Tesco International Business Strategy - Essay Example

International Business Strategy Place Table of content Introduction…………………………………………………………………….. 3 Corporate strategy……………………………………………………………… 3 Business Strategy………………………………………………………………. 7 External Analysis………………………………………………………………. 7 Internal Analysis……………………………………………………………….. 8 Evaluation of Strategy…………………………………………………………. 11 Ethical Considerations…………………………………………………………. 12 Conclusion..……………………………………………………………………. 13 Executive Summary……………………………………………………………. 14 References……………………………………………………………………... 16 Introduction The second half of the twentieth century has brought more opportunities for international trade pursuing global strategies to achieve a competitive advantage. Certain industries did not benefit much from globalization, however, some obtained a comparative advantage over others and their managers have rapidly understood the nature of the dynamics of global competition. Since global strategy brought a wide variety of business strategies, a high level of adaptation called for a challenge to the local business environment and here organizations have opened new possibilities for developing a single strategy and applied it throughout the world. The following paper will discuss the corporate and business strategy of one of the world’s largest retailers- Tesco; it will conduct an analysis of different external and internal factors that contribute and influence the performance of the company; bring some ethical considerations as to whether Tesco’s strategy is ethical and look at such internal aspects as employees’ well-being and collaboration of the company with its stakeholders. Corporate Strategy Tesco is located in the United Kingdom and is the one of the biggest retailers in the world. Its market capital is estimated as $15,214 million, the revenue in 63557.00 million pounds and the total assets are currently counted in 50164.00 million pounds (Company profile, 2014). The company operates in thirteen countries, however its main operations are located in the UK, where there are large format of hypermarkets. Being the leader in retail business is not a simple task, because the company should always think over improvement of its strategy over such strong rivals as Sainsbury PLC, the UK chain of supermarkets, Asda Stores Ltd, a British-based supermarket chain which retails food, clothing and financial services and the chain of supermarkets Morrisons’. Beside such large corporations, Tesco is facing competitive threats from the sides of less supermarkets, whose price promotions make consumers purchase the same goods there (Neville, 2013). Tesco has a vast structure for corporate governance, which complies with the UK corporate governance code. The effective board is considered the basis for good governance in any corporation. In Tesco, there are four committees that assist the work for the board of directors and provide them with the support that is directed towards Tesco’s stakeholders. The sub-committees are chaired by the CEO with the main target to monitor each aspect of the business and arrange discussions of issues with the executives (Our corporate governance framework, n.d.). The corporate governance section of Tesco’s annual report and financial statements contains a brief outline of the planning and control structure used across the company. It has a five year rolling plan with the categories of planned revenue and capital expenditure. Such data is used for forming the basis for the creation of similar plans for each of the separate group businesses. The company is a customer-orientated business, which aims are to offer products of value for money for all the customers it has. Along with it the company aims to deliver high quality of its service as well. Its skilled staff at every job position is taught to develop the leadership qualities. With the long history of Tesco, it proposed numerous strategic steps that were targeted to attract and retain consumers, employees and other stakeholders. These were steps of deploying brand name and the quality of Tesco products and services. The UK market has opened new opportunities earning new customers and representing its goods and developing supplier management programs to satisfy its all stakeholders. Despite the fact that Tesco takes the first place in its marketing position in UK and Asia and Europe, it should develop fresh strategic moves. Thus for increasing and retaining the market share it should make certain restructure of the existing products and services; it should also seek how to sell its existing products into new markets. For Tesco it is very good to try to master banking services, for example. In order to understand its new direction, the other marketing tool, such as Boston matrix can be used for placing the products under each stage. It is important to investigate the level of the business growth in different areas where the company operates. The annual report 2013 provides the clear data of how the company feels itself in different markets. With the biggest level of revenue in UK, Tesco is on the highest position as a retailer. However, a considerable lower level of profit from trading in Asia indicates that the company has to think over the ways to move forward. While the Boston matrix helps to identify the products and market share, it shows the products that have a low share of the high growth market. It also illustrates the products with the high share of the low growth market and high products in growth markets with a high share (Ionescu, 2011). The Tesco Company began its activities as a retailer and expanded its services to the Petrol and telecommunication. Tsco Petrol is the main unit for TESCO with the sales in twelve and three percent with the additional sales of petroleum. Its main competitors in Asian market as Samsung, Warid, Jazz and Telenor, constitute a considerable low share position on the company in this market. However, Asian market is relatively fresh area with the growing level of new consumers who at the same time pay much attention to the Tesco products and services. According to the Boston matrix, where the “cash cow” fits the European markets of Tesco operations, the share in which is much bigger than in Asia. In addition, Tesco’s