advantage. All the economic factors can be regarded to have an impact on the TESCO. For example, high unemployment rate, high inflation rates, low GNP trends and slumps in the business cycle will imply low disposable income, more dependence by the citizens on credit facilities, borrowed funds and thus alternative sources of finance. The US dollars is currently falling at an increasing rate, this will mean an increase in the currency exposure. Transaction and translation cost will be high in the US, value of credit facilities if granted in US dollars will fall. The value of TESCO assets in the US will fall when doing reporting in the parent company currency, the British pounds. Under the social factors for example, population demographics have a great impact on the future of it activities in the US. 2.2 Tesco and the Five Forces Analysis Porters Five Forces Approach Application to the clothing industry Relationship with suppliers The suppliers constitute independent artist, cotton farmers, designers, customers. Bargaining power of buyers Low switching cost due to numerous options available to buyers. Threats of new entrants Low threats of new entrants because of the human, time, material and financial resources necessary to set up retail store. However, and entry of a new entrant from other continent like Asia remain a big threat. With individual designers and niche players increasing everyday. Threats of substitutes products or services The industry is characterized with many niche players. Rivalry amongst established firms Fierce competition with flat cost. No major player able to dominate the market. How ever with continuous innovation and design of new products, Tesco has taken over the lead. Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company’s success. Porter (1985) went further and argues that, competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness (Birkinshaw, 2000). The researcher further claims that, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behaviour.” (Porter, 1985: 4). In addition, through a firms’ own strategy a firm can take hold of these five forces. At the most fundamental level, Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry which is ultimately an act of innovation. In this regard Porter assumes that innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. This is the situation of Tesco has done and can replicate at China and Malaysia in which the company has shifted in to a generic focus and cost leadership position through understanding of Porter’s five forces and use of competition. 3.0Tesco Strategy Analysis TESCO PLC and SWOT Analysis Market analysis of competitors, suppliers, customers and potential opportunities has long been a competitive preparation of the staple firm (Johnson & Scholes 2007). This also serves in understanding the resources and capabilities underpinning a company’s success Strengths Better Value, in the form of lower prices. Fresher merchandise and wider assortments. Superior Locations Better physical appearance of the stores themselves. Good will, exclusive rights with some of their suppliers. Maximisation of the four Ps of Marketing at all front. High capital and a pool of reserves, and cheap credit facility offered to some items. The Employees, 3,000 stores around the world. cheaper, better products and providing more choice 2,000 own-brand primary suppliers in 98 countries. Best overall benefits package in the industry charitable giving and community-based education programmes Opportunities A pool of cheap credit facilities The US is an open economy welcoming all sorts of businesses. Is still the land of opportunity? China is a big trading partner of the US, an alternative and better source of cheaper items. The impact of Wall-Mart has not been felt in all the states. Many small groceries stores are closing down. The growing pool of technology. The heavy investment on Research and Development (R&D) by the US government Fall of the US Dollars, will mean cheaper operational cost within the US. Threats Anti Grocery stores campaign Loyalty of some consumers to old established merchant and grocery stores. The likelihood of terror attack of some TSCO locations in the US. Natural disaster such as the hurricanes, tornadoes, tsunamis, are now on the rise Exclusive rights enjoyed by Wal-Mart with some of its suppliers Difficulties finding their own suppliers, or owning their own farms. Current market leader, Wal-Mart had $245 billion in revenue last year. Weaknesses Some dissatisfied customers Sole right to some products by competitors Key Niche players The lack and absence of unique product with total differentiation from those of competitors. The lack of ownership of exclusive patents. Dropped and sold of many products that have not delivered reasonable profits 4.0 Tesco Strategies with Respect to entering the US, CHINA and Malaysia Market The first three part of the paper laid the principal argument underpinning Tesco success. In the next few sections, attention will be shifted into the various strategies adopted by Tesco with respect to some major markets in the world. 