Tesco Global Expasion

Introduction

Tesco, one of the largest retailers in the world and the top retailer in the UK, recorded yearly revenue of more than $84—12 billion after the 2022 fiscal year (Tesco,2022). With subsidiaries in 12 countries around Asia and Europe and more than 450,000 employees worldwide, the corporation has a significant global footprint. The business began as a modest food store in London in 1919 and has since expanded to become a significant player in the world’s retail market (Tesco, 2022). Tesco’s primary line of business is food retailing, but it has expanded into other sectors like financial services and digital goods. Tesco has made entering foreign markets a vital component of its growth (Phan, 2021). This report will carry out a complete strategic analysis and evaluation of Tesco’s current strategic position in the grocery and retail industry and critically evaluate the international strategies the company can adopt in international markets. This report will also analyze the different modes of entering international markets that Tesco could consider. Finally, the report will summarize the essential findings and recommendations for Tesco’s international expansion strategy.

Strategy Application

Company Overview

Tesco is a large international retailer and is the most appreciated brand nationally and internationally (Tesco, 2022). The company’s mission is to be the most highly regarded firm by offering its clients high-quality goods and services, and its objective is to dominate the retail sector. Tesco aims to satisfy its consumers with high-quality, reasonably priced goods and services while simultaneously delivering profit to its stockholders and positively impacting the neighbourhoods where it does business (Phan, 2021). The business strives to be a responsible corporate citizen by encouraging sustainability, minimizing its environmental impact, and giving its workers a fantastic workplace. Tesco’s overall goal is continually improving and innovating to meet its customers’ and stakeholders’ changing needs and expectations.

Internal Analysis

Tesco’s strategy in the UK can be analysed by using the SWOT framework. This framework is beneficial in internal analysis as it provides a systematic and structured approach to identifying a company’s internal strengths and weaknesses and external opportunities and threats. This helps develop strategies that capitalize on strengths, address weaknesses, leverage opportunities, and mitigate threats to achieve organizational goals.

Strengths

Tesco is one of the most reputable and trustworthy brands in the UK, giving it a competitive advantage because of its great brand recognition. Tesco sets itself apart from rivals by providing a broad selection of goods, including food, apparel, gadgets, and financial services, to a wide spectrum of clients (Tesco, 2022). Tesco can attain economies of scale thanks to its comprehensive business activities, which leads to cost savings and appealing pricing for customers. The organization’s well-established and effective supply chain guarantees prompt replenishment of fresh goods, upholding high levels of client satisfaction. Tesco has also made significant investments in its mobile app and digital capabilities, enabling customers to order things and pick them up in-store or deliver them right to their homes, increasing convenience (Soegoto, 2021).

Weaknesses

Due to increased competition and changing consumer preferences, Tesco’s profitability has declined in recent years. Additionally, Tesco is heavily dependent on the UK market for its revenue, which makes it vulnerable to economic downturns or changes in consumer behaviour in the UK. It has also suffered from the poor international expansion: Tesco’s international expansion strategy has not been successful in all markets, particularly in the US and Japan. According to Van Hest(2022), Tesco has been criticized for lack of innovation in its product offerings and in-store experience. Tesco has faced criticism for its treatment of employees, including low wages and poor working conditions. These weaknesses can impact its brand image and limit its productivity.

Opportunities

Tesco has the opportunity to expand into new international markets, particularly in Asia and Africa, with growing demand for groceries and retail. Furthermore, for example, Tesco could diversify its product offerings further by expanding into new categories such as health and wellness or sustainable products (Tesco, 2017). For example, the company is trying to introduce private labels that guarantee customers high-quality products at affordable prices. Tesco has significant potential to expand its online and digital capabilities, including offering home delivery and integrating digital and physical shopping experiences (Kar et al., 2021). Tesco can improve its sustainability credentials by investing in renewable energy and reducing its environmental impact. Tesco can take advantage of changing consumer preferences, such as the growing demand for healthier and more sustainable products (Katsikeas et al., 2020).

