Tesco Plc and Porters Competitive Advantage - Essay Example

Table of Contents 0 Introduction 1 Tesco and Porters Five Forces Framework 2 Tesco Plc and Porters Competitive Advantage 3 Tesco Plc and Product Transportability 1.3.1Tesco Plc and the Value Chain framework 2.0 Tesco Plc and Distinctive Capabilities 2.1 Leadership at Tesco Supermarket 3.0 Conclusion 1.0 Introduction Tesco PLC is an international retailer. According to the company webpage, the principal activity of the Company is food retailing with over 2,000 stores in the United Kingdom, the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan and China. On September 30, 2005, the Company entered into an agreement to dispose of its operation in Taiwan to Carrefour as part of a transaction to acquire Carrefour's businesses in the Czech Republic and Slovakia (Company 2007 Report). The company is in simple insurance, telecoms, personal finance and recycling. Having said this, the purpose of this paper is to first of all analyse the strategy adopted by Tesco in relation to product transportability", transferability of competitive advantage","Inter-firm transferability of resources", and the need to adapt to local market conditions in the following overseas markets (USA, Thailand, Malaysia, Japan and China). In the first section, using relevant analytical model, Tesco will first of will be diagnosed to know it sources of competitive advantage, thereafter, attention will be shifted to the need to adapt to local overseas markets in the United States, Thailand, Japan and China. 1.1 Tesco PLC and Porters Five Forces Framework Through the five forces framework the sources of competitive advantage in the grocery sector will be analysed in line to Tesco capabilities and core resources. Porters five forces framework was originally developed as a way of assessing the attractiveness (Profit potential) of different industries. As such, it can help in identifying the sources of competition in an industry or sector (Johnson & Scholes 2005, Brand 1963). The basis upon which this framework is built will serve in analysing TESCO Plc strategic capabilities. With thousands of different supermarkets in the United states with each of them being strategic players, Tesco will have to adapt to local values in the United States. The competition is going to be fierce, with Wal-Mart, currently being the market leader. Thus Tesco should pay attention on the four Ps, product price, promotion, and place in these markets (Charles 2007). Tesco has a pool of financial resources, reserves; managerial capabilities that can help the company cope up with competion. In the United States, Thailand and Japan, Tesco will have to adapt to local values through sourcing of local materials and resources, the recruitment of local staff. Management will have to think globally but act locally (Company 2007 Report). The company ongoing exclusive rights with suppliers, distributors and transporting companies should be replicated in these markets. In these markets, it will be difficult for local supermarkets to get up overnight and start operating at Tesco scale. Though there are potentials for the sector to attract potential competitors or new entrants, the situation is however difficult for new entrants to enter the line of business, because huge capital, and capabilities are necessary to support after sales services. In terms of technical expertise to get up overnight and open a grocery store that will compete with Tesco is not easy. More so, Groceries stores often strived at having an exclusive right with their suppliers (Cheng & Bolong 1993, Drejer 2002). These is the same type of relationship, Tesco will maintain with its suppliers in these markets. Suppliers and customers have a high bargaining power in these markets. Each grocery store strive at having unique items, others offer almost the same thing making customers and potential customers to base their attention on price, quality and after sales benefit (Mayo 2001). 1.2Tesco and Porters Competitive Advantage Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors thereby increasing its market share and profit potential (Blocher et al. 2005). Competitive advantage is determined by the core competencies of the firm, which are unique skills and techniques as well as staff and suppliers achieved by the firm otherwise not available to other firms in the industry (Blocher et al 2005; Mintzberg 2003,Ross et al 1999). In discussing Tesco competitive advantage, I have analyzed it with respect to Porters competitive advantage framework. Considering the strategic capabilities of Tesco, Tesco competitive advantage will be analysed with respect to its strength. This is based upon Porters argument that, a firms position itself by leveraging it strength. Lower Cost Differentiation Cost leadership Low product system Low life cycle cost for Tesco product High reliability of Tesco product and non intrusive serviceability for Tesco electronics. Tesco unique resources, trademarks, proprietary know-how, uninstalled and installed customer base Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the product Equity of Tesco brand Cost focus Differentiation focus Looking at the overall strategy of Tesco, one will not hesitate to conclude that Tesco has a broad target. Here Tesco is able to bring its product faster to the market than some of the competitors. Thanks to its huge investment on technology, it existing relationship with suppliers that facilitate the smooth flow of resources. Thus the company is focused on cost leadership and differentiation. 1.3 Tesco Product Transportability. From the company's value chain outline below, Tesco Plc has its own network of suppliers, farmers and a pool of other stocks coming from China. These networks are connected by other intermediary in the company's value chain. For example, the company operates its own trucking system tailor to the local needs. It pool of suppliers such as farmers ensure that merchandise arrived to the stores fresh through it network of resources. It involves the length of time taken to convert inputs and other raw materials from their suppliers and stakeholders to final product. Local products are sourced locally, through a network of partners and suppliers sponsored by Tesco in the value chain. The company has a pool of investment on technology. This has facilitated the creation of new services such as travel insurance and Tesco personal finance. 