brand brings its share prices into high position, while the “dogs” of the matrix indicate on certain improvements that should be done regarding the U.S. market. This is because the American market is full of strong competitors to Tesco Company. With the vision and mission to become full rig maintenance company, Tesco tends to propose the fullest range of services and strives to become the organizations that will fully equip its mechanization products (Tesco and Society Report, 2013). The TESCO annual report and financial statements 2014 indicate the trading growth up to three and six percent in the UK market, additional two and six percent of trading profit growth in Asian market and one and six percent of Tesco Bank trading profit growth. Business Strategy External analysis While the business environment consist of relationships between stakeholders, and other companies in certain sphere, it is important to determine such the factors as customers, suppliers, socio-politics and technological factors that influence business operations. Modern rapid society with its dynamism in the environment and sometimes usual unexpected changes requires companies to be ready to respond these changes in order to use them as better as possible to achieve competitive advantage among others. Organizations’ stability can be damaged by predictable situations. In order to manage these changes, each company should define how they may influence the operations and make analysis for dealing with them. PESTEL analysis is the best approach in understanding how different factors affect business activities (Mason, 2007). For Tesco these external factors are the tax rates, acts of legislation and the stability of the business environment within the markets it operates. Thus, financial instability in the economy calls retailer for creation of jobs specifically for the domestic population. However, Tesco wins at such conditions as it is an active member of the community, creating job places and increasing the demand for Tesco’s products. Since economic factors manage costs, demand, profits and prices Tesco should be aware of any changes within this area. Tesco’s internationalization and diversification are important strategies that promote the company’s ability to perform globally. Social changes give Tesco new possibilities as the modern trends in UK are moved by the bulk and one-stop shopping. For managing such social tendencies, Tesco has enhanced the number of non-food offers for sale and conducted reorganization based on the consumers demand for Tesco goods and services. Managing such demands influence the social conditioning and is an advantage for the company. With the overall demands of the consumers for goods and services, they wish the company to respond main environmental requirements. Thus, the company sees the possibility to adapt consumers’ demands to the accommodating of the organic products. Technological innovations give such possibilities, bringing different opportunities for Tesco, such as development of online shopping and enabling of home delivery. The environmental factors at the same time increase pressure on the companies’ activities and Tesco should take them into consideration when it develops further strategic steps. Being a global company that follows all the legislative requirements of the country in which it operates, Tesco should be aware how these norms can affect its activities. Thus, the Food Retailing Commission proposed a Code of Practice to be developed and implemented in order to ban current practices that deal with the changing prices without notice or demanding payments from suppliers (PESTEL Analysis for Tesco discusses its Business Environment, 2014.) Internal analysis Examining of all the current and potential competitors is vital for each organization, since it wants to sustain the long- term profitability. Such examining can be conducted with the help of identification of Porter’s five forces that give the companies’ ability to obtain the picture of what influences its profitability and how to manage these influences. It also assists in identifying the changing trends that organizations can use in order to exploit them and reshape if necessary (Porter, 2008). One of the Porter’s five forces, the threat of substitute products and services in the grocery retail market is considerably low for food and at the same time medium to high for those non-food products. There are substitutes represented by small chains of stores, off licenses or organic shops which are not threats to such big retailer as Tesco. It provides consumers with the high quality products at lower prices. Besides, it creates strong competitor for smaller enterprises sue to the developed and opened Express stores in towns and city centers. This Porter’s force is a threat for the small stores rather than for Tesco. However, if take into account services and non-food products, clothing for example, it is obvious that while the economic recession prevails, consumers are more likely to spend less money for purchasing goods and use certain services of stores and buy more food especially with discounted prices. Such economic conditions create potential threat for Tesco stores. Porter’s threat of entry of new competitors is also low if analyze Tesco’s situation. This is caused by certain capital investments that the company is able to do unlike smaller firms. Besides, Tesco is a well-known brand which name is recognized and appreciated by customers. Its main brands have already captured the food retail market with eighty percent of all shopping in the UK. New entrants in return should be able to represent the unique products with those exceptionally low prices and high quality to be able to compete with Tesco. In addition, the company is aware of the high intensity of competitive rivalry in the food and grocery retail industry and takes all necessary steps in managing such competition from such corporations as Asda, Sainsbury’s, Morrisons’ and Waitrose. All these chains compete over price of products and available promotions and Tesco should realize that, for example, Asda as one of its main competitors increased its market share from sixteen point six percent to sixteen point eight percent during the 