Introduction
The name of the Company under discussion in this report is Tesco. The Company was found in Cheshunt, United Kingdom. It is a multinational organisation 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 us ranked the 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 (Tesco 2013) 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 (Tesco 2013).
The Company’s corporate social responsibility is aimed at helping people support high standards of life through the provision of low prices for all the goods and services. It also contributes some of its pre-tax profits to charity work. For example, in 2006, it contributed 1.8% of its pre-tax profit to charity work (McLoughlin & Aaker, 2010).
External Environment
PEST analysis for Tesco Company
Political environment
The political environment under which the organisation operates is very stable. There are minimal political risks for the business, both in the United Kingdom and in other countries where it has operations (Johnson, Scholes, & Wittington, 2011).
Economic environment
In 2008, the world underwent through global recession which is the biggest since the great depression of 1930s. Just like other multinationals, Tesco was not exempt from the effects of the recession (McLoughlin & Aaker, 2010).
Social environment
The organisation operates in a friendly social environment. Many of the countries where it operates have a very friendly social environment.
This has been achieved through the sensitivity of the organisation to the needs of the local customers as well as the provision of very friendly goods and services for affordable prices. The organisation also engages itself in charity work and other corporate social responsibility activities, thus creating a very conducive social environment for its operations.
Technological environment
The organisation has embraced and adopted technology in most of its operations and service delivery. It provides its customers with various online services. It also operates a website where it posts business information for potential customers.
Porter’s Competitive Forces and Tesco’s SWOT
Threat of new entrants
Tesco’s 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
Tesco’s core competence for dealing with this threat is having large capital base, which enables it to manufacture some of the goods it needs for itself. However, it does not manufacture all the goods by itself and this forms one of its core weaknesses. It is therefore capable of being manipulated by its key suppliers.
Bargaining power of buyers
Tesco’s strategy for dealing with this is by 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 that the Company cannot do without.
Threat of substitute products or services
Tesco guards itself from this threat by differenting its products as well as through teaming up with other multinationals to influence government policy on the introduction of substitute goods in the industry.
Rivalry among existing competitors
Tesco has cushioned itself from rivalry through having very reliable suppliers and by manufacturing some of the goods by itself as well as diversification, which has seen it investing in various industries so that if one becomes very competitive, it may compensate the low profits in that industry from the other ventures in other industries.
Strategic rationale for global development
As explained in the introduction, the Company began in the UK as small stores. However, due to the need for diversification and expansion, the Company opened new stores in other countries outside the United Kingdom. Examples of countries where it has stores include parts of Europe, Asia, Thailand, Malaysia and Ireland as well as North America. This can be best illustrated using the globalisation concept.
Globalisation can be defined as the minimisation of the differences between people of the world and the maximisation of their similarities through interaction, cooperation and communication. During the pre-world war period, the world was characterised by minimal interaction, communication, cross-border movements and language homogeneity.
However, after the World War II, this situation changed. The changes were mainly triggered by the desire for nations of the world to unite in various spheres of development mainly economy, education, employment, environment and governance (Beck, 2000).
The main driving forces for globalisation were however the advancement in information and communication technology, improved transport systems, liberalised trade as well as liberalised immigration policies. Globalisation has made it possible for any person to work, study, marry and stay in any part of the world irrespective of his or her culture (Waters, 2001).
After the world wars, a new form of globalisation emerged. This was triggered by the new desire to unite the world through the three main development pillars namely the social, the political and economic pillars (Chrysanthopoulos, 2010).
Many States thought that the world wars were mainly caused by poor interaction between the nations of the world, arguing that many countries did not care harming others as a result of the old economic philosophy which pegged development on elimination of rivals rather than the cooperation between stakeholders (Buckman, 2004).
The contemporary form of globalisation is characterised by the liberalisation of trade, the emergence of multinational corporations as well as emergence of global institutions like the World Bank, the International Monetary Fund and other United Nations’ affiliated institutions (Gamble & Thompson, 2011).
The advancement in Information and Communication Technology (ICT) has transformed the world into a global village. Through ICT and improved means of transport, people are more than ever able to do business with each other without any barriers (Scholte, 2005).
Through globalisation, Tesco managed to move to China where the culture and values are completely different from those of the United Kingdom where the Company started. The Company entered China in 2004 after acquiring about 50% of the Hymall.
