The world market has advanced from isolation from the other person by barriers to cross-border activities wherein distance is no longer an issue due to developments in travelling and telecommunication technology. Moreover, it is known that materials culture is starting to look similar as national economies are merging into an interdependent and integrated global economic system (Friedman, 2005). All these processes are linked and described globalisation.
The impact of globalisation has motivated companies to extend its operation across its home country in order to remain competitive in the challenging market environment. Among the innovator in the retail industry, Tesco PLC (Tesco) has used advantage of the existing environment by getting into the United States (US) for development purposes. The article will analyse Tesco's strategy in the US by analysing the impact of globalisation to the industry, evaluating the reasons and technique for internationalisation, the result and challenges faced in regards to the internalisation exercise.
Tesco is a United Kingdom (UK) structured international supermarket string, which has the major global sales and home market show sales. Based on its revenue, the business is the third largest retailer on the planet next to Wal-Mart and Carrefour (Data Keep an eye on, 2010). The key to Tesco's success is based on its low prices, high quality products and experienced customer support which overall has lead to carrying on growth of income to the business.
In 2006, Tesco released its intend to enter the united states market by starting small size grocery stores named Fresh & Easy Neighbourhood Market (Fresh and Easy). Tesco has decided on the less competitive market location on the western world seacoast, California, Nevada, and Az to steer clear of the highly competitive market. The store has started its operation alongside the circulation centres in 2007. Based on the latest financial statement in '09 2009, it was mentioned that Fresh and Easy is currently trading at loss.
According to Teece, Pisano and Shuen (1997), the success of a corporation highly be based upon the uniqueness of the business's resources and capacities in creating competitive advantages. The two main perspectives in the Resource-Based View (RBV) are the internal research of phenomena in a organisation and external analysis of the industry and its competitive environment (Collis and Montgomery, 1995; Eisenhardt and Martin, 2000).
The resources and capabilities are examined in conditions of value, rarity, inimitability and organisation (Barney, 1995). Furthermore, Carpenter and Sanders (2009:103) suggest that in turn for a business to gain competitive advantage, it will have resources and capacities that are valuable, exceptional, inimitable, non-substitutable and exploitable (VRINE model).
The value of the resources and features interacts with the market sources and will differ based on time and industry. The three fundamental market forces; scarcity, demand and appropriability decides the value of the resources and capabilities (Collis and Montgomery, 1995). To answer the question of value, company could evaluate whether its available resources and capacities are meeting the market demand. As for Tesco, it relies on its brand, supply chain features, store location and assorted product offering wherein all these components have satisfied the worthiness requirement, as it has been able to meet the demand in the food market. For example, the business has a strong brand image that is associated with good quality, reliable goods that represent excellent value (Data Keep an eye on, 2010).
Resources and capacities managed by Tesco are similar to other retailers but in terms of the brand and variety product offering is different them from the challengers. Tesco pays in depth attention in changing its brand through presentation and the promotion of 'every little worth' notion. The success of the company in terms of customer commitment depends on the loyalty greeting card system and customises way for every single customer. In RBV theory, Tesco can be characterised as a competitive parity company based on its valuable however, not exceptional resources and capabilities (Collis and Montgomery, 1995).
Tesco's strong position within the retail industry is due to its different approach in the service concept and introduction of various quality products. Moreover, it has competencies in its supply chain that damaged its functional level in the task routines. Rivals could imitate the said resources and functions but it is difficult to take action as the tacit amount of knowledge, time and huge investment is required (Hanan and Freeman, 1984) which in the meantime, Tesco will continue to gain its competitive advantages.
Based on the aforementioned evaluation, it is observed that Tesco has managed to exploits its resources and features that consequently provide competitive advantages to the company. Tesco's exploitation of its resources and features is shown in its market talk about and financial performance. Tesco currently manages about 30% of the grocery store market in the united kingdom with a turnover of 56, 910 million (Data Monitor, 2010). Moreover, with the aided competitive advantage, Tesco has managed to perform well in its international procedure.
The age of globalisation has started in the first 1970s because of the convergence of several politics, technological, interpersonal and competitive factors. Corresponding to Yip (1989), it is recognized as one of the most crucial business strategies as it is an activity which businesses create value by leveraging its resources and functions across borders. The topic on globalisation has been broadly talked about which resulted to different perspectives and quarrels. You will find two different ideas with regards to globalisation which are hyperglobalists and transformationalist theory.
Hyperglobalists theory argues that the globe is moving towards a worldwide world that is subject to massive economical and political process of change which is evidently identified by the lifestyle of a single global economy. Countrywide culture distinctions are largely seen by the intensifying powerful multinationals as versions in consumer desire is mirrored in the international marketing combination (Wall membrane and Rees, 2004:14). Because of this, the theory supports the globalisation in terms of successful allocation of resources through international trade.
