Analysis Of Tescos Corporate Strategy

Analysis Of Tescos Corporate StrategyIn this writing I arrive discussed Tescos corporate schema. The root section provides background into the company and shows that it currently dominates the UK grocery store storeplace merchandise.The attached section explains the importance of a corporate system for wide term success in any market place place. Tescos is operating a twain tier strategy the first includes expanding upon into non pabulum harvest-homes deep down the UK market and creating strategic adhesion with RBS for example, to create Tesco Personal Finance. The next matchless includes aggressive expansion into overseas foodstuff markets. The main aim of this report allow be to study the corporate strategy regarding expansion into midst East India.This is followed by a review of Tescos expansion excogitates explaining why it is requirement for Tescos to expand into overseas markets. Some of the points discussed be that Tescos UK market sh atomic number 18 in the food product has reached a saturation point and it faces price wars from budget supermarkets untold(prenominal)(prenominal) as Lidl which puts a downward pressure on meshing perimeters. Also, Tesco earns iii quarters of its tax income from UK sales and in a hawkish surroundings it and needs to expand into India and the Middle East to increase revenue enhancement sources.The next section provides compendium on Tescos corporate strategy.The first part of the analysis is based on Porters Generic Strategy that provide options visible(prenominal) to Tesco to generate a competitive benefit. follow Leadership strategy is suitable for operations in India as low prices will attract volume sales. still a combination of differentiation and niche strategy is necessary to prevail expediencyable in UAE market payable to its smaller state merely higher(prenominal) gross domestic product per capita. Porters vanadium forces modelling is used to assess the contestati on in the target market with use of generic strategys attributes to defend against these competitive forces.SWOT analysis is carried out to analyze Tescos put forward corporate strategy showing the external factors that influence the commerce. Strengths include Tescos high growth in UK and overseas and its commercial standing and known snitch. It has access to cheap modify and Economies of weighing machine. Its biggest strength is its consumer oriented prelude which caters to needs and demands for local consumers.Weaknesses include capability to go in into price wars with has a detrimental affect on expediency margins. Also while it whitethorn nominate multiple non food product lines it whitethorn not be able to compete with specialist retailers. in conclusion regulative barriers in India that restrict remote ownership of retail stores could decelerate down expansion into the region.The report concludes by evaluating the present corporate strategy for Tescos expansion into overseas grocery markets. The expansion is all important(predicate) to declare a competitive edge. Tesco needs to ensure that in order for successful expansion it needs to remain flexible and consumer oriented and avoid mistakes made by Walmart in Germany and Brazil and Carrefour in Eastern Europe.Introduction groundTesco was founded in 1919 by Jack Cohen in East London, It is now a UK-based foreign grocery and general merchandising retail chain. It is the full-sizest British retailer by both global sales and domestic market sh be, with meshwork exceeding 3 one thousand million. It is currently the second largest retailer in the homo based on profit. Originally specialising in food and drink, it has diversified into areas much(prenominal) as c plentitudehing, consumer electronics, fiscal service, telecoms, and home and health products. (http//www.tescoplc.com/plc/about_us/tesco_story/)The aim of this report is to break apart Tescos present corporate strategy with emp hasis on what it could do to make better its furrow. I will provide evidence and reasons on why the companys present strategy has potentially high profitability and the aspects that need to be altered. as yet though Tescos primary caper of marketing groceries is not unique but it is the stock model that differentiates it from the rest and maintains its global market share. It has generated high profits through aggressive overseas expansion into US, Eastern Europe and southwestward East Asia. It has maintained a strong client focused business model, with extensive use of its club post horse trueness scheme and utilizing outdo of the range information systems to maintain a very(prenominal) efficient tack chain. (P. McGoldrick, 2002)Tescos Corporate Strategy strategical management is a execute of managerial decisions and actions that determine the coherent term performance of a corporation. Many companies chiffonier manage swindle term bursts with high performance but moreover a few locoweed sustain it over a long period of time.Of the original Forbes 100 companies listed in 1917, only 13 are still in business. (E.D. Beinhocker, 2006)In the last decade, Tesco brought about a lot of strategic multifariousnesss and has grown to become UKs number 1 retailer. It is also considered to be one of Europes fastest growing financial