Corporate Strategy of Tesco Plc - Case Study Example

Global Strategy Table of Contents Introduction 3 Corporate Strategy of Tesco Plc 3 Business Strategy 5 Value Chain Analysis of Tesco Plc 5 Primary Activities 5 Support Activities 6 Porter’s Five Forces Model 6 Sustainability and Ethical Issues 8 SWOT Analysis 9 Conclusion 10 Reference List 12 Appendices 14 Appendix 1 14 Introduction Tesco Plc is one of the leading multinational retailer which sells general merchandise and grocery items across various countries. Among the various services and products, groceries were the original product offered by the company. Its product lines include books, electronics products, furniture, clothing, home entertainment, petrol, internet services, general merchandise and financial services. The stores of Tesco are characterized into six different formats which decide the category of product sold there. The mission of Tesco Plc is to evolve as a growing business across the world with full of opportunities. They just not want to become the shop of preference for people but also the place where people prefer to work. Each time the company try to provide something new to their customers. The success of the company depends on their effort to understand the needs of customers better than anyone and then improving the services and products to make the life of customers little bit better and easier (Tesco Plc, 2013). Tesco Plc is ranked 2nd in terms of revenue globally. In United Kingdom, it has 30% of market share and is situated across twelve countries in Europe, North America, and Asia. Initially, they started their business as a grocery retailer but later extended to provide various range of products (Tesco Plc, 2015). It is important to examine the strategy of Tesco Plc as to know how it sets the standards for achieving its success. The strategy formulation facilitates various actions as well as desired results. The main purpose of this paper is to provide the corporate and business strategy of Tesco Plc. The business strategy will include value chain analysis, porter’s five forces framework, and SWOT analysis of the company. Further, ethical and sustainability issues related with Tesco Plc will be discussed to know whether the company is involved in any unethical practices. Corporate Strategy of Tesco Plc A narrative vision of strategy demonstrates the use of language to create meaning; therefore, it explores means in which stakeholders produce a revelation of direction to influence and understand actions of one another (Barry and Elmes, 1997). The transitions of fundamental structure in businesses brought about by main catalysts like global competition, deregulation, changing expectations of customers, and technological discontinuities are imposing strains on the managers and supervisors around the globe. (Prahalad and Hamel, 1994). A corporate strategy implies that objectives of the companies have been described in advance as well as main aspects have been built up before the commencement of strategy. Whereas, developing corporate strategy signifies that its final goal is uncertain and the elements are expanded during its lifetime, as the approach proceeds (Ansoff, 1965). The corporate strategy of Tesco Plc depends on these principles: Value for money: The Company are committed towards providing customers with quality products (Tesco, 2015a). Customer loyalty: Customer reward the company with their trustworthiness/loyalty and Tesco thank them by way of their Club card (Tesco, 2015a). Products: Working strongly with their suppliers, Tesco is determined to provide products of highest quality as well as with more possible choice (Tesco, 2015a). Stores: Through the investment in prevailing stores as well as developing flexible formats of new stores, the company is committed towards providing their customers the best experience of shopping (Tesco, 2015a). The main corporate strategy of Tesco Plc is to “Develop the United Kingdom core” as the business created in the United Kingdom is accountable for largest operations of company. Their long term objective is to do extremely well in international retail stores and online store. Tesco has attained incredible growth in the international market with a progress from 1.8% in 1977 to 30% international market share in 2012 (Tesco Plc, 2013). This is supported with the reality that the company has opened over 3000 store in twelve different countries. In the UK itself, they have around 2975 stores. Other long term strategy includes developing the sector of non-food category and providing more variety as well as to augment the development of the retail services athwart the international market. Their short term strategy includes the creation of excellent brands which they have implemented by providing own-tag products including non-food and food products. For example, Tesco has re-launched the products of everyday value with a variety of 540 products to select from. The company has also decided to continue recuperating their two thousand grocery products as well as launching a patisserie category. Their final corporate strategy entails team building in order to add value towards the company. Tesco has engaged in mentoring and leadership building to guarantee value creation in their employees (Tesco Plc, 2013). As Tesco Plc is a parent company so the strategy comes from within. The sparkling growth of Tesco comes at the cost of rivals. Their focus on the customers is unique and they lead the business through delivery of first class service. Tesco’s dual approach of product differentiation and cost leadership as well as use of information technology in relation to the market forces helps them to achieve competitive advantage over their competitors. Business Strategy Value Chain Analysis of Tesco Plc Analysis of value chain is a valuable tool which is used to enhance the total value of the company. Value chain is also used to form a connection between main activities