The Market Opportunities - Tesco - Case Study Example

Table of Contents Executive Summary 1 Introduction 3 Company Description ‘Tesco’ 3 Country Analysis ‘Switzerland’ 4 The Nature of Expansion 5 Business environment analysis 6 PESTLE Analysis 6 Political 6 Economic 7 Social 7 Legal 9 Environmental factors 9 Strategic objectives 10 Tesco’s Strategic Options 10 New product development 10 Market development 10 Strategic target positioning 11 Segmentation strategy 11 Targeting strategy 11 Positioning strategy 12 Stakeholder expectations and needs 12 Implementation of the Strategic Plan 12 Conclusion 13 Recommendations 13 References 14 Executive Summary Tesco is a U.K. based supermarket chain with a large number of stores and has differentiated from its core business as a grocery retailer and its offers a wide range of home products (Zhao 2014). The firm’s vision is to acquire a valuable position among its employees, customers, community, and shareholders. The company operates nearly 6,531 stores across the globe in 14 countries. Switzerland is a small and highly developed nation located at the centre of Europe and is perceived to be one of the globe’s most attractive consumer markets. The country is attractive because of the huge demand enabled by high purchasing power and trends in food purchases. The country’s business analysis is conducted through PESTLE. The business environment analysis depicts a stable political environment with minimal political interference in businesses. Also, the economic and technological factors depict a highly skilled and tech-savvy population essential for the sustainability of Tesco in the long-term. The expansion of the company globally can be through; acquisitions, joint ventures, mergers, and Greenfield investments. It is recommended that Tesco adopts the joint venture market entry strategy because of the benefits such as; local market knowledge and experience and local brand recognition (Özsomer 2012). The strategic options available for adoption by Tesco includes; new product development and market development. On the other hand, the strategic target positioning strategies that can be adopted by the firm as it enters the foreign market include; targeting strategy, segmentation strategy. Introduction The entry of a company into an international market is quite significant because of the benefits accrued by the firm due to the expansion inclusive of financial gains, gain in expertise, and benefiting from interchange of cultural practices. The increased globalization of trade and industry has increased the complexity and competition of businesses necessitating the need for effective strategies ensuring business survival. The growth of a firm internationally necessitates the evaluation of varied models of marketing and environmental assessment relative to the host country. The paper explores the international strategic plan for the company Tesco including; the host country description and company overview. Also, the paper explores the business environment for the host country and the implementation of the international strategies. Company Description ‘Tesco’ The company Tesco is a successful supermarket in the U.K and is fast growing international recognition. The company is currently ranked among the top global players because of its immense size and a successful grocery retailer. The company maintains its market dominance through the sale of a variety of goods ranging from grocery items to household equipment such as cloths and furniture (Zhao 2014). The company operates nearly 6,531 stores across the globe in 14 nations. Also, the company offers online shopping, banking services, and insurance services to its customers. In 2012, the stores operated by the company in U.K. generated revenue estimated at £64.539 billion (Zhao 2014). The firm’s vision is to acquire a valuable position among the customers its serves, the committed and loyal employee, communities, and the shareholders. The company also has visions to make its growth innovative and modernized through the application of expertise in international markets. The core values of Tesco is to toughen its business which would assist in delivering the firm’s core purpose. The company Tesco being one of U.K’s largest supermarket chain implements certain strategies that are critical to its growth including the creation of value to shareholders with innovation and concentrates on satisfying customers’ needs. Country Analysis ‘Switzerland’ The country is a small and highly developed nation that is located at the centre of Europe and is perceived to be one of the globe’s most attractive consumer markets because of the political, economic, and financial stability experienced. Currently, businesses in Switzerland reap the benefits of the nation’s superior lifestyle and the economy’s success. The country is culturally diverse because of the five countries that it border including; Austria, Germany, Italy, Liechtenstein, and France. The region’s population is concentrated within an area of 41,285 square kilometres where the Plateau, Jura, and the Alps forming the country’s main geographic locations. The country has a high population density consisting of 20 percent non Swiss and a population of about 7.3 million. The country has better living conditions and the residents of the country have the highest insurance coverage per person