Comparative Advantage of Tesco - Essay Example

Study guide Comparative advantage of Tesco Comparative advantage of a business indicates the ability of the business to manufacture and produce various products and services at a comparatively lower opportunity cost than the competing business in the industry. Comparative advantage is extremely important because it enables a company to sell the products and services at lower costs due to the lesser production costs. Tesco is a large retailer and an important international player in the retail industry. Tesco has use comparative advantage extensively in the process of emerging as one of the biggest retail players across the world. Tesco has maintained lower costs of procurement and production of goods which has enabled it to sell the products at cheaper prices as compared to the other retailers in the market. This has ensured increased competiveness as well as greater sales margins in the business. Tesco Corporation has continued to grow and has expanded the stores of the company into a number of foreign markets. This has made it necessary for the company to have an in-depth understanding of the opportunities presented in the international trading systems. Tesco has successfully attained economies of scale in its production capacities in different foreign countries and as such has become able to lower the costs of production. The company has been an early mover into taking up the principles of comparative advantage by reducing the production and operational costs in the business. In order to maintain lower operating costs, Tesco has implemented a number of comparative advantage theories in their daily operations. The company has used the Ricardo’s comparative advantage theory in the production activities and in the export activities of the goods of Tesco in foreign locations (Kelly 200). Tesco has been extremely selective about the sourcing of the raw materials. The company has made careful selections of local and international suppliers in order to reduce the production costs in the business. The company outsources the production activities of different goods in countries where the production cost of the specific goods are comparatively lower than on other locations. This helps to decrease the production expenses and allows Tesco to sell the final products to the consumers at comparatively lower prices. For example, Tesco focuses on producing rice and other cereals in countries like Japan and clothing goods in countries like China and India where the manufacturing costs of these products are much lower as compared to the home country of Tesco. Marketing mix of Tesco The marketing mix of Tesco Plc. should primarily consist of the 4P’s of marketing which are product, price, place and promotion. These should be included in the marketing mix because these form the base for any business to succeed in the global market. Product: The nature of the products is important for devising the marketing strategies of the business. Tesco being a giant retailer offers a number of products in their retail stores varying from food items, apparels and accessories, home use goods, personal grooming products to groceries. Therefore, Tesco should try to analyze the sales propositions of different products in different markets. Also, the company should consider identifying the end consumers for groups of products. Renewing the old products and introducing new products should be a part of the product development strategy followed by Tesco. Since, the retail industries in different countries are highly competitive industries, Tesco must focus in offering a wide variety of product to compete efficiently with other retail companies. Place: Tesco generally sells its products through its own retail stores in different countries. Also, the company widely uses the online marketing channels to sell its products to the end consumers directly. The company can consider entering into alliances with local companies and distributors in foreign markets so as to penetrate the market faster by using the knowledge of the local partners with respect to the retail business environment of the country. Price: The pricing strategy of a retail company is extremely important for attaining competitive advantage in the sector. Tesco should focus on introducing low price strategies and give seasonal offers and discounts to ensure fast movement of the inventories and increase in the footfalls in the stores. Tesco should consider setting the prices of the products by evaluating if the company is in a position to charge the customers of different countries differently. Also, the company should evaluate when and how to reduce the prices of products in order to attract more customers and to move out the products with longer shelf lives. Promotion: The promotional activities of Tesco in the global market should be built on the strong brand reputation of the company and should be aimed at creating more awareness among the consumers about the products and services offered and the benefits derived by the customers from these products (Helpman 44). TOWS analysis for Tesco The TOWS matrix for Tesco Plc. is used to analyze the strengths, weaknesses, opportunities and threats of the business and how these can be mapped against each other in order to formulate suitable corporate and business strategies for the retail company. Strength-Opportunities: Tesco Plc. is the largest retailer in the united kingdom It is also the largest grocer in the home country. The company has high brand value and reputation. Operates in a differentiated market format. The company has strong logistics and operations. It also has a robust global supply chain network. The company can focus on using these strengths to capture the opportunities of increasing the market share in the non-grocery segments of retail. Also, it should focus