In compare, the transformational theory argues that globalisation is a robust force impacting financial, social and politics environments which require uneven procedures with unpredictable effects somewhat than linear development to a predictable final result. Many have argued that globalisation tends to reinforce inequalities of ability both within and across land resulting in global hierarchies if privilege and control for a few but the monetary and interpersonal exclusion of others (Wall membrane and Rees, 2004:15). Therefore, the impact of globalisation is differently experienced across the globe.
Based on the above theories, it is believed that globalisation can act as a tool that could benefit every human being throughout the world. Even though the negative effect has been talked about and discovered, the same should not be overlooked and must be addressed for the good thing about mankind.
Yip (1992) has discovered the globalisation individuals predicated on the industry conditions. Each industry has its own degree of globalisation that depends upon the external motorists which are normally uncontrollable by the business or market environment.
In respect of the retail industry, technical factors play an important contribution to the motorists of globalisation. The technology change has impacted on the lower cost of travel and communication as well the unit cost of creation through economies of scale or the localisation of successful capacities and sourcing in low-cost economies (Lasserre, 2007:17). For example, the current electronic global marketplace wouldn't normally exist without the lifestyle of the global communication network including the World Wide Web. Moreover, the reduced cost transport has made shipping products around the world more economical, thereby helping in creating a worldwide market. In response to the changes, Tesco has were able to apply the technology to reselling through online which includes is impacted on the business's sales performance.
Moreover, as a result of globalisation, there is a convergence of consumer needs which includes increased the brand awareness of consumers worldwide (Yip, 1989). Urbanisation and industrialisation of societies are one of the reason why for convergence of customer behavior and needs. By having the same needs, consumers are bound to really have the same need that contributes to standardisation of products.
Meanwhile, the liberalisation of trade and ventures played an important factor in supporting the need of globalisation. It has therefore created a common market place and economical integration worldwide. Previously, there were rules and regulations that limit the Foreign Direct Investment (FDI) as to protect the local players. However, the scenario has modified and with the development of the free trade among nations, many companies got the benefit by doing cross-border assets to increase its market existence and success. In terms of Tesco, its original result was significantly tied to how big is its domestic market in the UK however now, it gets the chance to adopt benefits of economies of range by going global.
The trend in globalisation creates changes in the macro aspect of the surroundings. The change in the financial dimensions has leaded the population to enter world or global economy. Plainly, the changes could be seen in the emergence of global market, global competition and the integration of the economic. The impact of the essential changes is observed through the capital movements, concern on productivity and employment as well as introduction of the world current economic climate as a dominating economy product (Friedman, 2005). The ongoing and immediate globalisation of the world current economic climate suggest that globalisation of retailing activities is a significant management concern for suppliers nowadays and currently it is foresee to become more intensified soon.
The county examination framework provides an summary of the nationwide business environment in terms of opportunities and risks which permit companies to improve value creation and tactical fit because of its business. Ghemawat (2007) analyzed distance as the main of all costs and risks of conducting business in new markets and concluded that distance is more than geography; it includes proportions of culture, administrative and politics power, and economics. Therefore, in decision-making, businesses must take into account these dimensions of distance as its influences in various ways. CAGE framework is employed for the analysis as it offers further in-depth analysis on the united states in comparison to PESTEL framework.
The total populace of 301 million in US reveal a huge market opportunities that allow Tesco to develop its position as a world largest merchant. By penetrating the market, Tesco foresee a much better growth in conditions of its international growth. It is seen as a right move by Tesco to the previous expansions have proven to be successful. The operation in america will be similar to the UK due to the same vocabulary used as medium of communication. This leads to an easy option in executing business wherein the similar concept in the UK could be exported to the united states with reduced changes in adapting to the marketplace.
US have been a prominent global electricity in terms of economy, political, technological and social affairs and has a long enjoyed its status as a superpower over countries' insurance plan making (Data Monitor, 2010). It really is obviously seen from its economic point of view where the county is categorised as the largest economy on the planet which is back-up with developed monetary systems. This links to the process of entering the US market which is reinforced by a thorough legal framework for business entities that creates a positive investment environment. US have favourable plans to advertise Foreign Direct Investment. Furthermore, in the international industry, it has secured the support of most nations which allows it to immediate global policies. With all the stabilised politic environment, you can find absence of violence that ensures a basic safety business environment. All this factors have encouraged Tesco to pursue its goal in penetrating the united states market.