and highest income per capita. The country has no natural resource and therefore knowledge and education are significant resources to the nations making it one of the best education system globally. The country’s international competitiveness is being enhanced through continued cooperation with the European Union. The region’s unemployment is at a level lower than the EU average and it possesses a high skilled labour force in its economy. The country is not a member of the European Union and it therefore benefits in a number of ways including the flexibility of deviations by the Swiss National Bank from the paths pursued by European banks. Also, it maintains a strong demand for the currency by foreign investors resulting in low interest rate levels which offers the country a competitive advantage benefits domestic consumers immensely. The Nature of Expansion The nature of expansion is dependent on the entry strategies adopted by the firm and they include; business acquisitions, joint-ventures with local retailers, and Greenfield investments. International business joint-ventures involves the partnership between a local firm and a foreign business where the foreign partner has controlling powers (Jakada 2014). The benefit of joint-ventures to a foreign business expanding is the better management of operations and access of local market information for the local partner firm. On the other hand, business acquisitions occurs when an organization assumes a pivotal role in decision making within a firm in a foreign country (Twarowska and Kąkol 2013). Also, Greenfield investments are strategies of expanding internationally where a firm opts to construct a new venture to be wholly-owned subsidiary in a foreign country market. The Greenfield investment strategy of expansion is extremely risky as compared to joint ventures and acquisitions because of the limited operating experience in the foreign market (Bayraktar and Oly Ndubisi 2014). The top position is what Tesco aims to achieve with the foreign market in its initial years of entry. The firm’s immense success in international diversification is because of the company’s increased sensitivity to local expectations, culture, and understanding of the local market environment achieved through mergers, partnerships, and acquisitions (Twarowska and Kąkol 2013). The basis of Tesco’s strategies of international expansion and diversification is the firm’s long-term objective of sustainability and profitability (Hampl and Loock 2013). The increased saturation and maturity of the U.K’s grocery retail market has been a significant factor influencing the international expansion prospects and ensuring long-term market relevance. Business environment analysis The business environment analysis involves the assessment of the host country’s operating conditions that will influence the entry of the company into the foreign nation and its profitability. The business environment analysis of the host country will be assessed by the use of PESTLE exploring the political, economic, social, technological, legal, and environmental factors. PESTLE Analysis Political The organization of the country’s government, courts, and parliament is in three level including; Federal, Cantonal, and Communal. The areas covered by the federal constitution include; the army, foreign relations, value added taxes, tariffs, and currency legislation, and the communications and railways to the confederation. The federal administration is decentralized and the executive powers are exercised by the government The government consists of a team of seven members possessing equal rights elected by the Federal Assembly where the Vice President and the President are from the seven members of the Federal Council for one year. The employment laws within the country are tailored to encourage the retailers and investor businesses to offer employment opportunities that are locally based, flexible, and from low-paying jobs to highly-paid and high skills employment opportunities (Berlemann and Freese 2013). The company Tesco offers employment opportunities to various individuals including; senior citizens, students, elderly, and disabled workers. The firm has demonstrated a high level of employee loyalty in an industry with high employee turnover. Economic The nation’s economy is highly stable and modernized The country’s GDP in 2013 was $371.2 billion which denotes approximately 1.05 percent of the world’s economy with 1.7 percent growth rate. The country’s main sources of GDP are from the Industry sector (27 percent) and the Services sector (72.5 percent) The country’s inflation is low Switzerland’s GDP per capita last recorded in 2013 was at US$55,485 The unemployment rate in the country is approximately 2.9% The economic factors influencing the business environment are significant because they are the determinants of the company’s profitability. The country’s rate of employment has improved owing to the stability of the EU and the continued stability of the country’s currency. The high purchasing power of consumers in the Swiss market is highly attractive for businesses because it is an illustration of the country’s high demand. Also, the country’s stable currency is highly significant to Tesco because of the certainty in foreign exchange pressures (Berlemann and Freese 2013). Social The residents of Switzerland are highly