Report of Strategic Management – Tesco
Report
Company profile
The name of the company under discussion in this report is Tesco. The
company was found in Cheshunt, United Kingdom. It is a multinational
company dealing with grocery and general retail merchandise.
In terms of revenue, it is ranked as the third largest retail merchandise in the
world after Wal-Mart and Carrefour. In terms of profits, it ranks second after
Wal-Mart stores. Its main market is in the United Kingdom but it has grocery
stores in more than 13 countries in various parts of the world.
The company’s mission is to be acknowledged by its customers as the
premier drilling services company while the vision statement is to become a
customer’s strategic partner in the elimination of non-productive time.
The three core values of the organisation include ethics, compliance and
safety. Others include performance, discipline and team work.
The company’s corporate social responsibility is aimed at helping people to
live according to high standards through the provision of low prices for all the
goods and services.
It also spends some of its profits for charity. For example, in 2006, it spent
1.8% of its profit for charity purposes (McLoughlin & Aaker 2010).
PEST analysis for Tesco company
Political environment
The political environment under which the organisation operates is very
stable. There are very minimal political risks for the business, both in the
United Kingdom and in other countries where it has operationsThe
organisation also enjoys good will of the host governments. This has enabled
it to invest heavily without the fears associated with political risks.
Economic environment
In 2008, the world underwent a global recession which was the biggest one
since the Great Depression of the 1930s. Just like other multinationals, Tesco
was not exempt from the effects of the recession.
Social environment
Many of the countries where Tesco operates have a very friendly social
environment. This has been achieved through the sensitivity of the company
to the needs of the local customers as well as the provision of customerfriendly goods and services at affordable prices.
The company also engages itself in charity work and other corporate social
responsibility activities, thus also creating a very conducive social environment
for its operations.
Technological environment
The company has embraced and adopted technology in most of its operations
and service delivery. It provides its customers with various online services and
also operates a website where it posts business information for access by
potential customers.
Porter’s competitive forces and Tesco SWOT analysis
Definition of competitiveness
This is a concept which is used to refer to the ability of a business enterprise
to supply or sale its goods or services in a given market within a given period
of time and under certain rules and regulations governing the supply of such
goods or services.
The nature of this definition implies that for there to be competitiveness, there
must be few or many suppliers of certain goods or services in each market.
Since all businesses are established with an overriding objective of making
profits, each business tries as much as possible to overcome all barriers
which prevent it from selling or supplying its goods and services in a given
market.
Competitive forces
Michael Porter, a scholar and economist at Harvard Business School,
published an article titled “How Competitive Forces Shape Strategy”. This
article started a revolution in the competitive strategy field.
Porter introduced five forces that shape business competition, academic
research and business practice. According to Porter (1996), companies often
compare themselves with rivals within the industry or with existing competitors
when measuring competitiveness.
They frequently overlook other crucial competitive forces, including bargaining
power of buyers, bargaining power of suppliers, threat of new entrants and
threat of substitute products and services.
Knowing the five forces can enable a company to realize the nature of its
industry and make a decision on what will bring more profits and less damage
from business rivals attacks.
In order to gain competitiveness, companies have to look beyond rivalry
among existing competitors and consider other important forces that will lead
to ultimate competitiveness. The five forces are discussed in detail below.
Threat of new entrants
In all major industries, there are competitors who exercise dominance. These
competitors are known as the ‘incumbents’.
Marketing analysts have, however, argued that the domination by the
incumbents does not guarantee them permanent stay in an industry since new
entrants may express interest in the same industry. Before they enter an
industry, they usually invest a lot in an entry strategy and come up with unique
approaches so as to acquire a market section as well as gain trust of the
customers.
In most cases, new entrants rely on pricing by settling lower prices for their
products than for those of the incumbents. Other new entrants may also
consider improving the quality of their products so as to attract new
customers.
This makes the incumbents cry foul due to stiff competition from the new
entrants. The incumbents may even be forced to quit a particular industry,
particularly if the they have a powerful capital base. The incumbents react by
erecting barriers to entry in the industry.
