Strategic International Business Management - Report Example

Strategic International Business Management Tesco PLC Executive Summary This report has been prepared for studying Brazilian business market with the perspective of future international expansion of Tesco PLC. Tesco is willing to expand its business in the Brazilian market so that its operational areas can be extended along with earning attractive amount of profit margin. For the accomplishment of this purpose, the macro environmental characteristics of the Brazilian market have been analysed. Alongside, the external and internal environment of the company has been assessed with the help of Porter’s five forces model and SWOT analysis. In the last section, a few of the necessary recommendations have been provided to Tesco so that it can form and develop its business largely in that particular business market. After complete analysis of all the above mentioned aspects, it can be affirmed that Tesco can successfully expand its business in the Brazilian market due to its favourable business environment. Table of Contents Executive Summary 2 1. Introduction 4 2. Target Market for Tesco’s Future International Business Strategy 5 3. Macro environmental Characteristics of Brazilian Business Market 6 4. External and Internal Environments of Tesco PLC 9 4.1 External Environment 9 4.2 Internal Environment 11 5. Key Strategic Issues Face by Tesco in Expansion 12 6. Recommendations and Conclusion 13 7. References 14 1. Introduction International strategy refers to the system wherein the internationally scattered business organizations operate independently in another country. The units of organizations that act independently in other countries merely attain coordination and cooperation from their parent ones. Even though, most of the company desires to enter into international market due to various reasons such as expanding business. Despite various implications of international strategies, the major aim of the companies remains in attaining superior growth along with expanding the size of the business. The expansion process is possible due to the easier communication system within the countries. It has been evident that due to the advancement of technologies, the communication process between the countries has become quite possible and easier (Twarowska & Kąkol, 2013). Thus, in this report, the strategic international business management of Tesco PLC would be discussed. It is one of the renowned multinational retail stores operating in several international countries with the intention of growing its business and attaining greater profitability (Tesco, 2014). As an international strategy, the company is planning to enter into the Brazilian business market for broadening its operational functions along with raising profitability index. In this regard, the futuristic perspective of Brazil’s international market along with the analysis of its macro environmental characteristics would be taken into concern while discussing the report. Apart from these aspects, the external along with the internal business environment of Tesco and the key strategic issues of the company would also be analysed in the discussion. 2. Target Market for Tesco’s Future International Business Strategy The potential target market for Tesco has been recognised as Brazil in the context of future international business strategy due to favourable business environment persisting in this nation for conducting business effectively. Since previous few decades, Brazil is identified to be one of the potential business markets for global trade. It was eventually proven after the incident of the global financial crisis, which happened in the year 2008. After the occurrence of the crisis, Brazil was the country to cope up with the situation quickly as compared to the other developed nations of the world. It was Brazils’ strong agricultural and industrial export business, which supported it to overcome the crisis at the earliest. Thus, this gradual rise from the crisis eventually proves that Brazil possesses strong international business strategy and it will be the most appropriate place for conducting business for Tesco in future. The other aspect, which can prove much favourable for Tesco to expand its business in Brazil, is its strong economic base. Brazil is viewed to be one of the fastest growing economies in the world within previous few decades. Brazil’s sound economic management comprises its effectiveness in reducing the inflation rate along with gaining attention of the foreign investors. Due to huge investments made by the foreign investors in Brazil, the nation has been able to accelerate its currency along with raising economic conditions. Tesco can take complete benefit of Brazil’s policy of attracting foreign investors. Brazil possesses a specific trade policy, which narrates that its major intention of attracting outside investors is not only to make the country richer but also to make it powerful in terms of finance (Lima, 2008). Thus, this motto of Brazil can be regarded as one of the strongest weapons for Tesco in expanding its business in future for raising productivity and attaining superior competitive position. 3. Macro environmental Characteristics of Brazilian Business Market The availability of natural resources, labours and provision of ample opportunities of growth and development for the foreign investors has placed Brazil in the position of being one of the appropriate countries for the potential organisations in expanding their respective business. More of the detailed information of the favourable macro environmental features of Brazil can be obtained through PESTLE analysis. This has been discussed hereunder. Political In recent times, Brazil can be identified as one of the countries with stable political situation. The country is having sound and proactive government with null political instability in the present day context. The political environment of Brazil is led by the communist party and its legal system is based on the Roman Codes. The country possesses 26 administrative divisions and each of these divisions are divided into three the branches i.e. judicial branch, legislative branch and executive branch (Central Intelligence Agency, n.d.). Economic Brazil is the country, which is rapidly expanding its position in the international business market. Since the year 2003, the country has been successful in improving its macro-economic environment by building attractive foreign reserves and reducing debt through making shifts in the debt burden. Foreign investors consider Brazil as the appropriate place for investments due to its deliverance of high rate of interest or return to them. Brazil is also recognised as the