Tesco is a leading multinational company specializing in general merchandise stores. As general merchandise, Tesco has various products such as Tesco Banking, Tesco Electronics, and Tesco Telecoms, to mention a few. However, for the sake of this paper the focus will be Tesco groceries. Tesco groceries are in the Supermarkets industries, which are known as the general stores. Each part of the report provides an answer to every question.
This industry just like other industries is prone to macro economic factors, which affect the stores of the industries. The first one is the political factors, especially the regulations (Johnson 2006). Many of these multinational stores regarded as threat to the existing local stores face denial of entry into some countries. Concerning the politics, the entry licensing issues are key factors, which affect these stores.
The other issue that affects the stores industry is the economy. The global economy has been on a recession, which is prolonged period of economic decline that affects the countries in several ways such as low wages and high levels of unemployment. This makes the consumers to have low disposable income. The high rates of inflation have also affected this industry as most of the prices of the products sold in these stalls are high.
The other issue that is significant is the social factors. Concerning social factors the major issue is the cultural trends in the purchase of goods and services. For instance, the average rate of consumption per household has declined because of the number of children per household. It also has to do with the society’s perception of the industry (Johnson 2006).
The other factor has to do with technology that has affected this industry accordingly. The players in this industry have used technology to leverage their operations.
This is caused by the rigorous online marketing done in this industry as the players compete to get online customers. Technology has also enabled the stores industry to go beyond the political boundaries and operate even in regions, which would have been difficult to operate.
The environment in which the stores operate in is critical in factor, which affects the store industry both locally as well as globally. The environment involves demographics, which is the age, the gender, standard of living, and the rates of employment as well as the education of people living in a particular area.
The stores have to consider whether the place they are located has the right demographics to give them the highest returns. For a grocery stall like Salisbury or Tesco, it has to operate in a big city rather than in the village because; in the village the revenues will be lower compared to a city.
The other factor that affects this industry is the legal factor. Players operating in the stores industry must have a good legal team to defend them from the many lawsuits that are against this industry. The common lawsuits are from the consumers who seek damages for sale of defective products.
The other lawsuit deals with the staff either seeking compensation or increased wages. Due to the competitiveness in this industry, the companies also have to look for ways to deal with defaming campaigns generated against them by their competitors (Haberberg & Rieple 2008).
The industry has been quite competitive resulting from gaining advantages in various key issues of competition in the store industry. The first issue involves the threat of new entrants into the market. Fortunately, this is not a big threat in the store industry because; the barriers of entry are excessively many.
These barriers come in the form of costly government licenses for a new entrant into this business. In addition, the initial capital of setting up a store is very high therefore making it difficult for a new entrant to be a threat to the existing players in the market, Tesco being one of the leading players in stores industry in UK as well as Europe (Gareth & Hill 2007).
About the Tesco’s bargaining power with the suppliers, it has a high bargaining power with its suppliers for a number of reasons. It is a leading general store chain in the UK and in countries such as Austria, Ireland, and Hungary, which makes it a reckoned force. In UK alone, it has more than two hundred stores.
The suppliers wishing to sell their products or who want their products displayed for customers to see have to consider Tesco. This gives Tesco a big opportunity to bargain prices of the products stocked in their stores.
According to Doyle (2000), the other key competition issue in which Tesco has advantage involves the industry substitutes. In the store industry, this thereat has always been there especially because; people can prefer retail shops to buy the product rather than going for it from the general store. However, there are some key competitive advantages that the stores have over the retail shops.
The price in the store is lower than the price in the retail shop brought about by the bargaining power of the stores against the supplier. In addition, these stores offer a variety of products as compared to the ordinary shops, in other words they are one stop shop, once you enter in you do not need to go to another place to look for other products.
There is also the issue of threat of rivalry within the industry, which has really affected the company. The rivals of Tesco stores especially in the UK are the Asda, Sainsbury, and Morison’s. Internationally, its main competitor is the Wal-Mart stores and Tesco has fought hard to prevent entry of Wal-Mart into UK.
The pricings are very competitive in the market although prices in TESCO stores are the highest. However, Tesco has a competitive advantage due to the availability of its stores in various places in comparison to its competitors.
The customers have bargaining power especially in an industry, which is competitive as well as in an industry that has substitutes (Proctor 2000). The management in Tesco has clearly identified this and it has really worked hard to come up with mechanisms of curbing the free movement of their customers to their competitors.
They have a club card for their customers and this card entitles the loyal customers some privileges such as free shopping vouchers. Recently, Tesco has collaborated with Virgin Airlines to provide the club members with subsidized ticket fee when they travel using Virgin Airlines.
Tesco is a company endowed with various resources and capabilities, which give it leverage in its business operations. The company assets are currently valued at 24 billion US dollars. The company’s diversification of its products as well as its resources has given it a plus in the market.
