International Marketing of Tesco - Essay Example

? International Marketing Table of Contents Introduction 4 Marketing Mix: 4P’s Framework 5 Product 5 Price 5 Place 6 Promotion 6 Summary 9 Internationalisation Process Theories 10 Uppsala Model 10 Eclectic Theory of International Production 11 Diamond Model Theory 12 Demand Conditions 13 Supporting Industries 14 Factor Endowments 14 Firm Strategy, Structure, and Rivalry 14 Born Global Model 14 Evaluation 15 Advantages 16 Disadvantages 16 Country of Origin Effect 17 Conclusion 18 References 19 Bibliography 20 Introduction International marketing can be defined as the process where a firm looks to enter the international market by providing the products to the international customers. The basic principles of both domestic & international marketing are the same. However there are some distinct factors based on which these two concepts can be differentiated. As compared to the domestic marketing the international marketing is far more risky & complex. In case of IM the firms looks to make their products available to the international customers. Therefore they have to deal with PESTLE factors of not only one but several other countries. Due to this factors such as tariff barriers, govt. regulations, etc. They also have to face competition from the international competitors also. But with high risk there are opportunities to earn high returns also in the form of growth, profitability, opportunity to earn economies of scale. The study looks to focus upon some of the key issue to be considered by a firm when the firm decides to enter the international market. The company to be discussed is Tesco PLC, the biggest retailer in the UK. During the course of study the probable strategies that could be adopted by the company to expand the business has been discussed using international strategic and marketing mix of Tesco (from an international, perspective), Porter’s diamond model, Uppsala model, country of origin effect and born global model. Marketing Mix: 4P’s Framework The concept of marketing mix can be described as the set of manipulable marketing elements that can be used by the company to achieve organizational objectives. The marketing mix consists of four key elements. Neil Borden termed these manipulable elements as the ‘Marketing Mix’. In the early 1960’s he suggested 12 elements which the company should keep in mind while formulating marketing program. Then E. Jerome McCarthy delineated the marketing mix as the 4Ps of the marketing mix. In simple terms the elements of the marketing mix can be used to lay the much required foundation for the overall marketing strategy. Product Tesco is one of the major retailers in the world. It provides shelf space to the products of some of the major global brands. Along with this the company also provides private label branded products. The product ranges from fresh food, groceries, clothing and apparels, health and beauty products, electronic garments. The vast ranges of products allow the company to target a wide range of customer segments starting from kids to adults. As the company product a vast product mix with lots of variation the company opts for brand positioning as compared to individual brand positioning. Price Tesco mainly uses market driven pricing. Here it is to be mentioned that with the rise in competition in the global retail market and the recent economic downturn has forced the retail companies to decrease the prices. A part form this the company also uses promotional pricing techniques, especially in case of clothing products. In the initial days the company adopted a market skimming strategy. Thus the company set high prices for the offerings. But once the competition increased the company had to adapt and shift to market driven pricing. Also the pricing strategy has been influenced by the economic conditions. The market driven pricing has been well punctuated by other pricing techniques such as promotional pricing. Place It is believed that the Tesco has one of the best distribution strategies. The key factor that influences the distribution strategy of the company is customer convenience. The company has total of 6351 stores in the world. It has entered countries such as India, China, Japan, and South Korea. Among these India and China are two of the major growing economies in the world. In UK the country has 475 stores. This includes 65 franchisees. Tesco has been praised by many analysts due to the effective use of the franchisees by the company. Tesco has also been able to adapt to the political, economic, social and technological issues of the foreign countries; especially Asian countries like China, India, Thailand and Pakistan. A part from this the company is also looking to reach the consumers directly by using the digital medium. The company websites helps the customers to buy products through the online medium. Promotion When it comes to promotion of communication Tesco uses integrated marketing communication by using different elements of the communication mix. Tesco Christmas advertising was a huge hit (Henry, 2008, p. 89). The Company also uses Sales promotional offers from time to time especially on clothing products to increase sales over a short period of time. Tesco looks to achieve healthy public relations with the customers by using several customer loyalty schemes. Get Also the company uses direct marketing through internet to reach out to the customers directly. As far as medium of communication is concerned the company uses television, print media. However the real revolution has been the use of digital and social media. According to digital experts the next objective of the company is to reach to the customers directly. This makes a lot of sense as people spend most of time on the internet not only to get information but also to buy products. (Wenderoth, 209, p. 359). Summary Based on the above analysis it can be summarized that the marketing strategy of Tesco can be specified as SMART (specific, measurable, achievable, realistic and time bound). The company uses brand positioning to position the vast ranges of the company has adapted to competition and economic fluctuations by adjusting the pricing strategy. The customer convenience driven distribution strategy helps the customers to locate Tesco shops at convenient locations. Also the effective use of franchising has helped the company to enter foreign market at a reduced amount of risk. The digital strategy of the company has helped the company to reach out to the customers directly. However, the biggest challenge for the company would be to go for market expansion and enter global markets. Already the process of globalization has been initiated by the company. Internationalisation Process Theories Tesco is one of the leading retail chains in global market. In order to determine the efficiency several Internationalisation process, such as Uppsala