Globalization and internationalization are the processes that have great impact on all the events that take place in today’s world. Geopolitical phenomena like globalization influence not only the political and social life of the world, but affect greatly such an important branch of human activity as economics, and in particular, trade. Among the activities connected with trading the following can be singled out – wholesale trade and retail trade. Their main difference lies in the amounts of goods that are involved in them.
As wholesale trade operates with huge quantities of goods this kind of trading is typical of economically developed countries and companies but their possible profit is limited to those companies who take up the same activities. The advantage of the retail trading companies lies in the fact that they activities are aimed at all the layers of the human society – big firms and companies, as well as ordinary people who buy smaller quantities of goods but do it more often, so the sum of the profit made by retail sales is much bigger that a companies dealing with only wholesale can get. That is why the research work presented to your attention is the study of one of the greatest companies dealing with the retail trade in the world – British trading giant Tesco (GAIHA, 2007, p. 45).
This company is modern and constantly developing, so the process of globalization influences it at a high rate. At the first stages of its development the TESCO company was a set of shops situated only in Great Britain but it needed new markets for its goods and the process of globalization gave great assistance to Tesco. Development of transnational interrelations made it possible for companies to have their trading representatives all over the world. Companies can easily open their sister companies and branches in various countries abroad because globalization allows to conduct these actions with lesser taxes, at lower prices and with less legislative limitations than it used to be yet in the middle of the 20th century.
This can be explained by numerous Free Trade Agreements concluded by the UK with Asian countries and other states all over the world. Besides, we are interested in the Tesco activity in Asian developing countries because they are former colonies of Great Britain, which means that the climate in those countries is supposed to be appropriate for the development of the UK-based trading companies. Traditions and memories of the people living in such countries like Thailand, Malaysia and South Korea give the British producers more trust from customers’ side and thus increase drastically their chances for success in the region. That is why Tesco management staff made this wise decision to open their stores namely in the above mentioned countries. To illustrate this point better we should apply to the Porter’s Diamond Model of the Five Forces influencing and determining the development of enterprises and their efficiency in different countries and under various conditions:
Threat of Entry
This includes availability of economies of scale, level of capital and investment required, risk of customers changing loyalties in favour of competitors, costs incurred to customers to buy from competition, the efficiency and accessibility to distribution channels, the possibility of hostile reaction from existing competitors, government regulations regarding entry etc. With regard to both the UK and Asian markets, Tesco has economies of scale and the finances to set up large units. In a business like large scale retail, costs incurred for customers in switching to other supermarkets are negligible anywhere in the world. The only exception is non existence of supermarkets or similar discount stores in the market. In such a case they have to pay a higher price for goods purchased every time. Even though Tesco dominates the UK retail sector, it does face a lot of competition. Supermarket penetration is generally high in all Asian economies that Tesco operates in and hence risk of customer switchover is high both in UK and Asia.
“Supermarkets began to mushroom in East and South-East Asia five to seven years after the boom in Latin America, but registered more rapid growth. The average share in the South-East Asian countries of Indonesia, Malaysia and Thailand was 33 per cent, but it was 63 per cent in the East Asian countries of the Republic of Korea and Taiwan. China has recorded the most rapid growth.” (Gaiha & Thapa 2007, P.9). With reference to distribution channels, most Asian countries have a poor record and is in contrast to the situation existing in UK. Globalization has opened up markets to many international players and hence government regulations are not a major factor for Tesco. Individual instances of government intervention can be found in the case of Thailand. Acting on pressure from smaller stores, the government had debated in parliament on regulations that a company needed fresh permits to open new stores that exceeded a certain size. “The interim national assembly, set up after the September 2006 military coup, has been debating a bill that would require Tesco and other firms to apply for a permit each time they wanted to open a store above a certain size.” (Isaan diary 2008)
Threat of substitutions
The discount retail sector can face the threat of substitution from other sources of marketing like e-commerce. In UK, Tesco has this facility, but is yet to go online in its Asian markets. Another threat is the existence of counterfeits or duplicates items of goods sold by Tesco. Counterfeiting is a major problem worldwide and Tesco faces this threat for its non food items like any retailer who sells well known brands.