appropriate place for economic distance due to the availability of huge natural resources and the infrastructure for carrying international business strategies (Ghemawat, 2001). Over the preceding few years, huge capital inflows and high appreciation of the currency rates, eventually led the Brazilian government to raise tax levels (Central Intelligence Agency, n.d.). Social According to the estimation made in the year 2013, the total population of Brazil is accounted to 201,009,622. This fact and figure denotes that the growth rate of the population was 0.83%. It can be affirmed that the decline in the fertility rate amid the Brazilians is the major cause of the slowdown in the population growth rate. In recent days, it has also been observed that Brazil is facing the problem of ageing population and changes in demographic profile. The poverty and income inequality level of the country always remains high and discriminates the indigenous populaces, women and the mixed race (mulatto meaning mixture of white and black population). This discrimination amid the specific group of people, renders social exclusion and led the country towards the conduct of high crime rate, especially in rural cities and favelas (Central Intelligence Agency, n.d.). Technological Brazil is one the leading countries in terms of science and technology in the content of South America. The government of Brazil largely supports technological research through the provision of funds and donations. Furthermore, it can be stated that along with developed economy, the country is also becoming the leading international technological market for the foreign investors. As the country was successful in coming out of the recession caused by the financial crisis, it spent nearly about US$9.4bn for making the technological power of the country stronger. Evidently, Brazil earns 38% of its annual income from the IT market of products and services (Central Intelligence Agency, n.d.). Due to the introduction along with the application of pioneering technological advancements, it can be affirmed that Brazil has become successful in coping up with the financial crisis easily and raising the income level of the country at a favourable rate. Legal Brazil is a country, which follows civil law and its law system was developed by the Portuguese during the colonisation period. The legal system of the country is also based upon the codes and the legislations that follow by the state legislature, municipalities and above all federal legislature authority. The Federal Supreme Court is the highest authority in Brazil fulfilling the responsibility of protecting the constitution along with making proper functioning of the legal bodies. Brazil possesses strong legal framework for protecting the self-interests of the foreign investors in Brazil so that none of their misconducts hamper the economy of the country (Library of Congress, n.d.). Environment Brazil has long been recognised as one of the largest producers of greenhouse gases as it has high emission rates. In the year 2010, the emission rates had gradually declined by almost 70%. Thus, at that particular time, the country adopted certain significant measures for the improvement and the protection of the environment by developing newer policies related to environment protection. It is worth mentioning that several developed countries helped Brazil through various means in order to develop the incident of excessive deforestation in the Amazon basin and remove the unnecessary decays from the forest, which could hamper the environmental situation of the country. The impacts of deforestation had also affected the natural ecosystem of the country largely (European commission, 2013). 4. External and Internal Environments of Tesco PLC 4.1 External Environment Tesco is operating in numerous international countries of the world with the intention of expanding its business and attaining the global leading position in the respective industry. For successful completion of the expansion process, it is necessary to analyse the external environment of the firm using Michael Porter’s five forces model. This has been described in the following. Threat of New Entrants The bigger supermarkets of Tesco are identified to be its major contributor of raising higher annual earnings. In the modern scenario, majority of the customers are acquainted with the notion of one stop shopping. This system of one stop shopping is provided by Tesco, which might be a major factor of not allowing any new potential entrant to enter into the Brazilian business market. Tesco, in this regard, is observed to spent huge amount of expenses for the development of its existing infrastructure, so that new entrants cannot enter easily (Porter, 1990; Carter & et. al., 2011). Bargaining Power of Suppliers Tesco always keeps on discussing with their potential suppliers to obtain the competitive prices in terms of other stores prevailing in the markets where it operates. Tesco maintains its quality of the products in comparison with other business corporations. Due to these reasons, it can be affirmed that buyers’ bargaining power in relation to Tesco is quite moderate (Porter, 1990; Carter & et. al., 2011). Bargaining Power of Buyers Tesco has introduced several shopping assistance schemes for maintaining proper relation with its customers. A few of the customised services such as low price shopping and availability of all the products has retained the customers of Tesco for a long time. All these facilities have aided the company in retaining knowledgeable customers and a relatively low threat of backward integration (Porter, 1990; Carter & et. al., 2011). Threat of Substitutes Companies often face a problem of losing customers, as there always remains a threat that the customers might switch their preferences to other alternative products available in the operating markets. Regarding Tesco, it can be stated that there is no such risk of raising such threat, as the products that deal by Tesco are the necessity goods of human life. The other strategy that is being adopted by Tesco in reducing the threat concerning substitute products is that it tends to take over the smaller stores and transforming into bigger supermarkets, so that people will obtain the products needed by them at any time (Porter, 1990; Carter & et. al., 2011). Competitive Rivalry among Existing Firms Tesco possess very lesser chances of competitive rivalry with the other existing companies in the market. This is because Tesco possesses a special customer loyalty club card, through which it can obtain detailed information about the tastes along with the preferences of the customers. With the use of this card, the company can offer wide range of products that are preferred by the customers and relatively reduce the chances of rivalry (Porter, 1990; Carter & et. al., 2011). 