Tesco's Business Development Essay: Internationalisation & Market Expansion Into South Africa.

Section 1: Introduction

This section provides the reader with an overview and summary of the case study.

Section 2: An overview of Tesco.

This section provides the reader with an overview of Tesco.

Section 3: a) Analysis of Tesco’s external environment and key drivers in the UK

In this sub-section you analyse Tesco’s external environment and key drivers in the UK.

b) Analysis of Tesco’s internationalisation drivers and scenarios

In this sub-section you analyse Tesco’s internationalisation drivers and different scenarios.

c) Analysis of opportunities and constraints faced by Tesco in South Africa

In this sub-section you analyse the opportunities and constraints that Tesco is likely to face in expanding their operations to South Africa.

Section 4: Evaluation of Tesco’s internationalisation strategy into South Africa

In this section you analyse what kind of market entry mode and which is the best generic strategy for Tesco in expanding their operations to South Africa.

Section 5: Conclusions and recommendations

This section provides the reader, based on your analysis, with your conclusions and recommendations and how successful you evaluate Tesco’s international expansion strategy into South Africa.

An overview of Tesco

Business Development Strategy helps to execute a company’s main Business plan and it facilitates the creation of new opportunities for the organisation. Hence, the Business development strategy plays a key role in determining the long-term health of a company. An international company undergoing significant changes in the business patterns, strategies and business development is that of TESCO PLC.It is a United Kingdom based Supermarket Chain, thathas extended into the Asian, European and North American Markets. TESCO recently expanded its business in the United States in the year 2007. Despite initial struggle, the company had ample opportunities to expand its strategies in Business as well as international policies. There were also enough opportunities to analyse the positive and negative aspects of the decisions, the impact of the business strategies on the expansions. Formation of Business Development Strategies is not easy and involves several steps including the formation of a team, valuable discussion policies, Strategies for business implementation, strategies for growth. Apart from these developments, market penetration, market development, product development, inclusion of new products for customers, forming integrative growth development strategies and acquisitions should also be focussed on. Diversification strategy development will help in the growth of a small company into immense heights (Ceil 2012).

TESCO PLC is one of the World’s largest retailers, which operates more than 2300 convenience stores and supermarkets and employing more than 326000 people. The core business of TESCO is in Britain. The company ranks as the largest food retailer and largest private sector employer in UK.Jack Cohen, founded the company was in the year 1919,as a tiny stall in the market. Then the brand appeared five years later after Cohen brought a shipment of tea from Stockwell. The company grew rapidly over the next eight years, after more than 100 stores were opened in parts of London.In 1947, the first self-service store was opened in Hertfordshire. In the year 1960, apparel and household items, that is non-food items were introduced in a special department.

Figure 1: TESCO’s first market stall in 1919

Source:(Tesco plc, 2017)

In order to reposition the company’s status in the market, the authorities decided to close about 500 stores, which were unprofitable and ultimately it benefited the overall company revenues. TESCO also launched a modernisation program to take part in the upmarket chain. The 1980’s consisted of battling for Market shares. The company changes its name from TESCO to TESCO PLC in the year 1983. After that in the year 1985, a major capital-spending program was launched by the company for warehouse and aggressive store expansion. The entire 1990’s consisted of TESCO’s battle for the top spot and it successfully defeated its rivals like Hillards and Sainsbury. Those years also focussed on the expansion of the company outside the United Kingdom. In the year 1991, TESCO became the largest retailer of Gasoline in the whole of Great Britain. All other moves implemented by the TESCO in the successive years were also immensely successful. In the year 2000, the first e-commerce business was launched by TESCO.  In the successive years the different programmes launched by the company became hugely successful and paved the way for its expansion in the 21^st Century. Several tie-ups were set up by the company with other organisations and the number of subsidiary companies increased many-fold due to the success of the company and the generation of a huge amount of revenue.

Analysis of Tesco’s external environment

The environment at TESCO consists of customers, employees and the government. The working environment at TESCO is extremely comfortable and friendly. The most important topic to be mentioned in connection to TESCO’s external environment is the globalisation process. Domestic organic growth is more difficult to sustain in mature markets (Al-Mubarakiand Busler2013). This issue when recognised by established retailers, led to the decision to expand into new markets, to secure future probability (Lowe, Georgeand Alexy2012). Another noteworthy change in the external environment of TESCO is the systematic growth of the UK core, as it is the key driver of sales and profits. The issue of fundamental importance is a strong domestic base with extensive marketing data.The ventures, which are newly formed, aimto maximize their competitive advantage. TESCO when planning the expansion in different countries should form partnerships with the local companies (Wild, Wildand Han2014).

Figure 2: TESCO stores around the world

Source:  (Tesco plc, 2017)