Supplier power
Supermarket chains are bulk buyers wherever they operate in because it is the best way to get reduced prices from its suppliers. If players like Tesco does not choose to pay its suppliers well they are unable to do much about it. So supplier power is limited in the case of Tesco. “Large supermarkets, like Tesco, have an overwhelming advantage over the small shopkeeper—they dictate the price they pay the supplier. If the supplier does not reduce the price, they will be left with no retailers to sell to.” (Porter’s Five Forces at Tesco Plc).
Buyer power
Any competitive market in the world will be dominated by buyer power and this is the case with Tesco also. Tesco has competition in all the markets in UK as well as Asia. Its Malaysian market competitors include Carrefour, Giant, Jusco, The Store and Makro Cash and Carry Malaysia. (Supermarket and Hypermarket in Malaysia 2007). In China main competitors include Lianhua, Wumart, Times Ltd, Carrefour and Wal-Mart. Southe Korea has Carrefour, E-mart, Wal-Mart and Woolworth. Supermarkets in Thailand include 7-Eleven, big C, Carrefour, Family Mart, Jusco, Isetan, Home Fresh etc. UK has Sainsbury, Marks and Spencer, Waitrose, Morrison’s, Summerfield etc. This shows the buyers have choice and hence the existence of buyer power.
Extent of Rivalry
Extent of rivalry is high as can be seen from competitors mentioned above. This is high both in UK and Asia.
Speaking about the operational management conducted by Tesco in different countries we can not but mention that the policies are mainly similar with the only difference being the national and regional peculiarities of this or that region. In the United Kingdom the policies were established with the foundation of the net of stores called Tesco. Although they underwent certain changes their essence stayed the same. Among the most important methods of the operational management used by Tesco is the control over the supply chain management. This point lies in the complete control over the process conducting negotiations with domestic and foreign suppliers, raw materials delivery, their processing and producing the goods that are than sold at the Tesco shops all over UK and many other European and Asian countries.
Another management policy that deserves attention is the delivery control and risks management. This presupposes that the delivery of raw materials and ready-made goods to the stores of Tesco is strictly controlled by the special safety services of Tesco so that no damage or loss of goods were possible. Risks control is one more advantage of Tesco management system as it allows to be sure that goods needed will be delivered in time and in the needed amount. This is reached by Tesco by means of finding two or more suppliers of one and the same type of goods. If one supplier fails to deliver goods in time than there always is another variant. The control system of Tesco is so structured to focus the internal control including risk management.
The board considers the risk and plan for mitigation. The effectiveness of the mitigation plan, chances for the risks are also been discusses. There are certain policies with Tesco for internal communication and this identifies the role function, group function and aim of organization. The internal control are monitored through statutory committees like audit committee, nomination committee, remuneration committee. In addition to this the executive committee monitors controls through; compliance committee, corporate responsibility committee and finance committee. Auditing is done internally and externally. The finance committee makes plans on an annual basis. Compliance committee dealt with compliance with local laws and regulations. The CSR committee deals with issues on social, ethical and environmental issues.
All this makes possible the delivery of goods from Tesco to its customers. Tesco has developed the system of the full cycle of goods production and selling beginning from buying raw materials and ending with the delivery to the doors of the customer’s place or store, and the online ordering and delivery of goods is one of the advantages of the system developed by Tesco. That is why the services of Tesco are evaluated quite highly by its customers in all countries where there are stores by Tesco.
Tesco in UK operates through five different types of store formats to cover the needs of the customers, they are Express, Metro, Super store, Extra and Home Plus. The Express stores offer ease of access to its customers by operating close to where customers live and work. The area of Express stores ranges up to 3000 square feet. Through the Express stores Tesco offers great value, quality and fresh food to its customers. Tesco have more than 700 Express stores operating in UK. It offers about 7000 line of products including bakery, wine and other fresh foods. To cater the busy customers of town and city centre Tesco opened stores namely Metro. It offers wide range of tailored food lines. The area of these stores ranges from 7000-15000 square feet.