educated and modernized and is placed 2nd in the quality of life index The ethnic groups in Switzerland include; French 18 percent, German 65 percent, Romansh 1 percent, Italian 10 percent, others 6 percent. The four official languages of the country include; French, German, Romansh, and Italian. The country’s population is approximately 8 million where foreigners constitute 23 percent of the population and has a life expectancy at birth estimated at 82.3 The nation’s literacy rate is 99 percent The Swiss customers normally do their shopping in bulk or one-stop shopping influenced by numerous trending changes in the social environment. Therefore, the increase in sale of non-food items by the company Tesco is added advantage because of their one-stop shopping experience offered (Berlemann and Freese 2013). The increase in number of female workers in the industry, the aging population characterizing the Swiss market, and the reduction in home meal preparation are the driving factors increasing the firm’s focus on value-added services and products. Furthermore, the Swiss market bears immense opportunities to the businesses focussed towards own-label share of the business mix, supply chain management, and other operational enhancements that lead to business improvements (Armstrong, Adam, Denize and Kotler 2014). Technological The country lacks viable natural resources but has a high research and development that constitutes approximately 2.9 percent of the GDP. About 45 percent of the population is employed in research and development The country’s rail network is the most dense across Europe The country’s areas of research include; computer science, biotechnology, climate research and renewable research, and microbiology The changes in technology are significant in the growth and expansion of numerous products sold by Tesco. The focus on research and development of products by the company is beneficial to both the customers and the company. Also, the incorporation of technology enables the personalization of services to customers enhancing convenience and high customer satisfaction (Yoruk and Radosevic 2000). Even though the firm uses advanced technology, the pool of research and development expertise and resources will enable the company advance customer service through its technologies including; electronic scanners and electronic funds, electronic point of sale, and electronic funds transfer systems. Legal Each canton forms its own tax laws and therefore there is the increased opportunity of tax haven An individual becomes a citizen through marriage or by birth The country has effective anti-corruption measures There is utmost respect for intellectual property rights and enforcement of the laws are consistent with international standards The country’s regulations are open to foreign investments and are transparent and administered effectively. The country’s overall tax burden is equal to 29.8 percent of the total domestic income (Berlemann and Freese 2013). Environmental factors Vast proportion of Switzerland’s territory is covered by woodlands The country has an extensive biodiverse environment The natural resources in the country include; salt and timber The country ranks among the top countries on the basis of Environmental Performance Index The electricity generation in the country comes from hydroelectricity 56 percent and nuclear power 39 percent The country has adopted massive recycling of resources with approximately 66 percent to 96 percent of biodegradable materials being recycled (Berlemann and Freese 2013). Strategic objectives The firm Tesco has its main objective of expanding its operations into Switzerland and increased is brand recognition in the Swiss market. The objectives are inclusive of; To increase its recognition in the international retail market To engender increasing profits while operating internationally, particularly from the Swiss market which bears immense potential for Tesco’s operations To expand its target market population in the Swiss market To increase the sales and brand awareness To enhance sales processes through upgrades and use of modern technology Tesco’s Strategic Options The strategic options available for adoption by the giant grocery retailer involves new product development and market development. New product development The residents of Switzerland have particular interests in their established food brands. Therefore, the focus towards own-label share of the business mix by Tesco would assist in the creation of the primary market for the new product development (Paliwoda and Thomas 2013). Market development The adoption of the market development strategy will ease the commencement of Tesco’s operation in the Swiss market for both food retail and non-food retail business. On the other hand, by adopting this strategy, the firm has opportunities in strategic alliances and joint ventures with the existing retailers in Switzerland. Therefore, the market development strategies would ensure the firm increases its revenues which allows for formation of other growth strategies (Cateora 2008). After the entry into the Swiss market, Tesco needs to differentiate from its competitors operating locally (Özsomer 2012). Therefore, the products and services offered by the company need to be innovative and focus on satisfying the needs of consumers. The innovations by the company