Assignment 06 - Tesco

Strategic Management Individual Assignment

Ba (honors) in business & management

Offered by Cardiff metropolitan university

Strategic management

Assignment 06 – tEsco

Word count - 1089

Submitted to: Mr. Shane De Silva

M.F.M.M Fazlan

ICBT/ BABM/07/30

1. Introduction

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Tesco was founded in 1924. Today it is Britain’s leading food retailer. Today, the Group

operates in 13 markets outside the UK, in Europe, Asia and North America. Over 180 000

employees work in Tesco’s international business, serving in 2026 stores and generating 700

million pounds profit. Over half of the company’s selling space is now outside the UK.

2. The Development Directions Followed by Tesco from its origins as a UK- based grocery retailer.

Tesco as UK- based grocery retailer had followed the Ansoff Matrix which is developed by

Michelle Porter.

Figure 1 : Ansoff Matrix Strategy

They are operated within the UK borders for decades. However, since the mid-90s, the company

started investing in new markets overseas, seeking out new opportunities for growth and ways of

generating long term returns for shareholders. All these facts show how successfully the

company had penetrated into foreign markets, and how massive their international invasion is.

However, Tesco did not diversify only geographically, but also by product. The company started

offering products and services in the areas of clothing, electronics, financial services, telecoms,

home, health, beauty, car and dental insurance, retailing and renting DVDs, CDs, and music

downloads internet services, software, fuel, film making and sound recording.

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Considering Tesco’s tremendous variety in terms of both products and markets, it is obvious that

the company had followed the diversification strategic direction, and this is exactly what the

Tesco Company did- from a UK-based grocery retailer the organization became a worldwide

enterprise operating in various types of businesses.

3. The Development Strategies Available for Tesco

A = Most Suitable; B = Suitable; C = Unsuitable

Current strategy

Future Direction and the ways to Implement

Strengths of company

Ranking

Consolidation

(Market Penetration )

Continues

expansion;

Nationally and

internationally.

Purchase large

volume of product.

Increase the

Purchasing power

of existing

customers.

Different scheme such as club card and

value range loyalty scheme.

Stable profit due to economic of scale.

Offering product with backward integrity

in order to minimize the cost.

The most appropriate method to pursue

the strategy of consolidation would be

through organic development.

Strong brand reputation.

Wide range of resources.

Increasing number of

customers.

C

Mergers and Acquisitions

to expand overseas sales

They are currently

operating in Ireland

(91 stores), Eastern

Europe (272 stores)

and Asia (450

stores).

There are several other foreign markets

that could be extremely lucrative for the

retail giant. One of these markets is the

Australian one.

Another and even more attractive

destination would be the Russian market.

Tesco could expand to are Central and

East America

They have experiences in

investing in foreign

markets.

They have enough

capital to invest.

The brand is famous for

world wide

Tesco is currently

A

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Product Development

Developing Non-

food products

(as Tesco is operating only on the West

Coast)

Focusing on the development of non-

food products.

Introduction of new product in existing

market.

Focusing on product development in

other countries where Tesco has

established

successful in 14 different

markets, and is the

world’s second largest

retailer in terms of profit

(after Wal-Mart).

High growth market

share and revenue

Good brand reputation

C

Diversification

Emphasis in

different sector like

finance,

telecommunication

process.

Non- food products

The Diversification can be achieved

through mergers and acquisitions.

Tesco have been

successfully using this

method when penetrating

foreign markets for many

years

The company is currently

offering products and

services in numerous

areas, and no further

innovations are needed.

B

Table 1 : The Strategic Directions Available for Tesco

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4. Relative Merits of Each Development Methods (Internal, Acquisition or Strategic Alliance)

4.1 Internal growth

Market Penetration.

Join and use the existing marketing strategies.

Market expansion by improving the line of products.

Market development

Market entry is considered as critical, based on the internal venture.

Product development

Innovation is necessary. Products should be improved with the help

of knowledge and skills in order to meet the customer’s needs and demands.

Diversification

Diversification is difficult due to current knowledge and skills.

