Evaluation of the Company's Strategy - Coursework Example

? Evaluation of the Company's Strategy Executive Summary The report aims to identify the strategies that have been developed by Tesco Plc in response to the internal and external environment surrounding the company. In the presence of various domestic as well as international competitors and the current financial crisis, Tesco continues to be the world’s third largest grocery store after Wal-Mart and Carrefour. In order to survive and continue to expand it has developed an effective strategy in order to confront the uncertainty and aims to provide its customers with a great shopping experience and to improve the performance of its stores worldwide. In certain countries where the business is faced by economic problems Tesco has considered retrenching from its strategy to expand. The places which provide it with greater returns in a highly growing economy, Tesco is considering to enter newer markets. The environment surrounding any company is central to its growth prospects. By examining the environment surrounding Tesco, the report aims to assess the company’s strategy. Table of Contents Executive Summary 2 Introduction 4 Analysis and critical evaluation of Tesco’s strategic position 4 Tesco’s Strategic Direction 7 Product development 7 Market Development 8 BCG Matrix 8 Critical evaluation through SAFS 9 Suitability 9 Acceptability 9 Feasibility 10 Sustainability 10 Conclusions and Recommendations 11 References 12 Introduction Tesco Plc was started in 1919 by Jack Cohen after he started selling groceries as stalls located in East London. In 1924 a supply of tea received from Mr. T. E. Stockwell resulted in the coining of the name Tesco and in 1929 Tesco’s first store was opened in North London. In 1934 it became a private limited company and since then Tesco has continued to grow. It expanded by buying competitor stores including Williams store, Harrow store, Charles Phillip store, and Victor Value chain (Clark, 2008). It has now become UK’s largest retail stores with over 330,000 working staff in 3,146 stores located around the country (Winterman, 2013). Tesco is also operating in 12 countries including China, India, Turkey, Slovakia, and the US and has a total of 530,000 employees. The company operates in two segments that include retail and financial services. Its financial services include personal banking mainly mortgages, credit cards, personal loans, and savings (Tesco Plc, 2013). Analysis and critical evaluation of Tesco’s strategic position In the first assignment, the SWOT analysis, Porter’s five forces model and PESTEL framework have been used to analyze the external environment surrounding Tesco Plc. Its opportunities include opening up of its stores within the country and outside it, the building up of its clients around the world, and its strategy to expand to the Indian market. In 2009 the company opened up 620 stores out of which 435 were international thereby creating a network of commercial stores which would help Tesco benefit economically and reduce systemic threats. Its 1 million clients in 2010 provided an excellent opportunity for it to attract customers. Also its expansion in the Indian market would enable Tesco to maintain and grow. This will result in the strengthening of Tesco’s position in the global market. However threats continue to surround Tesco as the economical conditions are changing continuously economic recession and the financial crisis has to lead to unemployment and a decrease in sales. Moreover, as new giant departmental stores are emerging in the retail business Tesco is facing stiff competition as a result. Due to the financial crisis in the UK and the subsequent contraction of the economy, Tesco has faced problems in consolidating its position in the UK market. A decrease in sales has resulted due to low income and unemployment that people face and are therefore changing their buyer habits. As a result consumers are changing their behavior so as to allow them to spend on products and services that they really require. Other superstores are also emerging in the market which has resulted in stiff competition among the retailers. Some of the competitors include ASDA Group Limited, BP Plc, Carrefour S.A., ExxonMobil Corporation, The Big Food Group Plc, J Sainsbury plc, Marks and Spencer Group plc, and the list goes on (Datamonitor, 2004, p.19). Internationally the presence of other retailers including the French giant retailer Carrefour and the American Wal-Mart is providing Tesco with tough competition with their growth rates only slightly higher or lower than that of Tesco’s (O’Hare, 2011). Although it has also been forecasted by IGD that the growth rate for both Wal-Mart and Carrefour will be less than that of Tesco’s growth rate and turnover from 2010 to 2015 (O’Hare, 2011). Porter’s five forces model was used to assess Tesco’s competitive environment in the first assignment so as to provide an analysis of the competition