company and probably the nigh successful internet supermarket in the world. (A. Seth G. Randall ,1999)Tescos is operating a cardinal tier expansion strategy.The first part is expansion into non food arena within its home market in the UK. This includes beseeching home and health, pharmacy, telecommunications and financial services products. It has continued to maintain its market share in its grocery sales via aggressive pricing and targeted marketing while expanding into more notional and high profit areas with good success. Tesco setup a strategic alliance with Royal Bank of Scotland whereby it hiters close to of RBS banking services in its stores around the UK. It has taken advantage of its widespread network of stores. In 2008 Tesco Personal Finance had post 71m half year profits with 5.6m customer accounts. It is aiming to increase that profit including from other(a) services including telecommunications to 1bn. (J. Bamford and D. Ernst, 2002)http// upstarts.bbc.co.uk/1/hi/business/6257331.stm(The Economist, Supermarket Finance A mortgage from Tesco? second Oct 2008)The second part of Tescos strategy is to expand its grocery business into Continental Europe, India, South East Asia and the Middle EastReview of Tescos amplification PlansTesco has had great success in the UK market where it has gained over 30% of the grocery market share. There are too many hurdles such as lying-ins from competition commission and local groups that will not furnish Tesco to open many stores in new locations along with planning restriction in the UK. It has however continued to profit from its share in financial services and telecommunications sector. It also gained the first mover advantage when it launched tesco.com.From the figure above, we can deduce that majority of Tescos sales are from its UK operations (100-23.4 = 76.6%). This makes it more important to continue aggressive international expansion as it provides more opportunities for revenue growth.The UK grocery market share has reached a saturation point. With low personify brands such as Lidl and aggressive price war with ASDA in the UK, the profit margin for grocery products have fallen.The strategy is to diversity grocery sales into other countries and make use of the fast growing economy of India and cash in heavy consumer of United Arab Emirates. In todays competitive environment Tesco cannot rely on three quarters of its revenues from one artless. Of the worlds gain 250 retailers, 104 have no international operations at all, according to Deloitte, a consultancy dissipated. Tesco could be the first one to rai se the market in UAE and India to hold the first mover advantage. (The Economist, world(a) sell anesthetise At Till, 2nd Nov 2006)In this report I will concentrate on Tescos strategy for overseas expansion in the grocery market as I believe it carries more opportunities and has higher growth potential. The primary objective of this report is on Tescos expansion plan in the India the Middle East.Analysis of Tescos Corporate StrategyThe reason to run away out external analysis is to identify potential opportunities and threats facing Tesco. extraneous analysis provides information that strategic managers use in planning, decision making and strategy formulation. It religious services reduce environmental uncertainty(B.K. Boyd J. Fulk, 1996)Michael Porter has made major contribution to corporate strategy and I will use many(a) models to judge potential of success for Tescos existing corporate strategy.Porters Generic StrategiesThey muster in the three main strategic options ava ilable to Tesco to achieve a sustainable competitive advantage. They are cost leadership, differentiation and focus/niche strategy.http//tatler.typepad.com/images/strategy.jpgCost Leadership The company producing products at the lowest cost can obtain competitive advantage. This strategy is suited to Tescos business operations in India as currently their involvement is restricted to wholesale sector. Foreign firms in India are unable to have 100% ownership at retail statge. Technopak, a Delhi-based retail consultancy, expects Indian retail sales to rise to nearly $430 billion by 2010. Modern retailers share will rise from just 3% now to 16-18%, it says. A low cost/low price business model will yield the highest returns and sales volumes due to size of Indias state. (The Economist, Retailing Setting up thieve in India, 2nd Nov 2006)Differentiation It involves merchandising products that have unique attributes preferred by customers and as a allow for they are willing to pay a high er price. Although Tescos business of selling grocery products is not unique, Its business model differentiates it from rivals. Especially its club card loyalty program that allows Tesco to react to diverges in consumer preferences faster and gain advantage by being the first one to address any new demand for products.Niche Its usually suited to smaller corporations, they can enter particular segment of the market and offer specialist products.Michael Porter argued that in order to be successful in the long run, a firm must choose one of the strategies or they will not benefit. However, present-day(a) research has shown evidence of firms practicing such a hybrid strategy. Hambrick (1983 cited by Kim