For instance, they may design very sophisticated and expensive technologies
which are not easily available. They may even create hindrances to the
access of the distribution channels so that the new entrants do not get access
to so much needed supplies.
Tesco strategy for dealing with the threat of new entrants in the merchandise
industry is the differentiation of its goods and services, which it considers as
one of its core competencies or strengths.
New entrants may be discouraged from entering a particular industry through
diversification and product differentiation, which Tesco has managed to do.
Bargaining power of suppliers
In some industries, there are monopolies in terms of supply of goods or
services. In such industries, the powerful suppliers are able to manipulate the
prices of the goods or services the way they want.
A supplier is regarded as powerful if, for instance, s/he does not depend on a
particular industry for the revenues and therefore, s/he can do without the
industry.
A supplier is also considered powerful if s/he supplies goods and services
which are unique or if some companies have established a long term business
relationship with him/her. Powerful suppliers are also those who supply goods
and services which cannot be substituted.
A good example is pilots and the aviation industry because it is not easy to get
well trained and qualified pilots within short notice and therefore, the pilots’
unions may have a big bargaining power.
In the computer industry, Microsoft can serve as a good example. It can
decide to increase the price of operating systems. When this happens, the
other computer dealers have no option other than to cut on their profits.
In some cases, some powerful suppliers can also threaten to enter the
markets themselves if the customers are not willing to purchase the goods at
their desired prices. Companies may overcome this by having a large capital
base so that they can become suppliers themselves.
Tesco core competence for dealing with this threat is having a large capital
base which enables it to manufacture some of the goods it needs for itself.
However, it does not manufacture all the goods and this forms one of its core
weaknesses. Tesco is therefore capable of being manipulated by its key
suppliers.
Bargaining power of buyers
In some industries, there may be few but large buyers who purchase certain
goods or services in bulk. Such buyers usually have a bargaining power to
lower the price of the goods or services in question because if the suppliers do
not comply, they end up with minimal sales and profits.
Buyers usually have power when the cost of switching suppliers is low as well
as when the products in question are undifferentiated or standardised.
The bargaining power of buyers can affect the profitability of the industry
because they may lower the purchasing prices and then lower their selling
prices. When this happens, the people who suffer are the other small dealers
in the industry as well as the suppliers.
Buyers can increase their competitive strategy by teaming up and setting the
buying price of the products at a certain level. This can cushion them from
unscrupulous suppliers as well as from new entrants.
Tesco strategy for dealing with this is lowering its prices so that as many
people as possible can access its goods and services. The overall objective is
to try to avoid having in place specific customers or buyers who the Company
cannot do without.
Threat of substitute products
In business competition, a substitute refers to a product or service which plays
similar functions as the original product or service (Porter 1996).
Possible examples of substitutes include the electronic mail as a substitute for
sending letters by mail, video conferencing as a substitute for commuting and
the use of plastics instead of aluminum products.
Substitutes usually act as a threat to some industries, especially when they
are priced in a more friendly manner than the original products as well as
when the costs of switching vendors is relatively low.
Companies can guard themselves from the threat of substitutes by
differentiation of their products as well as through teaming up to influence a
government policy on the introduction of substitute goods in the market.
Tesco guards itself from this threat by differentiation of its products as well as
through teaming up with other multinationals to influence a government policy
on the introduction of substitute goods in the industry.
Rivalry among existing competitors
Tesco has guarded itself from the effects of rivalry among existing competitors
by having very reliable and consisted suppliers as well as through producing
some of the goods by itself. It has also invested in various industries as a form
of diversification.
During hard economic times, diversification helps organisations remain
competitive because they are able to counter the losses or low profits in a
particular industry by profits from other businesses which are not affected by
the harsh economy, like during the global recession of 2008 which pushed
many corporations out of business due to huge losses.
Strategic rationale for global development
As explained in the introduction, the company started in the UK as a small
store. However, owing to the need for diversification and expansion, the
company opened new stores in other countries outside the United Kingdom.
Examples of places where it has stores include various parts of Europe, Asia
as well as North America (McLoughlin & Aaker 2010).