In the initial stages of Tesco, it had operated through Super stores. It has a national network of Super stores in UK. Tesco concentrate on improving the operation of superstores by extension and refreshing. Tesco is adding non-food items to its product line in superstores. As Tesco have a wide network of superstores in UK it is a good move from the management to offer diversified product lines so that it attract more business. The special areas of superstores vary from 20000-50000 square feet. Extra, the one-stop destination store is one of the largest store formats by Tesco. Its special area is more than 60000 square feet. Through this store format Tesco offers widest range of all kind of products. The Home Plus stores having area in between 35000-50000square feet offer widest range of non-food items to its customers. Tesco concentrates to offer more product lines with innovation so as to bring more choices for the customers (Child, 2002, pp. 45 – 56).
Speaking about the international development and operational policies of Tesco in its branches abroad, we should mention that there are some similarities compared to what Tesco has in Europe. This concerns the Store types, their operational management, systems of delivery and internal control systems. But there are also several differences that determine the specifics of the operational management of Tesco stores in then developing countries of Asia. Tesco expands overseas with two options. One is to use a common strategy for all its markets including UK, US and Asia wherever possible. The other is to have different strategies for different markets. Based on these reasons, the international policies of Tesco differ from domestic ones conducted in UK in the methods of management as well as in the types of stores and operational policies used to carry out business activities in these countries.
Flexibility of the policies abroad is the main advantage of the Tesco trading in Asian developing countries. Tesco officials have understood that each new market has its own peculiarities based on different political and cultural reasons and do not try to implement the policies that are typical of Tesco stores in the United Kingdom. Asian market differ from all others, including European and US-based, because customs and traditions are still very strong there and they differ drastically from Europeans are accustomed to. The SWOT Analysis of the policies implemented in UK and Asian countries shows that different policies were a success and still bring profit to Tesco:
There has been great debate and concern that the entry of supermarket chains into the Asian markets would spell doom for small retailers and the mom and pop stores operating in those markets. Globalization has opened up the markets for multinationals. Take the instance of Thailand where a visitor can buy many international brands from the local market. There have been demonstrations against the entry of Tesco and a bill has been debated in the Thai Parliament that such super stores need to apply for a fresh permit if they plan to open new stores bigger than a specified limit. But in reality the small shop owners buy products from Tesco’s cheap stores and sell the products at their own stores by taking a small margin. They find it easier to do this than buy from inefficient wholesalers that often exist in developing economies.
Another interesting observation was the percentage of sales through supermarkets in Asia which comes to 30%. This can be seen from the figures for Korea and Taiwan where supermarket share is only 3% and the average for other Asian countries stand at 12%. Inclusion of non food items which is not its traditional area was also an instance of its strategy becoming a success. Another successful strategy followed by the company is staffing. The company takes care to employ competent local people except for top positions in its Asian markets, unlike many other multinationals who send staff from their home countries. All these factors denied the fears of failure of Tesco stores and supermarkets and international policies of Tesco, including operational management methods, cultural and political adjustments and employing the qualified personnel from the countries of Tesco stores location in Asia. Nowadays, Tesco has rates of trade that are constantly increasing due to properly conducted international policies:
According to these data we can clearly see that the process of Tesco trade development in the Asian countries is profitable for Tesco and brings more results than the officials of this retail trading giant cold hope for. This can be proven by the data given in this research in the form of tables and diagrams that demonstrate the results of the conducted research work. In this paper we tried to find out main principles of Tesco work in the United Kingdom of Great Britain and Northern Ireland and in such developing countries of Asia like Thailand, Malaysia and Southern Korea. We have examined the management methods used by the company in the contrasted regions, service quality, decision making and other aspects of the retail trading giant’s policies in order to see the key to success that Tesco has in both Europe and Asia. The policies used by Tesco in Asian developing countries are quite different from those implemented in Europe in such criteria as store types, management policies, controls and decision policies. To demonstrate the results of the current research better we should draw your attention to the following table:
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