It is one of the companies, which has made it big in the industry. This is because; Tesco has a market share both locally and internationally and is one of the leading stalls in South Korea, Malaysia as well as Poland. This Market share has enabled it to get hold of huge revenues.
The other financial advantage, which accrues to this company, is that it also offers financial services though it’s Bank known as Tesco Bank. This gives advantage to the company in terms of funding its expansion strategy to foreign nations.
The brand name of Tesco is also a major Asset because; it has given the company advantage in maintaining its market share. The brand name has also enabled it to penetrate into other countries with much ease thus enlarging its market share (Johnson & Scholes 2006).
The company has a culture of innovation especially in promotion of technological products. The Tesco stores boasts of being the first stores to stock the much-demanded Apple I pad and the Amazon Kindle gadgets. This makes the stores popular because; they differentiate themselves by having products unfound in other stores. The company use of the BCG matrix rankings is a source of income especially its branch of UK.
The leadership of Tesco is transactional rather than transformational. This is because; the company is very careful not to move out of its major industry. It has kept its focus on the store industries and even its extension into other industries such as telecommunication industry give the store advantage over its competitors.
The leadership is transactional as opposed to transformative because what they stick at is increasing the company’s revenue and its global extension program. However, its entry into other industries has not been as successful as in their primary store business like in the banking. The telecom industry growth as well as market share describes that product as a question mark (Anthony 2008).
The company has a great corporate culture especially about its commitment towards social and corporate responsibility. The company has committed itself to be giving one per cent of its pre tax profit to charitable work. This saw the company donating over sixty Four million sterling pounds to charity.
The company has also a great culture of employee reward system. This reward culture entails allowing employees to be shareholders in the company as well as receiving bonus shares every year. For instance, in year 2011 the employees got reward of £105.5 million. This makes employees to feel and to be a part of the company’s vision and mission.
On whether the strategy, which Tesco is pursuing, is good enough, the answer is yes. Tesco has of late been pursuing a strategy of diversification into various industries that relates to their core. The Group Chairman in the financial report described their core as the grocery store in the UK and enlarging that market is a priority.
However, their strategy seems to have gone away from maintaining their core of food industry and rather focusing on various industries such as banking, telecommunication that has not been profitable.
Using the Ansoff Matrix by (Ohmae 1982) Tesco has been on upward mobility and it has experienced profitability for the last twenty-seven years. In its initial years it focused on its core business that is grocery store in the UK and it is has been one of the leading stores in the UK. However, it is not the low cost leader in the market but its strategy focuses on delivering value to customers.
This value is indicated in its mission of giving the customers the best shopping experience in their stores. This has made them to lead in terms of sales against their competitors such as J. Salisbury.
Their strategy of focusing on the existing customers and maintaining them can be attributed to the 1.03 billion profits which the UK stores experienced. Tesco maintains their customers through the Club card and it has more than fifteen million club cardholders.
They have also focused in product development where they have come up with their brand of groceries that are very competitive. However, this new products have only been focused on the existing markets. New products as Tesco Bank is only in the UK where they have been very successful in the food market until they adopted a slogan of being successful in other areas as food.
These products such as the Tesco DVDS they sell them in the UK market as well as online. This aspect of selling new products to their existing customers is quite effective because; it helps them to get a market share without incurring higher cost (Hill 1996). It also assists them to test the viability of these products in the existing markets as well as improve them before they venture out to new frontiers.
The company has taken the existing products to new markets, existing products in this case being their grocery stalls. The company has venture slowly but a very safe mode into new markets in Asia. It currently has 176 chains in South Korea and 75 stores in Thailand.
Though it is expensive to venture into new frontiers, the fact that Tesco is a brand and has been very successful in food products is one of the reasons why it has been successful in Asia. However, the growth has been slow in United States of America than expected.
The company strategy to be a leading store internationally is described by its venture into new markets with the new products. Although it is very risky, according to (Kaplan 2009), the company has used the advantage of technology to sell the new products online.
The online selling transcends the traditional boundaries such that customers from all over the world can purchase particular products online irrespective of where they are located. This is especially auguring well with its new products such as the DVDs and books. Online customers can also purchase Club cards enhancing their loyalty to Tesco.
Conclusion
In conclusion, Tesco is one of the biggest companies in the United Kingdom and a review of its ability to differentiate itself from competitors as well as maintain value for its products are notable attributes (Bowman 1990). It is also a company that has expanded its operations in Europe as well as Asia giving it competitive advantages that are very important.
It is a model of how good strategic management is profitable. In addition, it shows the need to be observing the market and the trends in the market in order to gain competitive advantage over the competitors. It is an emblem of how vital is it to have a great brand name, maintain customers’ loyalty as well as promote employee motivation.
References
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