4.2 Acquisition

Market Penetration

Expanding the range of products. Developing market share.

Market Development

Penetration to new market. Development of new segments.

Product Development

Use the competency in order to develop new products and innovations.

Improving the position in the market.

Diversification

Focusing on the new market. Application of horizontal integration in

order to have an access immediate access to the new market.

4.3 Strategic Alliance

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Market Penetration

Expand the range of products Develop market share

Market development

Global expansion Focusing on new segments

Product development

Application of new technologies with improved knowledge and skills

Adding resources for innovation and developing market share

Diversification

Substitution of vertical integration

Risk of seasonal and cyclic fluctuations in product demands

Focusing on the competition

The Most Suitable by Applying Criteria of Acceptability and Feasibility

In our view, there are four relevant strategic directions available to Tesco in the future. The most

suitable one would be to Mergers and acquisitions to expand overseas sales. When applying

the criteria of acceptability and feasibility to evaluate the possible strategic directions for Tesco

in the future, it was determined that the “expand overseas sales” direction appears to be most

suitable. In terms of feasibility, we suggest that the company will have enough capabilities

(capital) to deliver that strategy, since Tesco had undertaken foreign markets entries numerous

times. In terms of acceptability, it is concluded that it is very likely that the company will

succeed in its foreign expansion and the outcomes of their strategy will be more than

satisfactory, because Tesco had already conquered 13 foreign markets.

Conclusion

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Tesco is also strong in the area of business diversification. Business performance Tesco is

market leader in UK and 3rd largest retailer in the world after wall mart of US and France

Carrefour. They are quite successful in understanding and satisfying their customers demand.

They have been successful in delivering right product at right price considering different

technological and demographic changes. They have been following their strategy to expand

globally that gives them advantage of increased sales and ultimately economies of scale that

enable them to offer low prices which is one of their strength in competition. Old method for

growth (diversification) is continued but a tool of joint venture and strategic alliances may use to

reduce the risk of failure. The mergers and acquisitions can be listed as increased value

generation, increase in cost efficiency and increase in market share, may generate tax gains, can

increase revenue and can reduce the cost of capital.

Recommendations

It is recommend for Tesco to focus more on mergers and acquisitions for foreign markets,

because they are more dependent on its UK market. Therefore Tesco has to increase the sales in

the countries where they already exist and they do also need to find some new country to invest

to reduce dependence on the UK market. Especially considering current situation where

economic status of UK people has badly affected by current economic crisis.

When looking for foreign opportunities it is recommended for Tesco to focus most lucrative

markets. There are several other foreign markets that could be extremely lucrative for the retail

giant. One of these markets is the Australian one, another and even more attractive destination

would be the Russian and other attractive foreign markets that Tesco could expand to are Central

and East America (as Tesco is operating only on the West Coast) and Western Europe, which is

mainly represented by the profitable retail industries of Spain and Portugal. Therefore those

markets are recommended for Tesco.

References

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Nwagbara, Uzoechi , 2010. Managing Organizational Change: Leadership, Tesco and Leahy's

Resignation, [Online].2 - 5 . Available

at

:http://academia.edu/1478810/Managing_organisational_change_TESCO_Leadership_and_Leah

ys_Resignation[Accessed 03 July 2013].

Jim Riley , (2012), Ansoff Matrix [ONLINE]. Available

at:http://www.tutor2u.net/business/images/Ansoff%20Matrix%20w500.gif [Accessed 03 July

13]

Compare Info base Limited. 2013. Benefits of Mergers and Acquisitions. [ONLINE] Available

at:http://finance.mapsofworld.com/merger-acquisition/benefits.html. [Accessed 03 July 13]

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http://finance.mapsofworld.com/merger-acquisition/benefits.html

http://academia.edu/1478810/Managing_organisational_change_TESCO_Leadership_and_Leahys_Resignation

http://academia.edu/1478810/Managing_organisational_change_TESCO_Leadership_and_Leahys_Resignation

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Assignment 06 - Tesco