1.3.1 Tesco and Porters Value Chain Framework According to Schneider (2008), opportunities are bound with electronic business strategies. With electronic business strategies, it becomes easier for many business processes to be improved. The Strength Weaknesses, Opportunities and threats of TESCO current e-strategy will be discussed and presented inline with Porters value chain framework. Looking at the position of a firm's perspective it is important there is a continuous flow of services or product to ensure that customers are satisfied but happy with the way the product is delivered. This is true for companies producing pure goods or pure services, or for companies selling goods and services. Customers have specific needs, expectations, and perceptions, but if a company is not able to exceed or at least meet these expectations, the customer becomes dissatisfied and probably does not consider a repurchase. One prerequisite for customer satisfaction is therefore that the company maintained a consistent flow of products and services to their customer (Qiao et al., 2006, Ramsay 2006). Figure adapted from Johnson et al (2007) Primary Activities Secondary Activities Thus, an analysis of Tesco value chain will show that at the level of the secondary activities, Tesco lean manufacturing technology, internet marketing technology, production technology, the just in time production line, customer relationship management (CRM) represents a big source of Tesco competitive advantage. This is because it will cost time and money for a competitor to replicate this (Peterson & McGee 2000). Under Emarketing, it is recommended that different communications channels used by the company to communicate with prospective customers and customers be integrated. Such an action will result to a clear, consistent and compelling message about TESCO's product and services. The effect of which will be glaringly reflected on the sales record subsequently (Kotler. 2002, Frost et al. 2007). At the level of the primary activities, the relationship existing between Tesco and its suppliers is a strategic and competitive advantage. They own most of the suppliers thus given room for just in time production manufacturing method, Total quality management etc. they have cost advantage, exhibited in the form of lower prices. Thus a key advantage is source by the inbound and outbound logistics and the marketing information technology. If Tesco is considered as one of the biggest supermarket today, it is thanks to the pool of resources all facilitated by technology. Its membership card, it inbuilt control system, it warehousing and assembly line all linked and connected by a pool of technology gives the company a competitive advantage. This is so because it will cost both time and money for a competitor to replicate this. 2.0 Tesco and the Distinctive Capabilities Organizational capabilities usually mean the skills embedded in a company's people, processes, and institutional knowledge. Distinctive competencies allow growth companies not only to make more money from existing businesses but also to extract greater value from new opportunities (White, Stephen & Baghai., 1999, Peterson & McGee., 2000). Privilege Assets Growth enabling skills In these markets, Tesco existing knowledge and information of customers can be critical in managing sales. Their strong brand name and corporate reputation can be extended to launch new product, quickly gain market share without threatening the credibility of the current business. A country like Chine can be used as a production area to take advantage of the lower cost of production. Again lower capital could be sourced from here because of the lower cost of capital in China. Their existing network of suppliers and other stakeholders (Distribution network) can be used to increase sales of its existing product or reduced cost of a new product launch, and maximize when entering the US, Malaysia., China and Japan markets. Maximizing this bundle of distinctive capabilities, Tesco has the best chance to be a winner in the United States, Thailand and Japan (Peterson & McGee., 2000, Storey and Easingwood 1998: pp. 335-336). With over a decade of international experience, the company has developed a strategy that has given it the confidence to grow its existing businesses and invest in new markets. In those countries which formed the first part of Tesco's international expansion in the late 1990s, such as Thailand and Hungary, Tesco now has substantial, successful, local businesses, which help it to develop the blueprint for new markets, such as its Hymall joint venture in China. Tesco also distributes its products and services online through its website www.tesco.com. For example, 97% of the UK customers have access to its website www.tesco.com. 2.1 Leadership at Tesco Supermarket At Tesco supermarket, the is a higher level of Trust amongst the workers. Most of the workers have been working together for the past five years. The soft side of the organization -its culture represents a core capability for the organization. According to the company's Chief executive officer, "our employees are our values; we have a track record of providing value for customers". Because of the higher level of trust and responsibility, a worker becomes more responsible and determined to meet up with the organisational objective. The entire business requires direct interaction with the customers, and it is because of the quality service that the company is able to serve 30million customers each week. Profit margin per item is low; the high turnover makes it very profitable. Other core competencies include the good will, operating on a lower cost, and owner ship of brand of suppliers, pool of reserves, having both food and non food items. "Our success depends on people. The people who shop with us and the people who work with us". Thus the company's leadership policy is unique in its kind. It therefore operates round the clock which demonstrates its commitment to create customer value which will in turn generate superior value for its shareholders. 3.0 Conclusion and Recommendation Fjeldstad and Ketels (2006:123-125) identify the following from a case study of a Swedish Insurance firm Fo''renade Liv identify a good number of other strategies that service and manufacturing firms scan adopt to achieve, maintain, sustain and developed competitive advantage within the strategic fit which include: Analyzing competitive advantage and not operational efficiency; Considering effects on the attractiveness of the network when assessing customer value; Emphasizing activities and choices that affect the composition of the customer set; Identifying potential markets with value configuration analysis; and From the analysis made on A and B above, one will see that the corporate image of Tesco, trademarks, proprietary know how, staff, relationship with it customers and suppliers represent key areas and the key success factors for Tesco as a low store supermarket.Unlike the manufacturing industry where product advantage has been found to be the most important factor in determining the competitive position of a firm in the industry, the case of a supermarket is different. The competitors in the former industry can easily replicate the important elements of a firm's new service (Storey and Easingwood 1998: p. 335). It is against this backdrop that Tesco's managers inorder find the key to new service success must look to factors other than sustainable product advantage. Storey and Easingwood (1998: p. 335) assert that the totality of the service offering must be understood from the perspective of the customer. Thus, I will recommend Tesco to pay greater attention on this. References Birkinshaw, J. (2000). Entrepreneurship in the global firm. London: Sage Blocher E., Chen K. Gary C., Lin T. (2005). Cost Management A Strategic Emphasis. Third Edition. McGraw-Hill. Bowlby, R. (2001). Carried Away: The Invention of Modern Shopping. Columbia University Press. Brand, A.E. (1963). Modern Supermarket Operation. Fairchild Publications Brealey R. A., Myers S. C. (ND). Principles of Corporate Finance. Seventh Edition. McGraw-Hill Irwin. Charles W.L.Hill. (2007). 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