which add value and their interaction with support activities which boost the total organization’s value. Value chain investigation divides a project or enterprise into sequence of activities and every element in the chain conveys a portion of total value/worth to the consumer and contributes fraction of the entire profit (Sekhar, 2009). Michael Porter’s approach of value chain explains five value creating activities such as inbound logistics, outbound logistics, operations, service, and sales and marketing (Porter, 1985). The value chain of the company is explained below: Primary Activities Inbound logistics: Tesco Plc utilizes its economies of scope and top marketing position to have the strong negotiating power from dealers so that they could have the goods at lower price. Tesco has also improved their ordering system as well as approved the seller lists (Tushar, 2015). Operations management: Tesco Plc has a strong chain management in order to produce the goods effectively. They have been capable to minimize the cost by the proficient IT system. Tesco has lately invested approx £80 million for streaming their operations (Tushar, 2015). Outbound logistics: Due to the well-organized outbound logistics, the company has been capable to make a strong connection both in offline and online retail segments of food. Tesco has developed various store formats in order to acquire the utmost customer exposure (Tushar, 2015). Marketing and Sales: To increase the volume of sales, Tesco has excellent marketing strategy such as Tesco Clubcard established through the IT advances, brings more clients from the rivals (Tushar, 2015). Services: Tesco is operating its business strategy by laying emphasis on the dual approach of product differentiation and cost leadership. In this manner the company draw more customers. Besides the cost leadership approach, the company has been proficient in bringing other diversified products for their customers thereby generating more value in comparison to competitors (Tushar, 2015) (See Appendix 1). Support Activities Firm infrastructure: The activities which generate value for Tesco Plc are the work systems, line management, financial management, support system and the administrative coordination to give them the necessary information required to take decisions more efficiently. Human resource management: The human resource management of Tesco includes recruiting and training their staffs, retaining and compensating staffs for both operational and managerial roles. Technology development: These activities are related to the expansion of services and products of Tesco Plc, both externally and internally. Procurement: The procurement activities of Tesco include managing their relationship with the suppliers, and negotiation with the suppliers to reach at best prices. From this value chain scrutiny it can be demonstrated that the company continues to grasp its leadership position in the robustly focused retail sector. Tesco Plc has to pay attention on both the product differentiation and cost leadership in order to generate more worth for customers. Tesco has been competent to utilize the recent information technologies as well as other strategies in order to upgrade the chain management and business system to minimize the organization’s cost. So, the main competitive advantages of the company are associated with the environment of business which is demonstrating a positive outlook for Tesco. Porter’s Five Forces Model The five forces model of Porter states that all companies in a specific industry face some forces within the industry which significantly influence profitability. If a company recognizes these forces, then a business level approach can be developed by it that facilitates the company to either take benefit of or guard itself from the forces, which consequently allows the company to be always profitable (Ahlstrom and Bruton, 2009). Threats of new entrants: In any market, the potential competitors are faced with threats that the new entrants frequently have including funding needs, conversion costs, and sales channels. The market of the UK is dominated by four retailers like Asda, Tesco, Safeway, and Sainsbury. In the current years, the market of grocery has expanded as well as integrated into hypermarkets. Tesco has almost 30% share of market in the United Kingdom making them the retailer with highest capital investment in retailer market of grocery. For the new entrant, to enter the market of UK, it would be not easy to grasp up with Tesco Plc. Globally, Tesco competes with super brands of retail segment such as Carrefour and Wal-Mart in twelve countries, where they have invested extensively. Thus, the entry of the new participants is minimal (Watibini, 2015). Threat of new Substitutes: The threat of substitute services and products offered by the company depends on tendency of the consumer to substitute, cost of switching that the consumer will incur, differentiation level of perceived services or products, and also the quality reduction amongst other factors. In case of Tesco Plc, the risk of substitute lies in continuation of convenience shops which is preferred by most of the consumers due to the closeness to working and residential areas. Therefore, Tesco has attempted to open metro stores and express stores which are located according to the convenience of customers (Watibini, 2015). Bargaining power of buyers: Consumers seek to attain higher returns on the investment but also want to spend less for quality products or services. Tesco has deliberately supported its performance goals to provide for consumer friendly prices, thus maintaining a happy customer base. The company ascertain that the quality benchmarks are maintained through engaging in activities like staff/employee empowerment. Moreover, the training of employee was meant for developing quality service towards customers (Watibini, 2015). Bargaining power of suppliers: In the UK, the position