Globalisation has been one of the dominant trends in retailing in the last few decades. The firms are similar in the generic strategy and market shares that have been adopted by them.The outcome of internalisation depends different factors like government regulation, business operation strategy availability of factors and production and so on. The main challenge, whichthe organisation faces in case of internationalisation, is to overcome the threatsand difficulties associated with entering associated into a foreign market, which is new (Sparks 2014.). TESCO operated in major regions around the world, namely, Europe, Asia and UK and many more. For example in case of countries like, Czech Republic,Hungary, France, Poland, Ireland, Slovakia, China, Malaysia, India, Japan, South Korea and United States. TESCO has successfully beaten its rivals in the global retail market as the organisation has always conducted expansion programmes in less risky regions, where growth prospects are more promising. As an example, it can be cited that, expansion programmes in Europe had greater chances of growth and had better prospects. The places where TESCO plans its expansion programmes, have relatively lower risk, because, there is a relatively stable environment (Wood, Wrigley and Coe 2016). Secondly, many of the countries have culture similar to that in Britain and lastly a majority of citizens from these countries can speak fluent English. Certain places in Asia also promise good growth prospects to which TESCO has expanded (Verbeke2013). So it is intelligent as a choice for the company to shift attention to these particular regions. Apart from adopting this strategy, the policy that needs to be followed is to choose areas which involve a huge unexplored market (Mollah2014). Expansion in these areas will lead to a large number of opportunities for growth and accumulation of profit. Thus TESCO, in order to continue its streak of profit and high market sales rates should continue its internationalisation policies.It is a known fact that in the global market higher rewards come with higher risks. The countries, which differ in culture, policies, existence of natural disasters like volcanic eruptions, tsunamis and earthquakes are risk zones for possible internationalisation (Lowe, Georgeand Alexy2012). It will be beneficial for the organisation to conduct its strategies wisely so as to not hamper its growth in the global market in any way. Internal and external factors have been kept in mind while developing TESCO’s policies and hence improvement and rewards has been brought about. In short, the country selection for TESCO’S internationalisation strategy is important (Cavusgil et al. 2014)It has been the decision of the company authorities to pursue a Strategic business unit across all the existing business areas to maximize the competitiveness within the areas of individual market. The international strategic business unit focuses a lot on the business development and change and also helps provide insight to the company (Hoodand Birkinshaw2016). The International strategic group operates in almost eleven markets with over a hundred thousand employees, serving over fifteen million customers globally across all markets. The culture and beneficial aspects of the countries in which expansion is planned are also imbibed in the strategic management policies. The SBU provides TESCO to expand the operations of the company in various directions without in any way interfering with the policies of the company. The strategic management as well as the company’s corporate culture helps in the determination of the company’s success or failure in Business development (Jenkins2013).

Tesco’s Internationalisation

Table 1: SWOT Analysis

While deciding whether TESCO should expand branches in South Africa, it is necessary to analyse the events of the past ten years. The Global financial crisis and the recession of 2008 lead to uncertainty of the expansion prospects (Verbeke2013). The retail market of South Africa despite bouncing back from recession, the prospects for growth remain fragile and the downside risks are considerable. The growth rates are extremely uncertain, the GDP Rates are quite low and the rates are quite below the required rates to make an impact,which is significant on rates of unemployment (Park 2013). Apart from global issues, local factors constrain growth also. The lower cost international rivals challenge the competitiveness of the local consumer goods. However,for consumer goods firms and local retailers, certain parts of Africa are viewed as opportunities for expansion. The worries over currency volatility, price inflation, and concerns relating to the global economy along with Wal-Mart pressures are responsible for driving local retailers to heavily invest in operational efficiency. This is a topic of main focus in case of the expansion strategy for the company (Johnson2017).

Diversification policy adoption is also important.Since the retailing industry is experiencing overcapacity and products and services are major competitive advantage, the major factor for the product development of the company should be innovation. Different factors, such as political, environmental, legislative and many more should be kept in mind while adopting business strategies (Brannen, Mooreand Mughan 2013).

Therefore, keeping the significant increase of internationalisation of retail activity in Africa, in mind, the company should focus on developing new retail spaces in most African countries (Smitand Watkins2012). Despite these developments, of stimulating foreign direct investment and intra-Africa trade, the South-African retailers have come under scrutiny for their contribution to the local economies of the respective countries. Besides this, the South African retail environment with advanced level of support from local producers and developed supply chains, is highly sophisticated. Certain issues suggest an imbalance between South Africa and rest of the continent regarding retail development. South African retailers have pioneered the internationalisation of retailing in Africa. Here, usually the retail markets are characterised by informal trading activities and large open-air markets. Thus the aspects of expansion TESCO should focus on are o establishing joint ventures and strategic alliances, international franchising to operate successfully in South Africa (Marais 2013).

Conclusion and Recommendations:

The success achieved by TESCO proves how far the effective delivery of service and the branding can help in the beneficial expansion of a company. It has helped in fostering of powerful identities by spending into the culture via cultural sponsorship, consumer experience, brand extensions and over a variety of channels. TESCO should focus on converting distinctive competence into competitive advantage. TESCO should concentrate on increasing its market share, brand value as also the online services policies. The company should also focus on resolving its weaknesses. It should decrease its reliance on the UK market. The company had incurred huge debts and hence it is expected that it reduce its debts as soon as possible so as not to harm its global business image. In order to keep the image of the company intact it should focus on maintaining its global image and brand value.

Evaluation of Tesco’s internationalisation strategy into South Africa

Understanding the different aspects of a successful business organisation, it should be borne in mind that, for huge and far-reaching impact on different countries, proper strategic planning should be conductedand a business group should be created for selection of the right policies and strategies for the benefit of the company. The company should aim to explore the unexplored markets, those segments of business that are not yet fully utilised. While a company is planning its expansion, it should ensure that under no circumstance should its branding and reputation suffer in any way. Neither should a company neglect its rivals and competitors. Undermining the rival’s strength can prove to be detrimental for the company in the long run. It has become difficult for companies in the present times to make forecasts and adapt themselves to continuous changes as they act in increasingly complex and dynamic environment. The only way to survive as well as compete in this environment is to innovate at extraordinary speed. TESCO operations over the years have become necessities and not luxuries. Managing the suppliers of products overseas is also essential. Thus it can be concluded that TESCO needs to integrate all aspects of a business strategy properly to survive and conquer the global market.

References:

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