It also operates in various cities and towns of China such as Shanghai, Weifang and Taizhou, where it deals with imported wines and beers as well as cheese products especially from Italy, Netherlands and France. In Shaghai, the Company introduced what it refers to as Tesco Express, which is a customised 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 accounts 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, where it delivers goods to its customers especially those who purchase in bulk. Home Plus is the second largest store in South Korea after Shinsegae Company.
Methods Used By Tesco Company to Expand Globally
Multinational organisations such as Tesco usually operate in diverse environment in terms of culture. Due to this, it is essential for them to be proactive in internationalizing their operations if they want 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 (Reif, 1996).
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 two main methods to enter those markets. The methods include mergers and acquisitions. These are briefly explained below.
Mergers and Acquisitions
Due to the ever changing business environment, businesses and organisations are finding themselves operating in a very dynamic and competitive environment, which calls for adoption of strategies for coping and surviving the storms brought about by the forces of globalisation.
One such strategy is what is referred to as mergers and acquisitions. Companies may merge with others or acquire property of others as a way out in surviving the storms and also as a way of increasing their competitive advantage (Cumming & Worley, 2008).
Organisational analysts have suggested a three phase model of mergers and acquisitions. These phases include pre-merger, merger and post-merger. The planning in the first phase entails establishing the reasons for the merger and acquisition. The human resource managers at this phase are supposed to search for their partners, identify a merger and acquisition leader and initiate learning process about the merger and acquisition.
Other activities prominent in this stage include assessment of the culture of both organisations, formation of a team to sphere head the process and initiation of practices which enhance knowledge transfer across the organisations involved (Cumming & Worley, 2008).
During the second phase of merger, the organisations are integrated in a manner that they become one. The most important aspect during this phase is the selection of an integration manager, who is charged with all the activities of the merger and acquisition.
Some of the activities crucial in this phase include establishment of a new organisational culture and structure, dismissing and retaining of employees, employee motivation, formulation of human resource polices, designing teams and managing change which comes with the process of merger and acquisition.
The second phase therefore literally makes the change happen and brings the organisations to work together in the merger or acquisition (Cumming & Worley, 2008).
During the third phase of post-merger, the organisations are already integrated and what this phase entails is the solidification of their union. The key aspects of the merger during this phase include assessment of the new organisational culture, structure and strategies and harmonization of the two organisational cultures (Cumming & Worley, 2008).
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. The other example is in Thailand, where it went into a partnership with Charoen Pokphad to form a merger called Tesco-Lotus.
The Company acquired several Companies in 2005 in South Korea. In the same year, it made two more acquisitions; one in Japan and another in Poland. The company also acquired a store in Taiwan belonging to its competitor Carrefour (McLoughlin & Aaker, 2010).
Conclusions and Recommendations
Tesco Company was started way back in 1919. After its formation, it witnessed a steady growth which enabled the founder to open many stores in the United Kingdom. In 1990s, the Company diversified from grocery to other products and services. Currently, it is the leading retail merchandise in Britain and the 3rd largest in the world after Wal-Mart and Carrefour. It operates in more than 13 countries outside the United Kingdom.
It operates various types of stores in various countries, cities and towns. Some of the types include Tesco Metro, One Stop, Dobbies, Tesco Extra, Tesco Express and Tesco Superstores.
Each type of store is suited for a particular market and made to respond to specific needs of customers or tailored to fit in a given market. One country may deserve one type of store and not the other depending on the business environment and the likes and preferences of the local customers.
The Company has managed to place itself in a global strategic position. It has managed this through differentiation and positioning of its products, goods, services and operations. It has been able to enter various markets especially through mergers and acquisitions.
What I would recommend to the Company regarding its future strategic direction and how to increase its competitive advantage is to invest more resources in differentiation and positioning. In strategic management, differentiation is the process of distinguishing a product or service from the rest through describing its unique differences and or characteristics.
It is done for competition purposes with a view of creating a market niche for that particular product or service. Differentiation seeks to create a good image about a particular product among the targeted consumers so as to ensure that they perceive it as unique and different from other similar products (Thompson & Martin, 2010).
A company may engage itself in differentiation of several products at the same time. This could enable it to have customers who cannot purchase goods and services elsewhere due to the uniqueness of its products or services. This is what is called positioning.
Positing entails using various strategies like promotion, distribution of products or services and production of unique products with unique pricing to build an identity of a particular Company or organisation in the minds of consumers. Positioning seeks to stabilize and retain the positions of the particular differentiated products for a particular Company so as to retain the competitive advantage of the Company in regard to those products.
Reference List
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