2009-2010. Sainsbury’s grew its level of market share to sixteen and one percent and Morrisons to eleven and six percent from eleven and three. These market shares are competitors and threats for Tesco that intensify their market rivalry. Moreover, it can lead to losing of Tesco its market leadership position. Other smaller local retailers are more attracted by the consumers as their stores are nearer. In the time of constant competition, such big players as Aldi and Lidl are able to utilize their hard discounts for promotion their products that are appreciated by consumers and are able to leave Tesco behind. The other force that Porter proposed is the bargaining power of buyers. By analyzing this force, Tesco can see how its consumers switch their preferences from one brand to another. They are attracted by lower prices and technical availabilities that current retailer is ready to offer. Thus, to make purchasing through internet is the best way for consumers to choose the prices of products and the wide variety of services. For Tesco this is an advantage since the company operates online and is able to earn more customers. Along with bargaining power of customers, the suppliers trust those companies which give them availability to choose food and grocery retailers for further establishing of their business relations. Large supermarket chains such as Tesco are selected in this case. Besides, for Tesco as the well-known brand company, its position goes beyond the usual choosing of certain products. It is more about stability of such relations and ability to trust the brand name and its good image. While each organization wants to achieve competitive advantage, it should also analyze the resources it uses for sustaining such advantage. Here such tool as VRIO analysis developed by Barney is used, which aim is to identify four main attributes that company’s resources should possess. These are valuable, rare, imperfectly imitable and organized attributes. Whether a resource or capability meets all four requirements, it can bring sustained competitive advantage for the company (Cardeal1 & Antonio, 2012). Some of Tesco’s key resources are the supply chain management , branding and technology. Being a leading brand in UK, Tesco is also one of the well-known global brands in retailing area. The more popular the brand is, the more new customers are obtained by the company. Moreover, it is recognized as the best and most effective service for customers, which help in building strong and long-term relationships with customers. Tescos goods are obtained from different international manufactures, which are able to provide consumers with highly competitive price and volume. With the strong competition in the American market, Tesco cannot capture the value of this market’s customers, however with certain strategic moves it goes to the new targets. Evaluation of Strategy Strategy evaluation created an important step in the process of guiding the company. For many executives evaluation of strategy is compared to an appraisal of the company’s performing of its business. However, there are many critical factors that determine the quality of company’s outcome and influence them directly. In this perspective, strategy evaluation is an attempt to look beyond the facts of the business prosperity and appraise factors and trends that create success. Business strategy can apply such criteria as consistency, where the strategy should not have mutually incompatible goals and policies. The other criterion is the consonance, by which the company’s strategy represents an adaptive response to certain external environment and to the critical changes that appear within it. Advantage criterion views the strategy that should provide for the creation and maintenance of a competitive advantage. The last criterion is the feasibility, by which the organization’s strategy does not burden and does not create the unsolvable problems. A good company’s strategy cannot meet all the criteria otherwise it is suspected as of violation of certain business rules. Instead, it can fail to perform one of the key criteria that are vital for its proper performance (Rumelt, n.d.,). Tesco uses a wide range of methods to gather data about its performing and evaluation of its progress show the company about the met targets. For instance, Tesco uses Clubcard scheme, telephone based research and the online panel of customers to identify what consumers need and they can be satisfied. Ethical Considerations Tesco’s performance is directed on satisfying the needs and preference of its stakeholders and the customers are the most important participants and their needs should be heard by the company’s staff. The other important group of stakeholders is the community, because it provides the company with the employment sources and supports its purchase power. Suppliers are also the essential part in the play and fair treating of the relations is among the top priorities of the company. Such honesty ensures the company long term relations with all the parties involved and gives Tesco opportunities for growth and shared consumer insight (Stakeholder engagement, n.d). In its strong efforts to contribute to overall economic growth of the countries in which it performs its activities, Tesco plays an active role in supplying goods, giving the community opportunities to expand and grow and provides employment. Being one of the world leaders in the retail industry requires its people to be dedicated to the common business as much as possible to create and sustain Tesco’s good image and maintain orientation on satisfying of consumers’ needs. Speaking about personnel turnover, the retention percentage in Tesco is about ninety percent in the UK with the one percent down comparing to 2013. This is achieved by numerous means which the company uses for retaining its employees. Thus, staff is provided with the necessary training and developmental capabilities. The amount of employees is trained for their next roles. Being multicultural company, Tesco covers intellectual, geographical and skills diversity in its activities with respect to employees of different age, gender and race and notwithstanding disabilities (Tesco PLC Annual Report and Financial Statements, 