4.2 Internal Environment The internal market environment of Tesco can be analysed through the identification of its strengths and weaknesses. These have been elaborated in the following discussion. Strengths One of the major strengths of Tesco is its strong and established brand name in the European and other business markets where it operates. The availability of wide range of products in its various retail stores and complying with the requirements of its customers are few of its major strengths. It can be apparently observed in this similar concern that Tesco is much competent in understanding the needs of the customers and their tastes as well as preferences. Moreover, the company has a strong core market i.e. it has started its business as a base from the developed nation i.e. the UK with wide range of customers. It has also been viewed that the company possess explicit as well as implicit knowledge about the retail business sector, which can be useful in making its future international expansion successful (Tesco, 2014). Weaknesses One of the major weaknesses of Tesco can be apparently noted is that it is highly dependent on the UK business market for international expansion. During expanding business particularly in the Asian business markets, it was found that the customers were less aware about the products of the company. Moreover, the price elasticity of demand in Tesco is quite high due to low switching costs and prevalence of high competition in the business markets (Tesco, 2014). This can be regarded as the other prime weakness of the company. 5. Key Strategic Issues Face by Tesco in Expansion The strategic issues that might face by Tesco in the Brazilian business market can be assessed through the identification of its opportunities and threats. These have been discussed hereunder. Opportunities Brazil is one of the rising countries offering ample opportunities for conducting international business to any company. The per capita income of Brazil is gradually rising due to which the opportunities for Tesco to expand its business in the business markets of this nation might rise extensively in future. Brazil would be an attractive business market for Tesco, as it possesses a sound and stable political situation along with healthy economic condition. The increase of the internet use among the people is also a major opportunity for Tesco in expanding its business and acquiring a significant position in the Brazilian market (Central Intelligence Agency, n.d.). Threats The foremost threat that Tesco might possess in the Brazilian business market is the threat against the existing competitors. A few of the retail companies such as Wal-Mart and France’s Carrefour have already acquired the market and possess huge range of customers. This can be a major threat for Tesco. On the other hand, it has been largely observed that the people of Brazil prefer local grocery items and apparels. In this case, it can be affirmed that a few of Tesco’s’ non-food items will not have much sale due to the popularity of the local brands (Thomas White International, 2012). 6. Recommendations and Conclusion As per the above analysis, detailed information on the macro environmental conditions of Brazil and the external along with the internal environment of Tesco can be obtained. Looking into the favourable conditions of Brazilian business market, it can be thus recommended that Tesco will find ample opportunities for expansion its business. In order to attain success in the Brazilian business market, it is recommended that Tesco must emphasise the development of the three stands of an organization’s configuration i.e. structural design, relationship and process. The structural design elaborates the roles and responsibilities of the managers and in lines of reporting. By following this element, Tesco must arrange for providing trainings to the employees so that they are acquainted with the knowledge management skills. These skills will certainly enhance the employees in understanding the needs of the local people of Brazil and comply with their requirements. The second element i.e. relationship will help the company in forming effective association with the other existing retail companies in Brazil. This association will help the company in lessening the risk of rivalry by a certain level. Lastly, the process element will help Tesco in providing the correct knowledge of strategy to be developed by the managers of the company n (Tesco, 2014; Johnson & et. al., 2008). Based on the above discussion, it can be apparently observed that the macroeconomic environment of Brazil is favourable for the future international expansion program of Tesco. The stable political situation and the suitability of the foreign investors in making substantial investments eventually depict that Tesco can operate well in the Brazilian business market in future. 7. References Carter, C. & et. al., 2011. Strategy: Theory and Practice. SAGE. Central Intelligence Agency, No Date. The World Factbook. Library. [Online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/br.html [Accessed February 24, 2014]. European Commission, 2013. Brazil Country Strategy Paper. EU/EC Cooperation Objectives, pp. 1-65. Ghemawat, P., 2001. Distance Still Matters The Hard Reality of Global Expansion. Harvard Business Review, pp. 1-12. Johnson, G. & et. al., 2008. Exploring Corporate Strategy. Financial Times Prentice Hall. Library of Congress, No Date. The Legal System of Brazil. Levels of the Court System: Brazilian Tribunals and Courts. [Online] Available at: http://www.loc.gov/law/help/brazil-legal.php [Accessed February 24, 2014]. Lima, M. R. S. D., 2008. Brazil Rising: Emergence on Global Stage Leaves Brazilians Divided. Brazilian Foreign Policy. [Online] Available at: http://www.spiegel.de/international/world/brazil-rising-emergence-on-global-stage-leaves-brazilians-divided-a-582861.html [Accessed February 24, 2014]. Porter, M. E., 1990. The Competitive Advantage of Nations. Harvard Business Review, pp. 72-91. Tesco, 2014. Tesco PLC. Our Results and Reports. [Online] Available at: http://www.tescoplc.com/ [Accessed February 24, 2014]. Thomas White International, 2012. Retail Sector in Brazil: Riding the Wave of Middle Class Growth and Consumer Credit Boom. BRIC Spotlight Report. [Online] Available at: http://www.thomaswhite.com/pdf/bric-spotlight-report-brazil-retail-report-march-2012.pdf [Accessed February 24, 2014]. Twarowska, K. & Kąkol, M., 2013. International Business Strategy - Reasons and Forms of Expansion into Foreign Markets. Management, Knowledge and Learning, pp. 1005-1011. Read More