of suppliers is not much strong. This happens because of the reason that the leading supermarket companies such as Tesco have agreement with suppliers and these suppliers have fear of losing the agreement/contract with big companies. Therefore, the supplier does not possess the strong place in case of negotiating or bargaining power. In spite of this, the suppliers deem to provide the goods to the top retailer as one of the chances for the growth of business. Therefore, the suppliers keep their negotiating/bargaining power comparatively low (Watibini, 2015). The intensity of competitive rivalry: In an international sector, Tesco face huge competition owing to its increasing consumer demand for product differentiation, innovative services and diversification. Rival retailers are the tough competitors in local market of the UK where Tesco has to balance between products and prices with them in order to ensure that the company offers more products which add value and give benefits to the customers (Watibini, 2015). Sustainability and Ethical Issues The group of environmental campaign believed that the way Tesco operates is hurting small retailers, local communities, consumers and the suppliers. A pressure group seminar argues that some actions need to be taken in certain areas in order to restrain major supermarkets including Tesco. The group argued that Tesco Plc is providing low prices to its suppliers and dealers in the United Kingdom to maximise the profit. The success of Tesco has made them immensely powerful but they are abusing the position by placing small dealers out of the business and bulling suppliers, killing neighbouring high streets, and also harming the atmosphere through their never ending requirement for inexpensive food (Standard, 2004). In the Corporate Social Responsibility report, Tesco declares that they support the local communities as well as create occupation for local citizens. But the company do not mention how many different jobs/occupations in the local society might be lost due to the opening of the new superstores as local stores close down. Tesco also remains unsuccessful to illustrate the impacts of losses on community that loses their services such as post offices, or local shops. More than thirteen thousand specialist shops, including bakers, butchers, newsagents, and fishmongers closed between the year 1997-2002 thereby leaving most of the communities without available shops as well as services. Tesco states that they have lessened waste in their internal system, though they still generate massive amounts of packaging which results in landfill sites by means of their customers’ bins. Grocery packaging creates almost one quarter of domestic waste (The Guardian, 2015). Fresh goods are frequently dumped as it does not fulfil the appearance and high shape standards demanded by the company. Tesco also said that they are reducing the emissions of carbon dioxide but its quest for cheap food accessibility throughout the year means that groceries and foods are transported over great distances thereby causing pollution. Imported fresh merchandise is frequently flown halfway around the world. The buildings of large supermarket are also incompetent, using a massive amount of energy as well as creating more carbon dioxide emissions. The company was also unable to express any real endeavour to minimize the quantity of risky substances or chemicals in their food. While other retail supermarkets have agreed to deal with the risky substances/chemicals, Tesco Plc has not. In reality the company did not yet bother to respond to the questions of ‘Friends of Earth’ on this matter. In spite of the claims that Tesco is reducing the use of pesticide, the five year analysis from 1998-2002 revealed that the company had made no reduction in the pesticide remains in their food (Ameen, 2015). However, Tesco is following an ambitious strategy of climate change across their worldwide operations in order to become the zero-carbon company in the near future. The practice of green business is implemented at the company within their distribution and property function. The measures of energy efficiency are applied in the buildings with various measures including energy conservation, natural and efficient lighting solutions, and efficient equipment. There is a team of climate change at the corporate level which formulates carbon strategy of the company by setting targets for reduction of emissions as well as shares expertise on policies and climate science. The dimension of climate change is embedded in the operations of business from operational to strategic level (Tesco, 2015b). SWOT Analysis SWOT analysis includes the investigation of weaknesses, strengths, threats, and opportunities which implies that it investigates both, external and internal, as well as negative and positive factors of the company. On the foundation of SWOT investigation, a marketing plan or strategy could be developed by making use of corporate strengths and evading corporate weaknesses in order to facilitate the organization to take advantage from the future prospects with regard to upcoming risks. Within this analysis, vast information of the company, environment, competitors, and market can be assembled. Afterwards, this information is presented as well as compacted in the investigation of weaknesses and strengths as well as threats and opportunities. Therefore, it provides a mixture of these outcomes by delivering useful information to observe the capacities and resources of the company against the surroundings of competitive atmosphere in which it functions (Bohm, 2009). The strengths could be plentiful financial resources, good brand name, economies of scale, excellent marketing skills, committed employees, and better distribution skills. The weaknesses could be lack of tactical direction, restricted product line, internal operating crisis, limited distribution, and out-of-date technology. The opportunities