Environmental Audit Concerning Entry of TESCO in Bahrain - Assignment Example

Environmental Audit Concerning Entry of TESCO in Bahrain of the of the Should the UK Supermarket Brand TESCO Enter the Bahraini Market? Introduction This assignment is an attempt towards conducting an Environmental Audit for an international brand entering Bahrain. The brand is called Tesco and it is the market leader among the supermarket chains in the UK. The quest for increased business opportunities is an ongoing one, even for international brands. Traditionally a business grows from a sole proprietorship or family business to a joint venture or partnership, and later on to a corporation. The shares might be privately held in the case of a private limited company, or publicly traded, in the case of a public limited firm. There can be no restriction on who holds how many shares of the publicly held firm, as these are traded on the stock exchanges and anyone having the means to do so can buy or sell them. Unfortunately this can lead to leveraged buyouts, hostile takeovers and forced mergers or acquisitions that may reduce the firm’s value rather than increase it. But there is no mistaking the fact that the prime objective of any type of business enterprise is to increase their sales and profitability and thereby maximize the value of its shareholders. This is reflected in its market price as quoted on the stock exchange. Financial analysts and industry experts are constantly following a company’s every move, and commenting on whether they think it is a wise or ill planned one. Expectations and opinions also reflect on public sentiment. That is why a company like Tesco must think very carefully before it embarks on an international expansion like setting up business overseas in Bahrain. Conducting an environmental analysis and using the PESTEL format to analyze forces in the local environment of Bahrain may give positive or negative signals to TESCO management. Therein lies the importance of an environmental analysis to TESCO or any other firm considering investment in Bahrain. What an Environmental Audit Entails A typical environmental audit involves the analysis of the following six forces affecting the business environment, in terms of the opportunities and threats they provide for new entrants. These are (1) The Political Environment (2) The Economic Environment (3) The Socio-Cultural Environment (4) The Technological Environment (5) The External Environment and (6) The Legal Environment (Boddy & Paton, 2009, 5). Analysis of each of these elements separately will indicate the opportunities and threats they hold for a business entering that particular local environment- it is largely country specific. Michael Porter has mentioned in his book ‘Competitive Strategy’ that there are five forces impacting on the survival of any firm in a particular industry. These are (1) Barriers to Entry and Exit (2) Bargaining Power of Buyers (3) Bargaining Power of Suppliers (4) Threats of Substitutes and (5) Competitive Rivalry (Porter, 1980, 15). Obviously TESCO has to take a look at all these elements while considering its proposed entry into Bahrain. PESTEL Analysis of TESCO from the Perspective of a Setup in Bahrain I will start this part of my paper by narrating a short history of TESCO’s origins and its methods of expansion as I believe these have an impact on organizational culture and management’s thinking and analysis of opportunities and threats. I will next launch into the particular environments in Bahrain and see what opportunities or threats each of the six forces discussed above in PESTEL provide for TESCO in terms of setting up business here. Tesco began operating in the UK in 1919 after its founder Jack Cohen purchased a running business from one T.E Stockwell: he took the first three initials TES and added the first two of his last name CO from Cohen to serve as a name for the newly acquired enterprise. TESCO initially was a grocery store type outlet in which the founder sold surplus items. The first branded TESCO store made its appearance in 1929 in Burnt Oak, Middlesex, England. Taking items of food and drink as its main area of concentration, the business has nevertheless expanded into carrying other lines of products as diversified as clothing, electronics, financial services, CDs and DVDs, music and Internet downloads and even software. In terms of business strategy, TESCO has used joint ventures, acquisitions and even hostile takeovers to further its interests. It presently leads the supermarket sector in the UK. Political Environment The political environment in Bahrain is quite conducive to setting up a new chain of supermarkets. Though there is some level of competition as other firms like Geant, Al Jazira and Jawad Business Group have already entered the market, the competition is not that intense and there are new business opportunities which are welcomed. The ruling elite are relatively stable and want to see more and more brands of international firms entering into the fray of business competition. Traditionally the Middle East has been quite accommodating to foreign businesses and I see no great problems for a well reputed international supermarket chain like TESCO in making an entry here. Economic Environment According to the 2011 Index of Economic Freedom, Bahrain has the freest economy in the Middle East and ranks 10th overall in the world. This report was published by the Heritage Foundation and the Wall Street Journal. With a GDP per capita of USD 40,400 in 2010 (CIA World Fact Book-Bahrain), locals and foreigners alike have good purchasing power and also the appetite to spend for value goods. Bahrain has largely escaped the effects of the present recessionary trend that has hit other Gulf States like Dubai for