Through globalization, Tesco managed to move to China where the culture
and values are completely different from those of the United Kingdom where
the company started. Tesco entered China in 2004 after acquiring about 50%
of the Hymall.
It also operates in various cities and towns in China, such as Shanghai,
Weifang and Taizhou. In Shaghai, the Company introduced what it refers to as
Tesco Express, which is a customized store made to suit the needs of the
local people both in display and branding of the products.
In Malaysia, the company has been operating a chain of stores since 2002.
Currently, it operates over 45 stores which account for 30% of local market
share. The stores mainly deal with electronic goods, cloth wares and the club
card service.
In 1999, the Company in partnership with the Samsung Company opened its
first store branded ‘Home-plus’ in South Korea. Tesco runs hypermarkets as
well as a customer delivery service, whereby it delivers goods to its
customers, especially those who purchase in bulk.
Methods used by Tesco company to expand globally
Such multinational organisations as Tesco usually operate in diverse
environments in terms of culture. Because of this, it is essential for them to be
proactive in internationalising their operations if they are to succeed in
establishing stable businesses.
Being proactive involves planning in advance and putting the proper
infrastructure in place for business management and establishment (Henry
2011).
This may involve establishing relationships and networks with local business
stakeholders, the government as well as insuring the businesses against any
risk(s).
It also involves studying and understanding the culture of the foreign countries
before establishing the business (Whittington 1993).
Mergers and Acquisitions
Tesco’s expansion strategy was coined to respond to the needs of local
customers in other countries. Due to the difficulties of entering new markets,
especially abroad, the organisation used mergers and acquisitions to enter
those markets.
Examples of mergers by the Tesco Company include the partnership with
Samsung in South Korea to form Samsung–Tesco Home Plus merger, with
Tesco owning over 90% of shares in the merger.
Another example is Thailand where it went into a partnership with Charoen
Pokphad to form a merger called Tesco-Lotus. The Company acquired
several companies in South Korea in 2005.
The same year, Tesco made two acquisitions in Japan and Poland and also
acquired a store in Taiwan which belonged to Carrefour, one of its main
competitors..
Recommendations
The company seems to be doing well as far as its strategy is concerned. Its
strategic planning has enabled it to become one of the most reputable
organisations in the world.
It has also managed to boost the economies of the countries where it has
operations by employing the local citizens without discrimination. The
company can also be commended for its excellent relationship with its main
competitors.
The act of acquiring a store belonging to Carrefour is an indication that the
companies’ strategy is not based on elimination of rivals but rather on
business ideas.
Based on the above evaluation of the company, what can be recommended
regarding its future strategic direction and increasing its competitive
advantage is investing more resources in differentiation and positioning.
It should also consider the training of expatriate managers on cultural
diversity, especially to equip them with the understanding of Hofstede’s five
dimensions of cultural differentiation. This would enable it to deploy most of its
experienced managers to the new branches to speed up expansion.
I also recommend that the organisation scales up its social responsibility
initiatives because it seems that it is not doing well in this sphere.
Having vibrant social responsibility programmes may boost the organisation’s
reputation and acceptance by the local communities who are also the
customers of its goods and services.
For it to succeed where others have not, it needs to invest a lot in market
research so as to identity the markets which are not exploited and line
products which can attract many people within a very short period of time.
It should also consider investing heavily in advertisement on the print media
as well as on social network sites, such as Facebook and Twitter. This would
attract a huge percentage of youths who nowadays prefer doing everything
online.
When it implements all above recommendations, it would not be a surprise to
hear that it has overtaken its main competitor Wal-Mart in terms of assets and
income.
Reference List
Henry, A 2011, Understanding Strategic Management, Oxford University
Press, Oxford.
McLoughlin, D & Aaker, D 2010, Strategic market management: global
perspectives, Wiley, Hoboken, N.J.
Porter, M.E 1996, what is Strategy? Harvard Business Review, Vol. 74. no. 6,
pp. 61-78.
Whittington, R 1993, What is Strategy and Does it Matter?, Routledge,
London.