Brief Background of Tesco and its Overseas Expansion
Discuss about the International expansion of Tesco in Australia.
Tesco is a multinational supermarket operating all over the entire world and it’s headquarter is situated in England. The company has stores in 12 countries and it is one of the main leaders in the grocery market. Tesco has more than 28% market share and it has expanded its business widely. Tesco needs to analyse the suitable macro environmental factors that influences the market where it wants to expand its business. These factors will help the firm to assess the future market potential in that region. This paper will highlight the various political, legal, cultural and economic dimensions of Australia which is necessary for expansion of Tesco in Australia. It will help the mangers of Tesco to judge whether they will b e successful if they set up their business in Australia. The revenue and profitability of Tesco is increasing and it is crucial to examine the factors before expanding in Australia (Mollah, 2014).
Tesco is trying to serve its customers with quality products. It has employee strength of 460,000 and this has helped them to serve a huge customer base. Tesco has spread its business all over the world and there are more than 6,809 stores. A vast majority of its stores are located in Malaysia, U.S.A and Hungary. This depicts that the company has high brand recognition throughout the entire world. The company has a huge customer base. According to 2016 report, Tesco has more than 4.6 million subscribers with an average growth rate of 5%. There has been a growth in the number of customers in the banking sector of Tesco. The company has more than 7.4 million customers. This strong customer base of the company is due to large availability of various products such as baby products, food, drinks, health products, banking services (Haddock-Millar & Rigby, 2015). The company also offers services in healthcare and various types of waste management and thus tries to maximize the welfare of the society. Tesco also provides training to the personnel’s for proper use of various waste management tools. This is a unique service provided by Tesco because there is no other supermarket which is engaged in the provision of welfare services. The company has also provided help to various local bodies for the waste management services. Tesco has to bear a huge cost for environmental management and thus it might be costlier for the company to adapt these strategies in the Australian supermarket after setting up the business in its initial stage (Ismail, 2017).
Brief Introduction of the Australian Supermarket
Tesco has certain unique products which cannot be imitated by other supermarkets. Some products are patented by Tesco and they are provided in attractive price to the customers. There are various ranges of products such as cereals, pulses, eggs and breads which are available in all the retail stores of Tesco. Tesco has more than 10,000 products of its own logo and brand. Tesco has set out many ambitious plans for overseas expansion. The supermarket has more sales in other countries than in Britain. Its sales are double in Turkey and Central Europe. Tesco is trying to boost up its profitability. Tesco's is trying to expand in the shopping malls of various countries. This expansion strategy of Tesco is increasing the market share of Tesco (Tesco, P. L. C. 2014).
Tesco has to analyze the macro environmental factors before setting up its business in Australia. There are a large number of competitors in the Australian supermarket such as Coles and Woolworths which are dominating the entire supermarket. These two supermarkets are holding the major share in the market i.e. 75%. Aldi is also expanding rapidly in Australia and there are serious concerns of its expansion among the independent retailers. The Australian market is good for expansion of Tesco but it should try to consider the various other factors of its competitors before expanding in Australia (Brannen, Moore & Mughan, 2013).
The economy of Australia is very stable and strong. It is suitable for any business to enter and expand in the market. Australia has a very strong financial and political system, diverse workforce, low rate of unemployment, safe and low risk environment for the operation of nay business. The economy of Australia shares a close political relationship with Europe, South America, Africa and Middle East countries. This will be an additional benefit for Tesco to expand its business in Australia. Thus, it will be beneficial to enter the Australian supermarket easily without any political restriction (McNair et al., 2017).
The economy of Australia charges a corporate tax of 30% on the total revenue of the company. This rate is very high compared to other countries. This is regarded as the challenging factor for Tesco because it has to earn high profits for paying such a huge amount of tax. The food safety law of Australia is also very strong to prevent different types of food borne diseases (Sheen, Truck, & Wang, 2015). Tesco has to maintain the quality of its products in the grocery sector so that it can survive in the Australian supermarket. The purchasing power of the people of Australia is very high and thus this influences the demand for the products. This will be advantageous for Tesco because people will be attracted to the supermarkets for the quality of products. The small retailers and the businessmen will have to bear huge losses because people prefer quality products and thus they will buy from the supermarkets (Meiners, Ringleb & Edwards, 2014).