instance, and even that emirate has been on the road to a slow recovery from sometime last year. People who had been forced to leave their jobs are slowly returning to the Gulf States as the condition has improved, enabling them to take a risk and seek employment here again. Consequently business opportunities all across the Gulf region are poised for a recovery. With expatriates returning to these shores will also come a revival in the economic climate. Socio-Cultural Environment Like Dubai, Bahrain it has been noticed is quite open to accommodating foreigners in the workforce, therefore it follows that the socio-cultural environment is quite positive. Though there are a few Arabs that frown and stare at foreigners as being alien to the local culture and traditions, they have to relax and give way to international living opportunities. The localization of Arabs is not yet complete in many areas such as services, banking and insurance, and this form the bulk of opportunity in Bahrain. Supermarket store counters are still largely manned by mainly Indians and Filipinos as most Arabs do not like to have to serve others as they regard it subservient. Clearly there is still much to do and TESCO can capitalize on these opportunities. Technological Environment The technological environment could not be better. Bahrainis love and embrace new technologies at the drop of a hat. Be it cars, motorcycles or mobile phones, Bahraini youth want the latest and the best and if they are suitably impressed, are willing and able to spend for it. The same goes for designer stuff from clothing and makeup to jewelry and other items as well. You are quite likely to see the average Bahraini youth on repeated trips to the store to buy something they like. The use of credit cards has further increased their appetite and buying power. Bahrain has also a highly developed and modern technology in its banking sector, which it has developed as a means of reducing dependency on oil exports. No doubt the issue of credit cards and loyalty cards by supermarket stores like TESCO and its competitors can be explored. Bahrainis are already used to shopping at supermarket stores and TESCO would not have a problem attracting them to its stores- the fame of TESCO would precede it and I would expect healthy consumer interest right from the time it opened its doors in Bahrain. Legal Environment The legal environment in Bahrain is highly regulated and there have been some efforts to protect consumers as well as look at the legitimate demands of business entities. Everyone knows that increased business brings economic prosperity and more choices for the consumers. So the laws support the establishment of business and increased economic activity. There is no personal income tax. However, foreign employers would have to pay taxes at the same rate at local firms. There is a local unemployment insurance of 2 percent that is mandatory and which protects workers during hard times. There is also old age, survivor and disability protection. Analysis of Opportunities and Threats, Strengths and Weaknesses (SWOT) Here I will analyze the opportunities, threats, strengths and weaknesses regarding TESCO’s proposed entry into Bahrain. No doubt TESCO will have to survey the marketplace and get feedback from a reputed marketing research firm before it proceeds. However I see that with an increasing population both in locals and expatriate workers, a relatively stable economy with lesser dependence on oil, and the astounding development in the industry and service sectors compared to agriculture, there is great potential for an international supermarket chain like TESCO to enter Bahrain. Most of the consumers are educated and have purchasing power, especially the locals. In terms of Bahrain’s sector wise contribution to GDP, the service industry contribution of 43 percent to GDP is overshadowed only by the industrial sector contribution of 56 percent, with agriculture making up the difference of 1 percent (CIA World Fact Book-Bahrain). So the service industry environment is quite healthy. One caveat to watch out for is not to employ too many expat workers, as Bahrain clamped down some restrictions in 2009 in order to favor employment of the local population. This was admittedly a response to the economic slowdown that had affected the entire developed world, though its effects were less pronounced in the Middle East. Barring this threat, I see no other except that of competition in the retail supermarket sector. TESCO’s weaknesses lie in its traditional rush into things. It must follow a carefully planned strategy and consider profitability and long term return on investment before setting up business here. It cannot seek to challenge or dominate from the very outset. It may choose to position itself as a low cost provider or a premium goods seller, but it would be wise to target all and different segments of the market. After all, you get only one chance to make a first impression. TESCO’s strengths lie in the fact that has been in business for nearly 90 years (since 1919) and has grown from a one shop small retailer to a worldwide respected supermarket brand. It has overseas operations in over 13 countries and also has a variety in the kinds of stores it is opening all over the world. TESCO’s traditional marketing strategy has been to target different segments of the consumer population simultaneously so there is something to interest every class of consumer. I really do not expect that TESCO will go wrong in entering the Bahraini marketplace. References Boddy, David & Paton, Steve (2009). Management: An Introduction, Fifth Edition. FT Prentice Hall. Porter, M.E. (1980). Competitive Strategy, 1st Ed. The Free Press. The CIA World Fact Book-Bahrain, 2010. Accessed 06 Mar 2011. Read More