it is facing. Tesco faces little threats from substitute products and services that are from other grocery supermarkets particularly food however non-food products provides great threat to the company due to the presence of alternative companies. Risk due to the arrival of rivals is less. However competition in terms of product, price and promotions is very strict from other retail manufacturing stores including Wal-Mart, Carrefour as well as local UK superstores like Asda. The bargaining power of customers is very much due to the low switching cost between differentiated products. The suppliers have a low bargaining power because they do not want to waste their contracts with retail giants (Henry, 2008, p. 69). The factors which affect the performance of the company in dynamic and changing situations are assessed by the PESTEL framework. The agreement of China with the WTO has allowed many European companies including Tesco Plc to enter the profitable markets at China. The buying behavior o the consumers impacted by the economic conditions and they in turn affect the performance. As people are becoming more health conscious they are switching to healthier organic food and Tesco using their needs and demands to introduce a range of organic products. Also, the technology is rapidly evolving rapidly and being brought into the industry to optimize operations and the supply chain. To support sustainability ad environment friendliness, Tesco has introduced Greener Living Scheme, carbon footprint data on products, and green Clubcard points. Increase in VAT due to government law enforcement has resulted in the rise of the price of non-food products. A company’s strengths and weaknesses are major tools that can help in analyzing the internal environment of a company (Griffin, 2013, p.70). Tesco’s strengths include it being the 3rd largest grocery store of the world coming after Wal-Mart and Carrefour and is currently UK’s largest grocery store. Tesco’s website is the main online store that sells online and has a large number of customers. Its weaknesses are lack of geographical diversification that can lead to risks (Tesco “Annual Report and Financial Statements 2012”, 2012, pp. 4-5) and the failure of some of its product in comparison to the performance of its customers has let down its brand image. The analysis of Tesco’s internal environment suggests that its strategies have been successfully utilized its capabilities in a constructive way that has allowed the company to meet the growing demands of its customers. Also, their efficient strategy has allowed it to survive in the long run and even expand to various countries. The external environment as analyzed by the PESTEL analysis has shown that Tesco has constructively used the opportunities provided by the environment to reduce the financial threats as a result of crisis. Tesco’s Strategic Direction The Ansoff model provides an assessment of Tesco’s current and new products and market and the two options for Tesco are new product development and new market development. Product development Tesco has always been keen on meeting the needs and demands of its customers and with the change in customer behavior regarding entertainment products Tesco is developing a variety of digital services. Clubcard TV was launched in March 2013 using the platform of blinkbox used to provide fee films and programs to its loyal customers (Tesco, 2013, p.6). Market Development An existing strategy of Tesco is to expand internationally according to Tesco’s annual report of 2013 (2013, p.8). It has received the opportunity to develop its stores in locations where the retail business is slightly immature and by using its skills and expertise to generate high returns (Tesco, 2013, p.8). Tesco has productively used the opportunity as an important part of their strategy to enter markets where the prospects of high returns are good. In response the changing customer needs Tesco has developed a constant strategy to grow and expand. Tesco receives a big portion of its profits from its stores located internationally that contributes 29% to its profits (Tesco, 2013, p.15). Now the aim of Tesco is to increase the performance of its current businesses as well as expand into newer markets which are profitable. BCG Matrix The BCG model for Tesco suggests that it falls under the category of stars due to its high market shares and high growth. In Thailand its market shares continued to grow. Tesco’s market share only faces threat from competition as it can negatively impact its market share. Also, consolidation of its competitors by forming mergers or making agreements can reduce market share therefore Tesco’s strategy focuses on appealing its customers based on its prices and range so that it is able to compete. Tesco also aims to monitor buyer behavior and its competitors so that they are able to respond in an effective way. To deal effectively with its competitors Tesco conducts regular reviews of the market