Based on the risk examination, it is determined that the key related risk to Tesco in america are financial, monetary and functional risk. In terms of financial risk, the fluctuation of the forex rate and inflation will definitely have an impact on Tesco's ability to use at an efficient capacity. As to reduce the risk, Tesco has decided to enter single market segments at the same time and measure the success before considering for further expansion. For the united states expansion, stores are exposed based on geographic region alternatively than going into different expresses, which allow Tesco to limit its exposure to a damage if the enlargement is unsuccessful. In the mean time, for the functional risk, problems related to logistic and stock will lead to inefficiency of production and performance.
The competitive environment entails factors that are highly relevant to an organisation's strategy. The industry-based view can be analyse using Porter's five forces as include it offers the overall composition rather than focusing on one aspect (Peng, 2009:35). The competition in america food market is powerful as they be competitive in terms of price, product and advertising. A few of Tesco's major competitors in america are Investor Joe's, 7-Eleven, Safeway, and Wal-Mart.
Tesco's Fresh and Easy operates within the retail industry that forces are driven in the industry would identify the strength and weaknesses of the company. There has been a significant development in the grocery environment in terms of size and market dominance of large players. Competitive rivalry is known as a high menace as other vendors are applying the same operation concept wherein ability has been built through working efficiency. Because of this, retailers have to be innovative to keep up and build its market show. Hence, Fresh and Easy has refocused its strategy based on price and value with added value components of good customer service (Times online, 2007).
High competition is a powerful force and stands as a strong barrier for new entrants who want to enter in the industry. For instance, it'll be problematic for new entrants to raise sufficient fund due to large fixed costs and highly developed resource chains. This is in line with Tesco's huge investment for Fresh and Easy in terms of advanced technology for stock control buttons systems (Euromonitor International, 2009). However, a higher level of product differentiation together with low priced and vibrant market revenue progress has enhanced the rivalry to the extent. Vendors in this sector are highly fragmented and for that reason sellers will put extensive obstacles to entry to ensure less competition in the market (Alexander and Korine, 2008).
The more standardised or undifferentiated the product, the lower the transitioning cost and therefore there's a high risk of the bargaining vitality of buyer. Buyer electric power acts to power the price down but because of the various choice of substitute products, vendors have the energy for the price environment. Therefore, in reaching customer's needs, customising service incorporate with low prices, regular promotion and better alternatives have empowered Fresh and Easy to control and retain its customer bottom.
There is a low menace to the bargaining vitality of suppliers as often dealer such as Fresh and Easy dictate the price to be paid to the provider as if the suppliers will not agree on the price, they'll be left without retailer. The partnership with the suppliers has impacted the restriction of the strategic freedom for the company which influences its margin. As a result, the makes of the competitive rivalry will certainly reduce the profit margins for vendors and suppliers.
There is a risk of consumers turning to substitutes because of the variety of alternatives of products on the market. The industry has change overtime wherein small chains of convenience stores are rising which provides more alternative choices to the consumers. In response to this tendency, Tesco has started to open Fresh and Easy predicated on small-scale functions in local town and city centres.
The biggest dangers for Tesco in regards to its Fresh and Easy stores will be the rivalry and bargaining electric power of customers. The retail industry in america is practical which leads to healthy success provided the business continuously boosts itself and it is adaptable in the challenging market.
Due to competition and the impact of globalisation, companies are expanding its operation to other countries beyond your home country which indeed require that request of the global strategy. Relating to Peng (2009:18), global strategy is thought as strategy of organizations around the globe which particular form of international strategy which is characterised by the production and circulation of standardised products and services on an internationally basis. Tesco's desire for development to the US using its Fresh and Easy stores are simply just predicated on market and invention seeking as its main goal is to attain higher income as well as future organisational learning and growth.
Ghemawat (2007) claim that in order to boost sales and market show, companies have to maximise its local relevance. Therefore, by getting into the US retail market naturally has provided advantage to Tesco to start fresh by creating a highly distinctive new store principle. This way allows the business to control its capital expenses and learn from experience because of its future growth. Fresh and Easy is a little format convenience grocery stores focusing on fresh foods and ready foods at low price. The strategy to break into the united states market is dependant on three key areas: affordability, freshness and convenience (Data Keep an eye on, 2010). By focusing on convenience store, Fresh and Easy will not be directly competing with merchants like Wal-Mart and meanwhile will differentiate itself from the larger format traditional vendors.
In addition, Ghemawat (2007) claim that proper choice requires some extent of prioritisation which the AAA Triangle Model can help the company in doing this. It is suggested that it is impossible to hire three strategies but companies normally should give attention to own or two in wanting to build competitive advantages. Due to the matured and powerful competition in the US retail industry, it was problematic for Fresh and Easy in terms of arbitrage. Therefore based on the said model, Tesco global strategy was predicated on a minimal version which Fresh and Easy stores are designed, by adapting to the local responsiveness and aggregation on standardisation of product to take advantages of current economic climate of level.