4.1Tesco and Porters Generic Strategy In entering the China, Malaysia and the United States, Tesco maintains it main strategy of “to create value for customers to earn a lifetime loyalty. Though, these values are adapted to local cultures and systems put in place. For example through aggressive cost cutting, Tesco redefine competition in new market. According to Porter (1985,1990), there are three long-term strategies on which an organisation can build its core-competencies, core capabilities and resources (Stalk et al. 1992:59). These strategies include: Achieve overall low-cost leadership in the industry Market products that are differentiated Focus on market segments for growth in cost and/or differentiation In Malaysia for example at the time of entering, Tesco emphasis cost leadership and differentiation as a means to access, cities and towns. The company readily offered discounts with other sales promotional activities. Local workers are easily incorporated as the company steering wheel on the balance scorecard further gives them the tools to deliver growth strategies. In entering this market, Tesco management also emphasize, sourcing local suppliers with swap arrangements for bank facilities operated. According to Porters (1990), a cost leadership strategy means placing great emphasis on efficiency in all organisational activities in order to reduce the overall costs of products and services delivered to customers or achieved through partnership with suppliers. A low cost leadership strategy will e effectively when the organisation can provide products and/or services at a lower cost than the competitors ((Drejer 2002). Figure 3 Porters Generic Strategies (source: Porter, 1985, p.12) On the other hand, a differentiation strategy is aimed at delivering products and/or services that are different from the product mix of the competition (White, Stephen& Baghai1999). In entering some of these markets, the company enters into partnership with some local stores, in some areas like China and Malaysia a merger is negotiated. In addition, differentiated products are often marketed at premium prices in order to cope with added costs of differentiation, leading to higher profit margins. Apart from high costs, the potential risk associated with this strategy is that consumers may not perceive product and/or services as differentiated (Stalk et al 1992:63). In some of these market, it is also evident that Tesco also make use of the focus strategy. It focuses on cost leadership and product differentiation simultaneously in one particular market segment, or a niche. Looking at Tesco, one will not hesitate to say that by continuously developing inexpensive but different brands, the company has successfully capitallise on focus strategy, that of low cost and differentiation as the main strategy used to break through the US, China and Malaysia market. The steering wheel approach adopted by the company’s management laid emphasis on customers, people, finance and operations. These revolve around cost, quality and time. To the company, cost leadership equals higher quality in products, services and customers satisfaction. According to (Johnson &Scholes 2007), high quality is associated with input and process variables. Cost reduction, on the other hand, does not mean reducing the quality of these variables, but rather do things better, and more efficiently. Cost leadership is a part of Tesco’s management process and culture (Mintzberg 2003, Johnson,1992). International Partnering In the United States, China and Malaysia Tesco has replicated the same principles driving it businesses elsewhere. This is seen at the level of putting customers first, entering into partnership with local workers, increase use of diverse work force and used partners worldwide to benefit from its generic focus and cost leadership strategy. By working with partners in different locations, Tesco has gained lasting competitive advantage over its competitors. This is consistent with Javidan (1998:6) finding that successful organisation demonstrate a particular set of mindset. To these organisations, collaboration and partnering is viewed as an opportunity not a threat. In these markets, it is highly recommended for Tesco to enter into partnership with local suppliers, farmers, employees. This will facilitate local culture, a pool of capital and resources that matches local taste and fashion. Tesco will also take advantage of these markets as a sourcing location. In entering foreign markets such as Malaysia and China, Tesco maintains a highly functional organizational structure. In the structure the company is able to maintain centralised control over functional activities and at the same time take advantage of low cost and enhanced quality from international suppliers dotted all over. In addition, control over strategic direction is enhanced and functional redundancies are minimized, this same strategy has been repeatedly used by Tesco as a market entry strategy. In order to ensure efficiency in the logistics process, the organization has integrated purchasing and distribution processes under one umbrella function (Tesco company review 2007). Tesco, stresses on innovation. This was quite crucial specially when entering the US and Chinese markets, because the same success formula does not work for every region. In entering these two markets, the management emphasize innovation in branding, innovation in product variation, innovation in formats. For example metro format of Tesco stores in China and the States. 5.0Conclusion The aim of this paper was to analyse the business environment of the TSCO Plc paying attention to the strategies adopted with respect with respect to its entry into the US, China, and Malaysia market. In the course of the analysis there is evidence that TSCO Plc laid emphasis, on innovation, cost leadership, differentiation as a strategy to break into these markets. The study also conclude that, through flexibility, acting locally, the use of multi format, innovative retail products and products diversification, Tesco has successfully developed a unique market entering strategy which others have found difficult to emulate. 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