to enable it to gain relevant information so as to respond to it. Relevant tools such as KPI are used to evaluate performance as suggested by its customers for a better shopping experience. Also, Tesco aims to comply with the laws so it monitors legal changes to ensure compliance (Tesco, 2013, p.38). Critical evaluation through SAFS Suitability The suitability of Tesco’s strategy to expand and grow into international markets varies from country to country. According to Tesco it aims to expand to countries only where the returns are higher and where the retail market is less mature so that it is able to use its skills in places with a high growth economy. In Asian countries including Thailand, South Korea, and Malaysia Tesco holds a strong position which it aims to maintain and improve its performance. Tesco is already doing well in these countries and it remains one of the major priorities for Tesco. In European markets where economic recession has affected its performance, Tesco is making use of targeted investments that will enable it to focus on only those products and services that are profitable and responsive. Acceptability The reviews and monitoring of consumer behavior allows Tesco to assess the acceptability of its strategies. In terms of returns and risks, since it aims to expand only in countries where returns are high and hopes to improve performance in its current markets as well, it is allocating its resources smartly. Feasibility Upon implementation of such strategies Tesco can improve its performance and returns by entering profitable markets. Monitoring of its customers enables Tesco to improve its operations and performance so as to provide a better experience to its customers. In addition, as it faces very strict competition in terms of pricing, service, and range, it is keen on reviewing markets for practical opportunities for itself. Its customers are among the most important players whose perceptions and needs are examined. Financial as well as non-financial rewards are used to assess its competitiveness as part of its remuneration strategy (Tesco, 2013, p.45). In Turkey after facing intense competition Tesco has cut down its strategy of expanding in the East (Tesco, 2013, p.22). Sustainability Sustainable growth is one of Tesco’s strategies. This means that profits are not the only governing factor in expanding but growing with responsibility thereby creating a sustainable operating environment. Knowledge Hub was started by Tesco for its suppliers to encourage the sharing of environmentally friendly ideas. Tesco wants to create a sustainable supply chain and by 2020 it aims to cut down emissions by twenty to thirty percents. The Knowledge Hub is basically a social network of suppliers that is operable 24/7. It provides suppliers with a discussion forum along with case studies thereby helping to reduce the carbon footprints (Hoy, 2012). Conclusions and Recommendations As Tesco continues to explore its opportunities to expand in countries where there exist high returns, it also aims to be competitive by realizing its customer demands and needs so that they are able to provide them with a great experience. For that it needs to conduct frequent market reviews to analyze customer satisfaction. Also due to inflation the price setting should be done such that it attracts customers thereby creating a greater competitive environment. The focus is also on improve the performance of its current markets to maintain and grow its market share. The implementation of strategies that focus on customer reviews to tackle competition and grow could lead to better performance as most of the threats and weaknesses Tesco is as a result of rivals and the economic conditions. References Clark, T., 2008. A history of Tesco: The rise of Britain's biggest supermarket. The Telegraph, [online], 15 April. Available at [Accessed 13 September 2013]. Datamonitor, 2004. Tesco Plc: Company Profile. [online] Datamonitor Available at [Accessed 13 September 2013]. Griffin, R.W., 2013. Fundamentals of Management. UK: Cengage Learning. Henry, A., 2008. Understanding Strategic Management. United States: Oxford University Press. Hoy, P., 2012. Big Plans for the Tesco Knowledge Hub on 2degrees. 2degress, [online], 23 March. Available at [Accessed 13 September 2013]. O’Hare, S., 2011. Tesco could outpace competitors through Asian expansion. The Telegraph, [online], 22 February. Available at [Accessed 13 September 2013]. Tesco, 2013. Annual Report 2013. [Pdf] Tesco. Available at [Accessed 13 September 2013]. Tesco, 2012. Annual Report and Financial Statements 2012. [Pdf]. Available at: . [Accessed on: August 13, 2013]. Tesco Plc, 2013. About Us: Tesco Bank. [online] Available at < http://www.tescoplc.com/index.asp?pageid=388> [Accessed 13 September 2013]. Winterman, D., 2013. Tesco: How one supermarket came to dominate. BBC, [online], 9 September. Available at < http://www.bbc.co.uk/news/magazine-23988795> [Accessed 13 September 2013]. Read More