International strategy adopted by Tesco for Fresh and Easy is similar to its Tesco Express approach in the UK, featuring fresh produce, liquor and an in-store bakery with minimal adaptation to the US consumers requirement (Times online, 2007). This is range with the integration-responsiveness framework which indicates the replication of the strategy by using its primary competency and specific benefits wherein pressure of local responsiveness and pressure for global efficiency are both low (Peng, 2009:353). By using this strategy, expansion process will be at a slower set alongside the global retailers however the advantage of this plan is it offers a greater learning effect and broader knowledge-based to the company (Palmer, 2005).
The minimal adaptation incorporated is related to the store format wherein larger pack sizes and even more space allocation on iced food to cater for numerous kinds of product selection which is dependant on the US consumer's choice (Euromonitor International, 2009). In the meantime, the chain uses a straightforward "everyday low prices" strategy which is 15% cheaper compared to other competition (Finch, 2009). The lifestyle of Fresh and Easy has generated recognition by the rivals wherein competition have better its products offering and seeking for the right location to be able to contend.
In conditions of aggregation, it uses one brand fit all strategy which was argued by consumers as there are no differentiation among the store brand products on value price product, natural and organic and natural and high grade products. In lieu of this, Fresh and Easy didn't manage to create consumer perceptions on the brand name and subsequently afflicted its sales performance.
In conditions of success, Fresh and Easy has yet to make benefit from its operation. There exists uncertainty for the business to achieve success soon as its growth process has delayed as compared to its initial plans due to economic crisis which especially affected the consumers in some of its first few store opened in 2007. Therefore, it will definitely take longer period for Fresh and Easy to achieve its aim for goals.
It was noticed that Tesco's Fresh and Easy stores use one brand fits all strategy for its products and marketing strategies (Times online, 2007). This approach is not relevant to the united states market as consumers have a solid perception of brands (Euromonitor International, 2009). It has to lead to dilemma to consumers as there is no product differentiation between special discounts or value priced, natural and organic and natural and high grade products in the stores. Fresh and Easy should divide its brands a lot like its UK approach i. e. finest for top quality products and value for reduced products that will lead to a better merchandising, prices and marketing strategies. This assist consumer to acquire different brand names for every category than price centered items.
Further analysis is required in analysing the improvement of Fresh and Easy in america. By doing so, a decision can be made either to leave the marketplace and develop to other potential market segments. Based on Tesco's background on its international procedure, the business has successfully penetrated the market well which is reflected in the financial performance. Strategy formulation is an important aspect as it is a continuing learning process which enables Tesco in planning for its future extension. Tesco's strategy for expansion to the US seems flawed as a new global strategy was applied although in-depth research was created before the extension.
Tesco should maintain its existing technique to enter market through joint venture or acquisition with a preexisting player in the market as it is observe as a powerful manner for extension (Palmer, 2005). Moreover, Tesco should take notice that other companies which have attemptedto get into US highly competitive market have failed due to the reason of not understanding the psyche of the American consumer. Tesco's daring move to the US without a partner seems unreasonable as the presence of somebody will provide essential knowledge for local business environment and consumer ethnicities. This indeed witnessed when Tesco forget about on the interpretation of a convenience store in US which varies from the UK. In america, convenience store is associated with petrol stations wherein the united kingdom, could it be a store. Furthermore, Kay (2009) implies that results from the US consumers suggest that individuals are less loyal to the US as purchase are created based on the cheapest price at any stores. Based on this dissimilarities, Tesco didn't managed to create the British model in the US market although is foresee as a competitive advantages in the retail industry.
During days gone by years, there has been a rise in the level of international investment and as the process carries on, it's important to understand the training and experience gained from the extension exercise. It really is undeniable that by stepping into new market segments like US, it serves as you of the main drivers for the business's revenues and growth strategy. However, Tesco must evaluate its strategy in order to support its performance in the US. One of the mistakes made by Tesco's US growth is thinking that exporting successful business model to overseas country is a fairly easy process. Although Tesco has its own competition advantages, the facet of culture shouldn't be overlooked as it plays an important role in guaranteeing the success of the business enterprise (Ghemawat, 2007).
The success of a technique depends on the durability in conditions of learning, knowledge and suitability.
Tesco would have to apply the whole lesson learned from the development exercise as future enlargement would depend on the business's capacity to recognise the resources for international learning of the knowledge gained. This may definitely allow Tesco to move, adapt and find out fast for better performance in the US market.