Threats

Tesco faces intense competition from other grocery and retail chains and new entrants in the market. For example, companies like Sainsbury and Aldi are rapidly increasing their market share (Zhao & Dou, 2019). Additionally, economic uncertainty and fluctuations can affect consumer behaviour and spending, impacting Tesco’s revenue and profitability (Soegoto, 2021). Changing consumer preferences and shopping habits, including shifting to online shopping, can impact Tesco’s in-store sales and footfall. Regulation changes, such as minimum wage or taxation, can impact Tesco’s cost structure and profitability. Brexit has created uncertainty and potential disruption in the supply chain and could affect Tesco’s ability to source products and maintain competitive prices (Benito et al., 2022).

RBV framework

Additionally, Tesco’s internal analysis can be analysed by the RBV framework. The table below illustrates the company’s internal resources and how they contribute to its competitive advantage.

EXTERNAL ANALYSIS.

The external environment can significantly impact the operation of any company. The PESTLE framework is essential in external analysis as it helps identify and analyze the external factors that impact a company’s operations and performance. This analysis can help companies adapt to changes and opportunities in the market, mitigate risks, and develop strategies to remain competitive.

PESTLE

The table below represents the PESTLE analysis for Tesco in the UK market.

Porter’s five forces

It is also imperative to analyse the competitive landscape when analysing Tesco’s external environment. The most appropriate framework for this task is Porter’s five forces since it evaluates the forces that are influential in competitive advantages.

The threat of new entrants

The threat of new entrants in the UK is high due to several factors, including economies of scale, capital requirements, supply or distribution channel access, experience curve, expected retaliation, legislation, and differentiation. Economies of scale make it difficult for new entrants to compete on price and match operational efficiency (Pedersen & Tallman, 2022). The capital requirements of entry are significant, making it challenging for new entrants to obtain funding. Access to supply or distribution channels is critical and established players like Tesco have long-standing relationships with suppliers and established distribution networks (Pedersen & Tallman, 2022). Tesco’s experience curve represents a competitive advantage, allowing them to operate more efficiently than new entrants. Existing players like Tesco have strong brand recognition, customer loyalty, and a robust supply chain that new entrants may struggle to match, giving Tesco a competitive advantage (Asmussen & Foss, 2022).

Bargaining power of suppliers

The bargaining power of suppliers in the UK retail industry is relatively low, as there are many suppliers. Tesco has strong negotiating power due to its large scale of operations. Additionally, the switching costs are low, making it easy for Tesco to switch to another competitor the threat of forward integration is also low, making the suppliers less powerful (Benito et al., 2022). However, suppliers can still exercise some bargaining power if they offer unique or high-quality products. Tesco has built lasting ties with many of its suppliers, which has enabled the business to negotiate better pricing and guarantee a steady supply of goods (Jones & Comfort, 2019). With its fields and production facilities, the company has also invested in vertical integration to lessen its dependency on other suppliers (Van Hest, 2022).

Bargaining power of buyers

The bargaining power of buyers in the UK retail industry is high, as customers have many options to choose from and can easily switch to competitors. The switching cost is also low, and the suppliers of the product offer are not differentiated too much (Zhao & Dou, 2019). thus, to combat this high bargaining power, Tesco has a solid customer base, with a loyalty program and personalized offers that incentivize customers to shop at its stores (Jones & Comfort, 2019). The company has also invested in its online and mobile channels, enabling it to reach a wider audience and provide a convenient shopping experience. These initiatives help the company differentiate from competitors to maintain customers (Pedersen & Tallman, 2022).

The threat of substitute products

Given how simple it is for customers to move to other items or channels, the threat of substitute products to the UK retail business is high. Traditional shops like Sainsbury’s and Morrisons and internet merchants like Amazon and Ocado compete with Tesco. In response, the business has increased spending on its mobile and web platforms and its range of premium and organic items.

