Strategic Analysis of Tesco PLC

Tesco is one of the world’s major retailers. The company was founded in 1919 in Edgware, London, England (Tesco, 2014). During its history, the company has experienced consistent growth. Its key markets include the United States, the European Union, and India and China, each of which are emerging economies. This report evaluates the company’s strategies, managerial effectiveness, and prospects for future growth.

Tesco’s leadership is motivated by the company’s vision and mission, which is to be a global leader in retail. The company offers competitive pay to its employees, rewards performing workers, trains and develop employees on new skills, and has academies that nurture the employees for future managerial roles in the company. All these efforts boost employee morale thereby increasing their productivity (Turner & Wilson, 2006).

Tesco uses democratic leadership technique which encourages participation of employees in the making of the company’s strategic decisions (Lowe & Wrigley, 2010). Information is passed from the top management downwards to the workers, and the contribution of every individual is considered in making important decisions.

The flexibility of leadership styles in the company facilitates its growth as it ensures the employees are motivated. The company has also established customer management where the customers’ concerns are addressed to improve service delivery.

Generally, the leadership of Tesco is effective and is one of the company’s core competency with which it attains an edge over its competitors.

Competitive Analysis of Tesco PLC

Tesco PLC’s competitive advantage can be analyzed using the PESTEL and Porter Five tools.

PESTEL Analysis

Political factors. The company experiences favorable political environments in the various countries of its operation with nations such as China having policies that promote foreign direct investment. The political ambiances in these countries are also stable (Tesco, 2014).

Economic factors. The current economic environment is unfavorable mainly due to the 2009 global financial crisis. The sovereign debt issues have threatened business in the United States market and the entire European markets. Quantitative easing has also impacted negatively on businesses by creating inflationary pressure on products and assets bubble in emerging economies. The long-run economic environment is believed to attain stability and full recovery from the economic shock (Lowe & Wrigley, 2010).

Socio-cultural factors. There is the diversity of culture in the European, Asian and the United States markets where the company operates. Cultural diversity prompts Tesco to adopt global thinking while acting local to ensure efficient organization management (Turner & Wilson, 2006). The consumers in the global markets are becoming more informed and as such the products quality and prices are essential strategy point. There is also the rise of the disposable incomes and consequently an increasing purchasing power of the consumers. There is also increasing number of aging people who cannot be secluded from the markets.

Environmental factors. Consumers and governments have increasingly paid attention to the issue of global warming and irresponsible corporate practice in recent times (Lowe & Wrigley, 2010). The companies that do not pay attention to these problems can only enjoy short-term profits.

Technological Factors. The market is characterized by technological innovations and inventions. E-commerce, e-business and online marketing are becoming common (Tesco, 2014). The company must adapt to these technological changes to maintain the competitive level in the market.

Porter Five Forces

This framework is used to analyze the competitive forces in the markets.

Rivalry of firms. The global industry is oligopolistic and dominated by big firms such as AEON, Carrefour, Metro and Wal-Mart among other companies. There is intense competition in the market in terms of price and customer satisfaction. Rival firms use various techniques to poach customers. Maintaining Tesco’s competitive advantage in the market becomes harder with the stiffening of the competition (Lowe & Wrigley, 2010).

Bargaining power of buyers. Stiff competition and availability of alternatives give buyers high bargaining power. Consumers tend to be highly responsive to changes in prices.

Bargaining power of suppliers. Large retailers such as Wal-Mart, Carrefour, and Tesco benefit from the high bargaining power they have against the suppliers.

Threat of substitute products. Large retailers such as Tesco experience little threats of substitute commodities as they benefit from economies of scale and have comprehensive product portfolios.

Threats of new entrants. There is moderate threat of entry of other firms into the industry as a result of the high competition level; in the industry.

Strategies of Tesco PLC

The strategies of Tesco can be understood by conducting a SWOT analysis on the company.

SWOT Analysis

Strengths. One of the strengths of Tesco is its vast distribution network which provides the company with essential economies of scale. The economies of scale enable the company to offer its commodities at relatively lower prices. The business thrives on its excellent internal marketing strategy of the company. Tesco also has loyalty card scheme that ensures customer loyalty (Turner & Wilson, 2006). Employee satisfaction, motivation, and development practiced in the firm contribute to Tesco’s success.

Weaknesses. Overdependence on the debt to foster the company’s growth portrays Tesco’s weakness as it makes the company vulnerable to market shocks (Tesco, 2014). Also, the latest inefficiency in the supply chain presents another weakness of Tesco.

Opportunities. Opportunities for Tesco include the emerging economies such as India and China with the good environment for business. Also, the online purchasing trends present an opportunity for Tesco to expand its global market (Tesco, 2014).

Threats. Perhaps the greatest danger facing Tesco is the fragility of the European markets that still suffer the shocks of the global recession of 2009 (Turner & Wilson, 2006).

Future Growth Strategy

From the analysis of both internal and external environment of its operation, Tesco should adopt several strategies to ensure it attains profitability and sustainable growth in the years to come. To begin with, the company should simultaneously enhance its core competencies (customer satisfaction and low costs). The company should also focus on tapping new customers from the external markets (Tesco, 2014). This strategy can be facilitated through strong online marketing campaigns. Tesco should adopt an expansion strategy that targets emerging markets of Asia, especially India and China. These markets have large populations and would compensate the unpromising western market. The company should adopt proactive ethical corporate practices to build customer trust and cement brand loyalty in the global market. The growing number of aging populations in Europe requires that Tesco creates a product portfolio that considers the old. This move would further enhance the loyalty and trust of customers (Tesco, 2014). The company should also develop local talents to aid in the serving the respective domestic consumer as they understand their cultural characteristics of the local consumers.

Another important strategy of the company is to recognize its weaknesses. First, Tesco should carefully use the leverage of debt for growth as this would subject the company to financial losses during economic recessions when customers reduce their spending (Tesco, 2014). The company should also remain conservative in its management of finances as the European markets are currently unpredictable and the emerging economies are faced with the hard landing challenges and assets bubbles. Enhancing the loyal card scheme would help in retaining the company’s customers. The recent reduction in the profits of the company should be investigated and recommendations implemented. Besides, the company should improve the supply chain efficiency to ensure it minimizes its operating costs and increase its profit margins.

References

Lowe, M., & Wrigley, N. (2010). The “continuously morphing” retail TNC during market entry: Interpreting Tesco’s expansion into the United States. Economic Geography, 86(4), 381-408.

Tesco, P. L. C. (2014). Annual report and financial statements 2014. TESCO http://www. tescoplc. com/media/417/tesco_annual_report_2011. pdf.

Turner, J. J., & Wilson, K. (2006). Grocery loyalty: Tesco Clubcard and its impact on loyalty. British Food Journal, 108(11), 958-964.