et al. 2004, p.25) place successful institutions that adopt a mixture of low cost and differentiation strategy. A combination of differentiation and niche strategy would be most effective in the UAE market. First of all due to small population of 6m, Cost leadership model would not w ork as in that location is little potential for higher sales volumes. UAE is still a evolution market and there are not many supermarkets chains with large market share. Also Tesco could offer unique products, such as its heavy living(a) range and finest brand range that would appeal to the expatriates community which makes up 80% of UAEs population. GDP per capita of UAE is over $54,614 and high disposable income due to absence seizure of income tax, this makes it an ideal market for niche, high end products that carry high profit margin.M. Porter, Competitive Strategy Techniques for Analysing Industries and Competitorshttp//tatler.typepad.com/images/strategy.jpg(The Economist, Retailing Setting up shop in India, 2nd Nov 2006)Porters 5 ForcesPorter explains that there are five forces infixed in markets that determine the level of competition and profitability for Tesco in UAE and India.The first force is the threat posed by new entrants, Tescos rivals, Wal-Mart and Carrefour a re also expanding into overseas markets and this could lead to aggressive pricing to retain market share which may have a detrimental effect on profit margins. Currently Tesco has sufficient purchasing world-beater to beat economies of scale which acts as a barrier to entry for other businesses. Also, it is planning a partnership with Bharti Enterprises in India where by Tesco will control wholesale market and diffusion network responsible for supplying products to 5000 stores.(The Economist, Retailing Setting Up Shop In India, 2nd Nov 2006)The second force is threat of substitutes, grocery store products have highly elastic demand and customers have alternatives if price is set too high. For example, in UAE retail sector, Tesco could establish itself as a allowance grocery retailer. Once way to reduce the threat of substitutes is to diversify the business and expand into non food sectors. It could form strategic alliance with local firms to offer services, similar to its partn ership with RBS in the UK.The third force is the threats from the talk terms power of buyers, this is strong for all retailers in the grocery market. It could gain significant market share if it offers products to cater for western expatriates as currently there is restrict availability of English grocery items. Also, it could reduce threat of substitutes by extending its loyalty program to the UAE. Such as club card scheme, Healthy living club and Tesco Vine club etc. With prices for eating out rising fast, it could offer healthy and finest range ready meals to increase its customer base.Finally the threats from the suppliers bargaining power, its fairly low for Tesco as its usually a major customer for most suppliers and has the power to control its supplier pricing to an extent. Also in terms of rivalry, there is several small supermarkets within the UAE but no(prenominal) of the big ones such as Carrefour and Wal-Mart have yet entered the market.The five forces analysis gives an improved understanding of the degree of competition faced by Tesco. The analysis shows that the grocery industry can be highly competitive, with buyers possessing reigning influence over the large number of substitute brands available to them. From the earlier section we can see that generic strategies each have attributes that help to defend against competitive forces.SWOT AnalysisSWOT analysis has proved to be the most enduring analytical technique used in strategic management. In a 2007 McKinsey Co global survey of 2700 executives, 82% stated that the most relevant activity for strategy formulation were evaluating the strengths and weaknesses of the organisations and identifying top environmental trends affecting business performance over 3-5 years.(J. Choi, D. Lovallo A. Tarasova, McKinsey Quarterly Online, July 2007)StrengthsTesco has publish sales gain of 13% for UK markets which is higher than rivals in the UK and 26% revenue growth in international markets.Tesco ha s a strong brand and subtle commercial standing. It won the retailer of the year 2008 award at worldly concern Retail Awards.On basis of its size and credit worthiness, Tesco can experience economies of scale and obtain funding for expansion into India/UAE even during credit crisis.Tescos approach is very flexible, they dont always push the Tesco brand name unless it has an advantage when entry a market, for example in Turkey Tesco maintained the name Kipa as local customers were familiar with it.http//www.worldretailcongress.com/page.cfm/action=Archive/ArchiveID=7/EntryID=1http//news.bbc.co.uk/1/hi/business/4781458.stm(The Economist, Global Retailing Trouble At Till, 2nd Nov 2006)http//www.worldretailcongress.com/page.cfm/action=Archive/ArchiveID=7/EntryID=1WeaknessesThere are regulatory barriers in obtaining retail trade licences in India. At present a foreign company can only operate as a distributor/wholesaler. However it is still a good opportunity to enter the market as a w holesaler and establish a distribution network.If it enters into a price war with local retailers, the margins will vex and since UAE population is only 6million, the low margin high volume strategy will not be effective.Tesco is a public company and if it spends too much of its capital on overseas expansion the UK market may suffer in the short term and shareholder may oppose some expansion decisions.Tesco may offer multiple product lines in the similar store, but since there are specialist stores for electrical products for example Tesco may struggle in non food sector.