Model, Eclectic Theory of international Production, Diamond model theory and Born Global Model has been implemented. These models will help Tesco to gather important Knowledge about the international market place in order to increase their competitive advantages in global market. These models are described below. Uppsala Model Uppsala model describes about the organizations’ activities in international market. This model will help Tesco to gather experiential knowledge about global market. This experience drives the healthy business opportunities in international market (Kovacs and Spens, 2011, p.107). Moreover, learning through a company’s own operation can be effective as the globalization process is bit slower. This model helps to demonstrate the impression on company’s investment behaviour by the learning process. Lack of experience knowledge can hamper the establishment chain of a company in new international market. If Tesco fails to gather large resources for internationalization, the development of activities should be stepwise character and evolutionary. The better market knowledge risk will always minimize the market risk factor and these learning will help Tesco to brunching out in international market. Uppsala model is effective as this model efficiently identifies the important factors regarding choosing the target market. In order to reduce the uncertainty and, minimization the market risk, companies willing to adopt internationalization process. Before venturing and investing in international market Tesco needs to gain tremendous knowledge level about the particular international market place. Therefore the Uppsala model of internationalization can be implemented. Tesco have to analyze the psychic distance between the investment and host international market. After getting success Tesco can increase their business border area at later stage. Cultural distance between two countries may affect the business practices of Tesco. If the cultural distance seems to be more, Tesco should initially think about the joint venture business, as the global competitive business market is uncertain and unstable (Armstrong, 2010, p.71). Moreover, the business environment factors like competitive environment and legal factors need to be analyzed while Tesco is willing to do global operation and it will help to define the psychic distance of Uppsala model. This psychic distance cannot be dormant at a point due to development of international trade and communication system. As a whole, the potential value and size of target market and several major elements of international process can be measured by Uppsala model by gathering knowledge about international market and the learning effects on the Tesco’s activities (Brown, 2009, p. 209). Eclectic Theory of International Production Eclectic theory of internationalization is the economics theory based on the theory of transaction costs (Klug, 2006, p.29). The idea behind the application of eclectic theory in internationalization process is to understand the economic approaches in international competitive business market. The fundamental forms of international market such as Licensing, FDI, and Export can be distinguished by this theory. Before entering in international market, three categories of advantages in internationalization process of this theory such as ownership advantages, internationalization advantages and location advantages need to be identified by Tesco (Ballance and Forstner, 2004, p.176). If the company has ownership advantages such as knowledge about the international target market, employees’ international language skill, appropriate products, information about import permission and huge contacts can help the company to do the Licensing in international competitive market. Licensing cut down the intensive cost than other international process. If Tesco owns the internationalization advantages, then the organization should invest more capital in foreign market. The export subsidiary will help to achieve the export process due to Tesco’s internationalization advantages. Company chooses FDI as it is the key capital intensive activity. If Tesco owns the location advantages then it will be easy for the company to enjoy FDI which is necessary for international business. These three business advantages combined represent the eclectic theory of internationalization which may help Tesco to find the business advantages in global market. Diamond Model Theory According to Michael Porter, the very fundamental configuration of any cluster can be recognized using four factors: Production Factors, Demand Conditions, and Supporting Institutes and Rivalry environment Factors Explanation Production factors It is mainly based on the quality of natural and capital human resources, infrastructure and administrative conditions. Supporting factors These factors are based on the entire supply chain located at the specific region. Demand Condition Such factors are based on the existence of very hard to please customers and the respective demands. Rivalry among the firms It is drive that encourages the companies to come up with unique positioning in the market Demand Conditions The demand with respect to the production scale is one of the major issues in the theory. In general, the scales mainly rely on the needs of the customers. In UK, 70% of the private label brands are preferred due to the cheap price. A part from providing great quality in food products the noon food products such as CD’s offered by Tesco is far more preferable in Ireland as compared to HMV that offers the same product for 20 Euros. Supporting Industries Tesco has been able to gain competitive advantage due to the reputed image of the related firms Walmart; such companies maintain high standards in the aspect of communication, skilled labour, infrastructure, technological competency, etc. Factor Endowments Tesco has gained competitive advantage via skilled labour, and other facilities as mentioned in the point above. Also financing, digital services, entertainment services, health and beauty and media products are prime example of the competitive advantages. Firm Strategy, Structure, and Rivalry Strategy: The growth of the company has been closely related to the strategic approach and continuous image transformation. The company used to operate in ‘Pile it high, sell it cheap’ way. However over the company focused on quality and value proposition. Structure: The stores of UK have been distinguished in six different based on the store size and type of products being sold. Rivalry: Asda, Safeway, and Sainsbury are the major domestic competitor. However, Tesco is able to gain competitive advantage as unlike the competitors the company operates internationally (Cowan, 2005, p. 67). Born Global Model Tesco is one of the leading retail chains in global market. It is evidenced that Tesco started its business operation with global