on ensuring high profit margins in the new markets through the use of its brand value, low operational costs and strong supplier network (Branch 240). Strength-Threats: The high brand value, differentiated market format, wide range of products and services and a customer centric approach may help to create a defense against threats like lowering of the market share due to prevailing completion from other companies like Wal-Mart and ASDA Group and due to new entrants in foreign retail markets. Opportunities-Weaknesses: The Company is overly dependent on its revenue generation and profitability in the home country. It should overcome this weakness and concentrate on accelerating the global operations of the business in order to generate maximum revenues from global trades. The company has weaknesses with respect to lesser prominence in the non-food items market which can be minimized by concentrating on developing the non-food items segment and by expanding this segment in the global scale as well. Threats-Weaknesses: The threats and the weakness of the company can be mitigated by concentrating on global expansions and on weaker segments like the non-food items segments of the business. Technology in Tesco Tesco uses efficient technologies in the operations and supply chain management. This includes advanced technologies like Radio Frequency Identification (RFID), live order tracking, free scanning technologies, satellite connectivity and other various types of information and communication technologies. The company is extremely efficient in its use of latest technologies in the business processes and the operational environment is maintained as a highly simulated and technically advanced environment. Tesco Plc. is extremely dependent on the information and communication technologies used in the company. Any failure in the technologies of Tesco is likely to affect the retail operations and the trading capabilities of the company. Tesco has recognizes the importance of technology in fostering efficient trade and commercial advantage in its global operations. The company has always been a pioneer in using robust and newest technologies in the operations, supply chain as well as marketing activities. The company relies heavily on digital marketing. The corporate website of Tesco, Tesco.com is a major source of revenue generation and marketing for the company. The official website is maintained using the latest technologies in order to create more awareness among the customers and act in a robust manner to add to the brand image. Advantages and disadvantages of different forms of transport choices The retail companies like Tesco use primarily road transport and marine transport encompassing, rail, trucks and ships for the movement of their goods through the supply chains and for their global trading activities. Advantages of different types of transportation used in Tesco are the achievement of economies of scale through large sizes of containers in trucks and canal transportation, ensuring cross docking system in the supply chain management which helps in improving the efficiency of the retail channels. The use for multiple transportation medium ensures reliability and on time delivery of the products from the procurement to inventory to stores in Tesco Plc. The use of Electronic Day Interchange in the transportation systems of retail companies helps to improve the inventory and transportation of goods in the global operations of the companies. This is also applicable in Tesco Plc. The disadvantages of the transportation systems used in retail companies like Tesco are that they are expensive modes of transportation which require a high level of monitoring and scrutiny. The associated high costs incurred in maintaining and controlling the transportation mediums is the major disadvantage associated with these transportation mediums. Distribution Channels of Tesco The distribution channels of a business are critical in ensuring the suitable marketability of the products and services of a company. Tesco Plc. is one of the world leaders in the retail industry with a renowned logistics management and supply chain. Therefore, it has a number of distribution channels and operates on a multi-channel model of distribution. The main channels of distribution used in Tesco are direct marketing through the flagship stores, distributors and online marketing. The company has a large number of distribution centers which are used to service more than 6000 retail stores across different locations in the world. Tesco also sells through wholesalers and business intermediaries who form a major part of the revenue generation for the business (Dlabay and Scott 444). The distribution of the products of Tesco in the retail stores is the most important channel of distribution for Tesco since the time of its inception till the present date. The electronic commerce channel is another major distribution medium for Tesco. The web based services provided by Tesco of the customers for facilitating the online grocery shopping has been a huge success. The electronic commerce segment of Tesco has emerged as a main distribution channel with the company being able to communicate with the customers directly and improve their buying experiences by home delivery services and easy payment options. The delivery saver subscription of Tesco has been an immense success and has solidified the role of online marketing as a major form of distribution channel. Works Cited Branch, Alan. Export Practice and Management (5th Ed). London: Cengage Learning. 2006. Print. Dlabay, Les. & James Scott. International Business. Stamford: Cengage. 2010. Print. Helpman, Elhanan. Understanding Global Trade. Cambridge: Harvard University Press. 2011. Print. Kelly, Phil. International Business and Management. Stamford: Cengage Learning. 2009. Print. Read More