(The Economist, Retailing Setting up shop in India, 2nd Nov 2006)OpportunitiesUAE allow foreign investment and ownership which unite with ease of funding provide low barriers to market entry.Tesco has created a very efficient home delivery network in the UK, It could utilise its expertness to create the very first home delivery service for grocery products in the UAE.With wide access to the internet among UAE resi dents, Tesco could enter the online market for food and non food product.Economic growth in India has maintained at 6-8% per annumpatronage the credit crunch UAE has experienced a growth rate of 23%in 2008 with double digit growth in grocery sales.The GDP per capita of a UAE is $54,607 making it an ideal location to offer high margin top end products such as the Tescos finest range.Tesco could follow its business model in the UK to setup strategic alliance with local firms to diversify its products and services on offer.http//uaeinteract.com/docs/UAE_GDP_soars_23_to_Dh934_billion_in_2008_/36962.htmhttp//www.imf.org/external/pubs/ft/weo/2009/02/weodata/index.aspxhttp//www.arabianbusiness.com/574404-uae-grocery-sales-growth-slumps-in-2009ThreatsRising prices of raw materials and food products may lower profit margins.People tend to vary of new brands. This puzzle can be overcome since Tesco has a strong internationally recognised brand. In addition Tesco tends to enter the market via partnerships or familiar brand name to avoid alienating the local consumer.Local communities in some parts oppose Tesco and other major retailers from panorama up stores as they believe it will destroy their community and small businesses.Lower available income will impact and strategic focus may need to change to lower priced basic products with less focus on higher priced brands suggesting a switch in price architecture.Retailers who set out on foreign adventures need to remember three basic rules. First, dont forget the local touch. Wal-Mart got off to a bad start in Germany by appointing a country manager who did not speak German. In Brazil it failed to notice that plenty like to shop en famille the aisles of its shops were too narrow to accommodate the monetary standard family party. Successful foreign adventurers adjust their formats to local needs. BQ, a British homemade retailer, discovered that Chinese people look down their noses at doing things themselves. It became a buy-it-yourself, and get somebody else to do it for you, retailer.Second, make sure your timing is right. In 1995 Yaohan, an aggressive Japanese retailer, opened one of the worlds biggest department stores in Shanghai. It plan to build 1,000 Chinese shops. But a decade ago Chinese people were too poor to support its vision and in 1997 Yaohan filed for bankruptcy. Third, be selective about what you try. Tesco, which has been pretty successful in foreign markets, is soon going into America-but with convenience stores only, because it reckons the supermarket business is too crowded.(The Economist, Global Retailing Trouble At Till, 2nd Nov 2006)ConclusionIn this era of globalisation an organisation can no longer trade in its locality and sustain a competitive advantage. Tesco needs to continue its expansion overseas as UK market has reached saturation point in the grocery sector. It needs at least half of its revenues from overseas operations to reduce its over faith on UK sales. T he Porters generic strategy and SWOT analysis shows some lustrous opportunities in India and UAE which could turn into profitable operations. Some of the potential threats can intimately be overcome.The key to success for Tesco in its expansion strategy is tractability and timing. India has recently allowed some Foreign Direct Investment even though its restricted to ownership of wholesale sector, its a good opportunity as retail sales in India are forecasted to be $430bn by 2010. impertinent Wal-Mart which failed to enter the market in Germany and Brazil due to lack of association of local trends and consumer preferences. Tesco has been successful in entering several overseas markets. This is due to their consumer oriented approach and their study of local demand prior to setting up.Before expanding into the US, researchers, including a small cohort of Tescos top executives, spent two weeks living with 60 American families and studied their grocery purchasing habits.Strategic management is an ongoing process, the key for managers is to remain flexible, open and alert to changing circumstances. Strategies dont always succeed, results may fall short due to internal short coming or predictions about external opportunities and threats were inaccurate. Whatever the reason we change the strategy as needed to take advantage of new information.