should be extended to brand styling, packaging, and efficiencies in support services. This would result in increased satisfaction among customers and lead to the success of the newly operated retail store (Yoruk and Radosevic 2000). Strategic target positioning The company’s strategies for strategic target positioning includes; segmentation strategy, target strategy, and positioning strategy. Segmentation strategy The adoption of this strategy is to assist in particularization of the target customer market depending on the organization’s success or failures (Verbeke 2013). Initially, the firm will commence operations through a small store as it grows to larger stores in other areas. The segmented consumer market as the company expands are provided both food and non-food products. Due to the high sensitivity of Swiss customers regarding quality, segmentation of will enable the organization achieve higher quality standards. Targeting strategy The main objective of the targeting strategy is to ascertain the feasibility of Tesco’s business in the foreign market (Verbeke 2013). The company’s target market in Switzerland is inclusive of all age groups and encompasses every culture. The company aims to offer an extensive range of products to its target customer market adopting unique and well-planned strategies. In addition, the use of technology will allow the firm to monitor and track the trends and customer purchasing behaviour for better and improved service and product delivery (Doole and Lowe 2008). Positioning strategy The market positioning strategy is an essential marketing strategy focussing on product specification regrading product features and product brands that are close to its market competitor (Kotler, Keller, Ancarani and Costabile 2014). The consumption tends are important in indicating where immense focus should be placed and the provision of quality products at fair prices would cement the positioning strategy in a highly sensitive consumer market. Stakeholder expectations and needs The previous successes of Tesco in many countries indicates the critical assessment of the macro-environment factors prior to establishing business thereby minimizing risks. Even so, the company still faces dip in profits in certain markets such as the Japan and United States market. Despite the mix fortunes internationally, the success in other regions has been boosted by the firm’s prioritization of its stakeholders needs. Therefore, this indicates the dedication of the organization to its stakeholders irrespective of the country of operation. Also, Tesco ensures a solid relation within its network of distributors and suppliers. The focus of the company on customers is immense thereby focussing its initiatives in satisfying the prospects and needs of its customers. Implementation of the Strategic Plan The implementation of the plan to commence operations in the Swiss market is capital intensive. The costs incurred includes cost of the highly skilled labour, inventory costs, infrastructure costs, maintenance costs, costs related to suppliers, and other marketing related costs (Kotler, Keller, Ancarani and Costabile 2014). In addition, other expenses to be incurred in the strategic plan implementation would include; costs of middlemen such as transporter, warehouse, and sales service employees, salaries of employees, and promotional initiatives other than advertisement. It is imperative for the organization to develop a contingency plan that would minimize the risks in case of the occurrence of unforeseen events (Wood, Wrigley and Coe 2016). Also, the development of the international expansion plan should be prepared in ample time before entry into the foreign market so as to fully assess the viability of the business within the market conditions (Kotler, Keller, Ancarani and Costabile 2014). Also, considerations to the dynamic political, social, economic, technological, and environmental changes would be essential in the course of the implementation so as to enable the refinement of the strategy as business operation commences (Bickhoff, Hollensen and Opresnik 2014). Conclusion Overall, the international expansion initiatives by Tesco requires critical assessment of the market conditions to enable it develop effective and successful entry into foreign markets. The strengths of the firm involves its success in global operations illustrating the firm’s ability to expand geographically into other regions. The analysis in this report illustrates the attractive market opportunities in Switzerland that Tesco can exploit to its advantage. It is recommended that the company implements its strategy in accordance to its target and segmented consumer market so as to attract more customers and record successes. Recommendations The strategic plan implementation proposed in this report would assist Tesco in providing quality products and services to consumers in the Swiss market. Also, the company wold benefit from increased brand recognition and loyalty through the country increasing its profitability. In addition, the proposed strategic plan in this document will assist the firm as it expands internally in Switzerland. References Armstrong, G., Adam, S., Denize, S. and Kotler, P., 2014. Principles of marketing. Pearson Australia. Bayraktar, A. and Oly Ndubisi, N., 2014. 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