2014). The company strives for a sustainable supply chain, providing fair working conditions for all involved in the manufacture and supply of its products. As founding members of the Ethical Trading Initiative, Tesco is an active participant in this area since 1998. It assists the suppliers to comply with the Ethical Trading Initiative Base Code and looks for the ways to use its scale for good, assisting other suppliers to develop and improve weight to collaborative performance that is aimed to improve conditions for workers (Our Ethical Trading Approach, 2014). Having such big size and performing a wide range of operations, Tesco is able to make great impact on society by encouraging its employees and customers to become socially responsible. Moreover, the company adopted several initiatives in order to fulfill its responsibility to social concerns. Bringing its part to the disabled people, Tesco gave one percent of its pretax profit to charity. Donations, employee time and numerous gifts are among those initiatives implemented by the company. Moreover, its total charity contributions in 2004-2005 counted more than twenty one million pounds with the Tesco Charity Trust grants provided for the sum of more than eight million pounds to local and national charities in the UK (The most ethical supermarkets. Shopping guide from Ethical Consumer, n.d.). Conclusion With the challenging conditions in the economic and social spheres, Tesco succeeded to achieve a considerable benefit not only in its financials area but also by presenting more and more consumers its unique and valuable products and services. With the well-developed strategies that helped the company to identify the areas for improving, it became possible for Tesco to see what consumers need and how the company can meet the societal needs. Strategic change, however, needs investment and it is not only about the financial input. The primary task of the company is to allocate resources and people to be able to compete effectively within the markets and search for the possibilities to emerge in the other markets. With such parameters as strength of the Tesco brand, the innovation of technology and potential to lift its skills and scale internationally, the company remarked its fundamental direction toward new business environment with its needs and expectations. With the active participation of the all stakeholders, it will be possible to determine the optimal design for the organization and to identify the ways how to set goals and make action plans of future achievements. Executive summary Currently Tesco provides job opportunities for more than five hundred thousand people all around the world. Its overall performance is focused on giving the most compelling offer of products and services to the consumers. To make the business work and be the leader in the retail industry, it requires serious approach in analyzing, developing and implementing of the strategy, which Tesco successfully done so far. However, the process of making strategy for such big corporation, it should take in account all the activities of its main competitors, their achievements and the portfolio of products and services they are ready to represent to the consumers. Besides, reliability in suppliers and different socio-political and technological aspects affect business operations. Thus, Tesco should take these realities into consideration when making strategic moves. Understanding external and internal factors will enable the company to better analyze how they influence the overall performance. Here the PESTEL analysis and such special tools as Boston matrix will give the company possibility to examine and represent its strong sides and the fields for improvement. When using the framework of Porter’s five forces, it assists Tesco to understand its current and potential rivals that may influence the business. While developing its new strategic vision, Tesco is able to identify its products and market share and also products and market growth strategy. The analysis of organizational design needs the company to think over its structure, systems, shared values and style of activities. Besides, employees and their abilities are also the way how the company can ensure the profitability of its operations. Understanding the possibilities and avoiding threats from numerous factors that can influence the company, makes Tesco maintain its superiority among the competitors. References Cardeal1, N. & Antonio, N. 2012, Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage? African Journal of Business Management Vol. 6(37) Company profile. 2014, London Stock Exchange, Available from http://www.londonstockexchange.com/download/pdfcompany/Company%20report% Ionescu, T. 2011, Boston Consulting Group II – A Business Portfolio Analysis Matrix, International Journal of Economic Practices and Theories, Vol. 1, No. 2 Mason, R. 2007, The external environment’s effect on management and strategy, Management Decision, Vol. 45 No. 1, Emerald Group Publishing Ltd. Neville, S. 2013, Big four supermarkets squeezed by high-end and discount competitors, The Guardian, Available from http://www.theguardian.com/business/2013/jul/16/big-four-supermarkets-squeezed-competitors PESTEL Analysis for Tesco discusses its Business Environment, 2014, Available from http://pestleanalysis.com/pestle-analysis-tesco/ Porter, M. 2008, The five competitive forces that shape strategy, Harvard Business Review, Available from http://www.exed.hbs.edu/assets/documents/hbr-shape-strategy.pdf Rumelt, R. n.d., Evaluation of strategy: theory and models, Available from http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Papers/theory%2526models.pdf Stakeholder engagement. n.d, Corporate responsibility review, Available form http://www.tesco.ie/crreview08/managecr-stakeholders.html Tesco and Society Report. 2013, Available from http://www.tescoplc.com/files/pdf/reports/tesco_and_society_2013_ipad.pdf Tesco PLC Annual Report and Financial Statements. 2014, Available from http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf The most ethical supermarkets. Shopping guide from Ethical Consumer, n.d., Ethical consumer, Available from http://www.ethicalconsumer.org/buyersguides/food/supermarkets.aspx Read More