are in the form of quick market growth, economic boom, new technology, opening of overseas markets, and demographic shifts. The companies face challenges in the form of overseas trade barriers, entry of overseas competitors, and economic downturn (Ferrell and Hartline, 2012). Strengths: Tesco Plc has broad market existence across South America, Europe, North America, Asia, and North Africa. The company adopted the multi format strategy such as hypermarkets, discount stores, convenience stores, and supermarkets. The high fraction of local sourced products helped them to attain operational efficiencies. Tesco Plc has large stores as compared to other retail chains, with broad lines of non-food items such as apparels, books, electronics, software, music, furniture, internet and telecom services, and financial services. It is one of the highly accepted brands that constructed its brand equity (Watibini, 2015). Weaknesses: Tesco Plc has not so strong presence in other nations. The profit levels of this company were impacted by bad debt, domestic insurance claims, and credit card arrears. Opportunities: Tesco Plc has opportunities in terms of rebranding their stores through promotions and inventive digital media marketing. They can focus to increase the sales of non-food items. The company also has opportunity in terms of entry into rising markets by acquisition of tie-ups and smaller chains. They can also focus on the private label development. Threats: The Company face challenge in terms of greater competition from Walmart and Carrefour. Rising costs of raw material from both non-food and food products impact the overall profit margins of Tesco. One more challenge is to maintain operation of low-cost as well as low prices in the time of economic recession (Watibini, 2015). Conclusion Strategic management is considered as an essential element for the development of any company. As represented in the essay, Tesco has 30% market share in the United Kingdom and is situated across fourteen countries. The growth of the company is accredited to several factors that they have carried out over the years. Tesco’s analysis has been shown using SWOT analysis, Porter’s five forces model in relation to the corporate strategy. Tesco enjoys a huge market share in the United Kingdom, an aspect which they seek to develop as they embark on their growth strategy. The key challenge is the competition the company faces from different brands in the same industry. The main competitive advantages of the company are associated with the environment of business which is demonstrating a positive outlook for Tesco. Tesco is facing strong competition from Carrefour and Wal-Mart so it is recommended that the company needs to keep on expanding their store in more geographical area in order to stand ahead of its rivals. In consideration to the substitution of services and products, Tesco should pay more attention on service and product diversification in order to make their product available for different groups of consumer. They should maintain their strategy of low cost to make sure that their costs are competitive owing to the massive competition. It is also recommended that they should cut costs on the products and sell their underperforming global business. There are also some ethical and sustainability issues related with the company so, Tesco should try to reduce waste in their internal system and should also reduce the utilization of pesticides in their product. Reference List Ahlstrom, D. and Bruton, G., 2009. International Management: Strategy and Culture in the Emerging World. United States of America: Cengage Learning. Ameen, B., 2015. Unethical behaviour of Tesco Plc. [online] Available at: < http://www.academia.edu/6767689/Unethical_behavior_of_Tesco_plc> [Accessed 22 Jan 2015]. Ansoff, I. H., 1965. Corporate strategy. New York: McGraw-Hill Publication. Barry, D. and Elmes, M., 1997. Strategy retold: towards a narrative view of strategic discourse. Academy of Management Review, 22(2), pp.429-452. Bohm, A., 2009. The SWOT Analysis. Germany: GRIN Verlage Publication. Ferrell, O.C. and Hartline, M., 2012. Marketing Strategy. United States of America: Cengage Learning. Porter, M., 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. Prahalad, C. K. and Hamel, G., 1994. Strategy as a field of study: why search for a new paradigm. Strategic Management Journal, 15(2), pp.5-16. Sekhar, G.V.S., 2009. Business policy and strategic management. New Delhi: I.K. International Publishing House Pvt. Ltd. Standard., 2004. Tesco branded ‘unfair and unethical’. [online] Available at: http://www.standard.co.uk/news/tesco-branded-unfair-and-unethical-6949514.html. > [Accessed 22 Jan 2015]. Tesco Plc., 2013. Tesco Plc Annual Review and Summary Financial Statement 2013. [pdf] Available at: < http://www.tescoplc.com/files/pdf/reports/tesco_annual_review_2013.pdf> [Accessed 21 Jan 2015]. Tesco., 2015a. Tesco Plc Corporate Strategy. [online] Available at: < http://www.tesco.com/investorInformation/report97/review/page1.html> [Accessed 23 Jan 2015]. Tesco., 2015b. TESCO: Measuring our Carbon Footprint. [online] Available at: < http://www.tesco.com/climatechange/carbonFootprint.asp> [Accessed 23 Jan 2015]. Tesco Plc., 2015. TESCO PLC. [online] Available at: < http://www.tescoplc.com/index.asp?pageid=11> [Accessed 21 Jan 2015]. The Guardian., 2015. Tesco Sparked debate on food waste. [online] Available at: < http://www.theguardian.com/sustainable-business/sustainability-case-studies-tesco-waste> [Accessed 22 Jan 2015]. Tushar, A.M., 2015. Strategic Management on Tesco Plc. [online] Available at: < http://www.academia.edu/6616602/Strategic_Management_on_Tesco_PLC> [Accessed 21 Jan 2015]. Watibini, R., 2015. Tesco Plc Business Strategy. [online] Available at: http://www.academia.edu/4473563/Tesco_Business_Strategy_Havard_Style_Sample. > [Accessed 22 Jan 2015]. Appendices Appendix 1 Value Chain of Tesco Plc (Source: Tushar, 2015) Read More