The intensity of competitive rivalry

In the UK retail sector, companies compete fiercely with one another. First, the business has a balanced distribution of competitors, with Tesco competing for market share alongside big names like Sainsbury’s, Asda, and Morrisons (Wood, 2020). This equilibrium means that even slight changes in market share can put the companies in the business under much competition. Second, there hasn’t been much room for new market entrants because of the industry’s current modest growth rate. Secondly, businesses must generate large amounts of revenue to break even because the retail sector has significant fixed expenditures like rent, labour, and marketing. Since businesses fight for customers and money, this scenario increases competitive pressure (Katsikeas et al., 2020). Fourthly, a fierce competition is also fuelled by the industry’s high exit barriers.

Last, a lack of differentiation in the retail sector might exacerbate the competitive strain. Businesses provide comparable goods and services; therefore, buyers might not have a compelling reason to pick one over the other (Van Hest, 2022). As a result, there is fierce competition among businesses as they compete on price, marketing, and other aspects to draw in clients. Tesco uses its robust brand recognition and economies of scale to negotiate better rates with suppliers and offers customers competitive prices to mitigate this. Also, the business is constantly developing new technological solutions to increase productivity and guarantee cost savings in warehouse operations. The company has maintained low prices in this fashion, which gives it a competitive advantage.

Global Strategies

Business strategy

Porter (2008) proposed four generic strategies companies can adopt when competing in a specific market. These strategies are cost leadership, differentiation, and a focus strategy. In this situation, Tesco chooses to compete in new foreign markets by combining a differentiation strategy with a cost leadership approach. This indicates that the business tries to stand out from the competition by providing high-quality goods cheaper than its target market. This hybrid approach provides strategic benefits that aid the organization in gaining market share in global marketplaces (Krishnan et al., 2023). As a result, Tesco benefits from a broader client base and a competitive advantage over its rivals. Thus, Tesco can outperform rivals in sales volume, which may result in economies of scale and lower prices. This, in turn, can lead to higher profits and reinvestment in areas of differentiation, such as technology, supply chain management, and customer experience.

However, there are also some potential downsides to a hybrid strategy. For example, balancing low prices with enhanced benefits can be challenging and require significant investments in supply chain management, marketing, and technology (Wheelen et al., 2019, p.230). This can result in increased costs that may erode margins and impact profitability. Furthermore, if Tesco’s rivals can match or exceed its offering, Tesco may lose its competitive advantage and struggle to maintain market share.

Corporate strategy

The strategy at the corporate level focuses on the general direction and extent of an organization and how it will create value for its various business units. Tesco’s corporate-level strategy can be evaluated using Ansoff’s Matrix (Hussain et al., 2013). Tesco’s corporate-level strategy is focused on diversification, expanding into new markets and product categories. The company has diversified its offerings beyond traditional grocery retailing, including financial services, telecoms, and healthcare (Asmussen & Foss, 2022). The upsides of this strategy include the ability to leverage existing assets and expertise, as well as the potential for growth and increased revenue streams.

Additionally, diversification can help to mitigate risk and reduce dependence on a single market or product. However, there are also downsides to this strategy (Hopkin, 2017). Diversification can be expensive and resource-intensive, requiring significant investment in new markets and product development (Galpin, 2019). Additionally, Tesco may face challenges in managing and integrating diverse business units and may struggle to maintain focus on core competencies (Krishnan et al., 2023).

Global strategy

Wheelen et al. (2019) suggest four main international strategies: simple export, multidomestic, complex export, and global strategy. Simple export involves focusing on manufacturing in one country and exporting products with minimal coordination of marketing efforts overseas. Multidomestic involves producing goods and services locally and treating each market independently (Krishnan et al., 2023). Complex export builds on coordinated marketing efforts while locating most activities in a single country. Global is the most mature international strategy, with highly coordinated activities dispersed worldwide (Wheelen et al., 2019).