Political and Legal Analysis
The economy of Singapore is a highly and wealthy economy. It has least market barriers and open market environment. The Australian economy is regarded as the financial hub and high security for the supermarkets. The cross border trade will facilitate Tesco to set up its business easily in the Australian market. There are a large number of visitors and immigrants in Australia every year and thus this will be beneficial for Tesco as it can expand its business. Apart from free trade, the economy has high growth rate of GDP. The economy of Australia is dependent on international trade (Vu, 2016). According to 2017 report, Australia ranks 15th in the "ease of doing business" and this is advantageous for Tesco. The commercial environment in Australia is very attractive for the businessmen to start up their new venture. The economic growth is projected to increase by 3% upt0 2018 and this will be very advantageous for Tesco. According to the Australian Food News (2017), there are more than 22,668 businessmen and thus it accounted for $49.2 billion in the international trade of the country. There is also fluctuation in the exchange rate of the currency and thus this has weakened the Australian dollar. This will also adversely affect the business operation of Tesco. Thus, the economy of Australia is suitable for setting up new business venture. The tax charged from the businesses is also not very high and thus it will be profitable for Tesco to expand its business easily (Plumb, Kent & Bishop, 2013).
The cultural analysis of Australia will be beneficial for Tesco to get a proper insight of the economy. Some important factors must be taken into consideration before analyzing the culture of Australia.
Power distance: The rank of Australia in power distance is very low i.e. 36. This implies that inequality is very low in the Australian economy. This will be advantageous for Tesco. The low score of power distance of the Australian economy also implies that the managers of the organizations rely on the employees and the team members for improvement in sales. The communication among the people of Australia is informal and direct. Tesco can conduct surveys before expanding in Australia. The people of this country participate in all the activities and thus it will be easier for Tesco to analyze the needs and demand of the people (Geert Hofstede, 2017).
Individualism: The score of Australia in this dimension is very high i.e. 90. This implies the competitive nature of the people and they are less bothered about other people. They remain concerned with themselves. The social relation among the people of Australia is very poor. They do not prefer to interact or communicate with the people and thus it can be said that there is no harmony in the society. This will be a barrier for Tesco because if people do not convey or communicate about the quality of products which will be provided by Tesco, it will be difficult to compete with the other brands (Zhao, 2014).
Masculinity: The score of Australia in this dimension is very moderate i.e. 61. This implies that there is competition in the Australian market. There is no co-ordination or mutual understanding among the people of Australia. Though they respect each other and there is always a healthy competition among them, it will be profitable for Tesco to expand its business. The people will be attracted and motivated to buy quality products. They will be willing to pay high price because they prefer quality rather than price. This will boost up the competitive spirit of the company and they will try to develop their products accordingly.
Uncertainty Avoidance: The score of Australia in this dimension is moderate i.e.51. The people of Australia are concerned about themselves and they try to avoid any uncertainties or danger. A section of people also try to face challenges and thus they like to explore before expanding their business. Tesco may have to bear certain risk before starting their business venture in Australia.
Long Term Orientation: The score of Australia in this dimension is very low i.e. 21. There is no harmonious relationship among the people of Australia. The propensity to save of the people of Australia is very small and thus they try to focus on achieving greater results. The people of Australia do not prefer to make long term investments in purchasing the products. They are very pragmatic in their approach. Thus, it will be beneficial for Tesco to start up their business in Australia (Ferdous & Aziz, 2014).
Indulgence: The score of Australia in this dimension is high i.e.71. The people are fun loving and they spend their money on buying various products and services and thus lead a luxurious life. They are optimistic when they buy a particular product. They do not think of the long term benefit of the product. This will be beneficial for Tesco because will sell quality products in the market and people will prefer to buy them again (Leone et al., 2015).
Tesco has launched various kinds of environmental programmers to protect the society and also help the customers. It has launched various kinds of self awareness programmes for the conservation of water, energy and fuel. Tesco has also tried to reduce the energy consumption and has made various plans to reduce it further in the future. The employees of Tesco also play an important role in protecting the environment. A corporate social responsibility team was formed in the company to ensure that it provides quality and healthy products to their customers. Tesco tries to minimize the negative impacts and maximize the benefits for the welfare of the society. The company has also made certain collaboration with the NGO s and the local bodies for protecting the environment and producing eco-friendly products. Tesco also tries to prioritize the needs of their esteemed customers. The suppliers and the investors of this company also try to work in co-ordination with Tesco for maximization of benefit (Fernie & Sparks, 2014)
Thus, it can be said that Tesco needs to face various kinds of challenges before setting up their business in Australia. It must try to maintain the quality of the products so as to compete with the others supermarkets. The political, legal and the economic environment are also suitable for business operation of Tesco. Tesco will produce quality products at a cheaper cost and thus the people of Australia will prefer to buy grocery products from Tesco. The people of Australia are also ready to pay higher prices for quality products and thus this will be an advantageous factor for Tesco.
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