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 operations.
The 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 customer-friendly 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 a given 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.