Based on the analysis above, Tesco adopts a multi-domestic strategy in its global operations. This approach allows Tesco to tailor its products and services to the local market, making it more appealing to customers and increasing its market (Van Hest, 2022). Tesco can take advantage of local knowledge and expertise, which can help it to avoid mistakes and make better decisions in each market. The result is increased brand loyalty in each market, as customers perceive Tesco more in tune with their needs and preferences (Asmussen & Foss, 2022). This strategy helps to reduce risk and uncertainty in each market by adapting to local needs, regulations, and cultural differences. However, the strategy can lead to higher costs due to the need to adapt to local markets and comply with local regulations. This can reduce the economies of scale that Tesco might achieve with a more standardized approach (Puck & Filatotchev, 2020). Managing and coordinating activities across multiple markets can be challenging, as each market has unique needs and requirements. This can result in duplication of effort and inefficiencies.

Entry Strategies in International Markets

Joint Venture

Tesco has joint ventures with regional businesses to increase its presence in new markets. For instance, Tesco and China Resources Enterprise collaborated to open stores in China under the “Tesco China” brand. Sharing resources, local expertise, and risks are a few benefits of this strategy (Grøgaard et al., 2019). The drawback is that Tesco might have less influence over the business.

Acquisition

Tesco has also acquired local companies in some markets to expand its presence. For instance, Tesco bought the UK’s One Stop chain of convenience stores. Having a well-established brand, client base, and supply chain are benefits of this strategy. The drawback is that integrating the purchased company into Tesco’s operations might be expensive and require substantial expenditure.

Greenfield Investment

Tesco has also ventured into fresh markets by building new stores from the ground up. By adopting this tactic, Tesco can exercise complete control over its operations, encompassing store layout, design, and supply chain (Krummel, 2022). This approach offers several advantages, such as establishing a new customer base and ensuring absolute authority over the business (Puck & Filatotchev, 2020). However, constructing new stores and the associated infrastructure can be costly and time-consuming, a significant drawback.

Franchising

Tesco has also increased its global reach through franchising. Under this strategy, local business owners can utilize the Tesco name and operating system in exchange for fees and royalties (Krummel, 2022). Low investment costs and quick expansion are benefits of this strategy. The drawback is that Tesco could not have as much control over the operations and store quality (Grøgaard et al., 2019).

Licensing

Licensing is an entry mode that allows companies like Tesco to grant foreign companies the right to use their intellectual property or technology for a fee or royalty (Kar et al., 2021). The advantages of licensing currently include low investment and risk, access to local expertise, and additional revenue streams. However, licensing also has disadvantages, such as limited control over the licensee’s operations, limited returns compared to other entry modes, and the potential loss of intellectual property. Tesco is considering licensing as an entry strategy when expanding into new markets, especially when they want to minimize investment and risk while accessing local expertise and generating additional revenue (Kar et al., 2021).

Recommendations

This analysis shows that Tesco should maintain its hybrid strategy in its global markets. To increase its competitiveness in international markets, Tesco should implement several approaches to make its strategy successful. Customization is essential, and the company should tailor its products and services to meet the unique needs of each market. Innovation is another critical strategy, and Tesco should invest in research and development to continually improve its offerings (Katsikeas et al., 2020). Strategic partnerships with local companies can also be beneficial, providing Tesco with access to distribution networks, local market insights, and brand awareness. An efficient supply chain is essential, and Tesco should work on building a system that delivers products quickly and at a low cost (Rosnizam et al., 2020). Finally, Tesco should invest in e-commerce platforms to expand its reach and make its products and services more accessible to customers. By implementing these strategies, Tesco can stay ahead of the competition, provide customers with unique offerings, and continue to grow its global presence (Katsikeas et al., 2020).

Conclusion

This report has provided an overview of international expansion strategies, focusing on Tesco as a case study. The report has applied strategic models to evaluate the company’s internal and external environment. Tesco adopts a hybrid business-level strategy, corporate diversification, and multidomestic global strategy. The report discussed the various modes of entry that Tesco has used in its international expansion and reviewed its benefits and drawbacks. Additionally, based on the analysis, strategies to increase Tesco’s competitiveness in international markets were recommended. These strategies include customization, innovation, strategic partnerships, efficient supply chain, and e-commerce. Tesco can enhance its global presence, increase brand recognition, and effectively compete with local competitors in different international markets by implementing the recommended strategies.

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