vision and hence known as Born Global Organization. There are several attributes of Born Global Organization can be identified in the business practices of Tesco. Effective corporate network of Tesco allows the organization to provide global services. Therefore, the organization has become an OEM parts supplier to other retail giants in global market. Global start up of Tesco has made their business operation very much flexible. Tesco got motivated through the learning from all kind of business engagements in global market. Multiple skill and objective sets of employees in global market has helped the organization to be fast moving and flexible. Effective corporate cultures of Tesco are the key reason behind the success story. Foreign market cultural awareness, sense of Paranoia, complete absence of insular attitudes and knowledge about several foreign languages are the effectiveness of corporate culture strategy of Tesco. Tesco has tried to raise capital from the international market based on the costs and accessibility. Tesco has established corporate network in international capital market in order to raise the capital at a lower cost. Application of advanced technology in the business process has made their business operation effective enough. By the implementation of advanced technology, employees can comfortably do their jobs effectively. The Born Global Organization like Tesco does not limit them to recruit employees from their own country. Tesco has always looked to appoint skilled and deserved employees in global market from several countries. Tesco is a knowledge oriented organization who used to provide huge importance in order to attract the best talent. Evaluation From the above study several advantages and disadvantages of Internationalisation process theory can be determined. Advantages In the internationalisation business process global networks can help successful and rapid growth of an organization. The advantage is clearly identified in the business model of Tesco. In terms of Tesco’s international expansion the significance of domestic network varies depending upon the international previous experience. The internationalisation process of Tesco is quite rapid and the decisions and activities about the country selection are motivated by the opportunities that are being created due to international network relationship. The international networks of Tesco effectively provides reinforced learning process, several key information and offered positions in order to identify new potential business opportunities. The internationalisation process theories may protect the organizations from the entry barriers like huge international business competition. Making a coalition with potential foreign competitors may bring success to the organization for a long run. The implementation of internationalisation process theories helps the organization to reduce the uncertainty in global competitive market place. It avoids business risk and reduces business operation cost in global market. Disadvantages International business networking needs to sacrifice the market control in the specific target market that weakens the position of a company within the international network. Tesco may invest in erroneous relationships that may create problems in the internationalisation process. For an example, Tesco can misunderstand the significance of the single relationship. Therefore, operating in an international network raises several managerial questions about the network and relationships. Due to International networking, Tesco may miss several key market opportunities. Tesco follows its network passively in foreign market (Whitman, 2008, p.221). Therefore there is a risk for Tesco that, they may miss potential business opportunities in leading international markets. Tesco can be a member in an international network with a MNC. It does not have to be allocated evenly between the members. This factor is highly fatal. Country of Origin Effect While purchasing a product the consumer perception depends upon the origin of the product. It forms n integral part of the brand culture. In order to become a global firm a brand must take the benefits from the country of origin effect. This is the reason consumer’s looks to relate cars to Germany, Electronic durable to Japan and herbal products to India. Although Tesco is stepping up the efforts to become an international firm; the company wants to be seen as a local store to the customers. The company understands the importance of buying products locally. The company have dedicated buying teams in Scotland Northern Ireland and Wales. The main task of the team is to develop relationships with the suppliers and customers. Tesco stores stock over 7,000 local products. All products are labelled as per the country of origin along with appropriate national flags. Conclusion Tesco is one of the leading retail chains in global market. Uppsala model describes about the organizations’ activities in international market. This model will help Tesco to gather experiential knowledge about global market. This experience drives the healthy business opportunities in international market. The better market knowledge risk will always minimize the market risk factor and these learning will help Tesco to brunching out in international market. Licensing cut down the intensive cost than other international process. If Tesco owns the internationalization advantages, then the organization should invest more capital in foreign market. These three business advantages combined represent the eclectic theory of internationalization which may help Tesco to find the business advantages in global market. Tesco has always looked to appoint skilled and deserved employees in global market from several countries. Tesco is a knowledge oriented organization who used to provide huge importance in order to attract the best talent. The Born Global Organization like Tesco does not limit them to recruit employees from their own country. The export subsidiary will help to achieve the export process due to Tesco’s internationalization advantages. Tesco got motivated through the learning from all kind of business engagements in global market. Tesco has tried to raise capital from the international market based on the costs and accessibility. Tesco has established corporate network in international capital market in order to raise the capital at a lower cost. Application of advanced technology in the business process has made their business operation effective enough. References Armstrong, G., 2010. Marketing: An Introduction. New Jersey: Prentice Hall. Ballance, R., and Forstner, H., 2004. Competing in a global Economy. London: Psychology Press. Klug, M., 2006. Market Entry Strategies in Eastern Europe in the Context of the European Union. New York: Springer. Kovacs, G., and Spens, K., 2011. 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