Tesco: A Corporate Portfolio - Malley
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Malley 1
Tesco: A Corporate Portfolio
By: Taylor Malley
Managing the Multinational Corporation
Dr. David PalmerMalley 2
Table of Contents
I. Executive Summary ……………………………………….…...Page 3
II. Trade Barriers……………………………………………………Page 4
III. Technological Advances……………………………………….Page 4
a. Information Technology………………..…………………...Page 4
b. Retailing Technology..…………………………………….. .Page 5
c. Operation Systems Technology……………………………Page 5
d. Recommendations………………………………………….Page 6
IV. Adapting to Local Markets……………………………………..Page 6
a. Retailing Services…………………………………………...Page 6
b. Marketing Strategies…………………………………………Page 8
V. Mistakes of Tesco………………………………… …………….Page 8
VI. Fixed Costs……………………………………………………….Page 9
VII. International Trade & Comparative Advantage………...……Page 10
VIII. FDI Charts………………………………………………………Page 11
IX. FDI Evaluation………………………………………………….Page 13
X. Political Factors…...…………………………………………….Page 14
XI. Operation Pressures …………………………………………..Page 16
XII. Local Adaptations……………………………………………….Page 17
XIII. Strategy……………………………….…..…………….……….Page 18
XIV. Business Development Strategy…….……………….……….Page 18
XV. Success of Strategy………………………….………………...Page 20
XVI. Human Resource Management…………….………………...Page 20Malley 3 Executive Summary Over the past 20 years, Tesco has brought its corporations to new heights in the supermarket industry by currently placing as the number 1 supermarket in the UK and number 3 worldwide amongst competing grocery chains. Their surge of success has much to do with advancing the corporations technology, such as CRM (Customer Relationship Management) software, this includes the highly successful Tesco Clubcard. Allowing Tesco to build their information technology with customer databases allowed them to develop their stores matching their customers’ wants and needs, which is critical to the industry. Factors such as declining trade barriers and adapting to local Tesco environments by incorporating tactics such as, comparative advantage theory, allowed Tesco to profit in their global products and establishments in the foreign market. This also has allowed Tesco to operate with low fixed costs but as a supermarket company, Tesco experiences high variable costs including components such as production costs, suppliers etc… As Tesco’s foreign direct investment has substantially increased over the past ten years. By 2009, Tesco invested a little over £46 million pounds combining inward and outward investment. By 2009, Tesco’s outward investment totals were 35 percent of their total investments, demonstrating Leahy’s clear direction of wanting to spread the corporation further into the foreign markets. Much of Tesco’s success can easily be contributed to the outstanding leadership direction of Sir Terry Leahy. For almost 14 years, Leahy has been the CEO of the Tesco Corporation, launching the company into tremendous success not only for the UK but across the globe. There has been endless discussion as to what the future success of Tesco entails since Leahy will be retiring in Spring 2011. There has been much debate if Tesco will be able to continue to dominate in the foreign markets, as their ventures such as the United States Tesco’s Fresh and Easy stores, are presently continuing to lose profit with little signs of improvements. Philip Clarke will be stepping in as Tesco’s new CEO and his first year decisions will be crucial as to whether Tesco should continue or pull out of the American markets.
Malley 4
Trade Barriers
Tesco supermarket is one of the largest food retailers across the UK and
by 2010 they have expanded their stores across 14 other countries including
Asia, Europe and the United States. The decline of trade barriers across the
globe has allowed Tesco not only the ease of expanding their business
worldwide but incorporating global products. This has also allowed for the
company to establish a fair trade system of their goods while maintaining better
relations with their suppliers 1.
Technological Advances
During the 1970’s and 1980’s, Tesco was barely making profits on their
chain until Sir Terry Leahy stepped in as CEO. Recognizing the company
needed a complete makeover, Leahy quoted as his first step, “Know you
customers, know your store.” Technology has helped provide Tesco with its
global success through:
I. Information Technology
a. Customer Database
i. Tesco Clubcard – The Tesco Clubcard has revolutionized
Tesco’s customer service operations. The Clubcard
gives Tesco direct access to the customer’s shopping
behaviors and on how to improve the store’s products to
match the customers wants and needs.
ii. By building this database, Tesco was able to recognize
their errors and fix them accordingly.
x For example, customers were more inclined to
purchase a more expensive version of their
“normal” product (ex: wine) during the holiday
season. This allowed the company to expand
1
Tesco PLC - Country Highlights. Accessed on 14 September 2010
http://cr2010.tescoplc.com/country-highlights.aspxMalley 5
their wine selection to include a fine wine
selection 2.
II. Retailing Technology
The company’s ability to adapt and integrate technology has
lead to significant increase in company profits and a large
consumer base. The Tesco Corporation has tailored technology to
their needs by incorporating:
a. Tesco.com
x Initiated in 2000 and obtains 1 million active
users in the UK.
x By 2009, 50 percent of Tesco’s customers
used online grocery shopping.
b. Tesco Telecoms
c. Tesco Clubcard
d. Self-checkout machines
These technology services have given the company the
opportunity to branch out to their consumers shopping needs in a
faster, more efficient climate 3. Recently in August 2010, Tesco
launched the first “drive –thru” supermarket in United Kingdom.
Allowing their “time-conscious” consumers who cannot wait for their
delivery of goods, allows them the convenience of online grocery
shopping with the option of the store’s drive-thru pick up service 4
III. Operation Systems Technology
Through the use of electronic shelf labeling, Electronic Point
of Sale(EPOS) and Electronic Funds Transfer Systems(EFTPOS)
2
Rigby, Elizabeth. “Fresh Horizons uneasily scanned,” 20 September 2010. Available at
www.ft.com/insidetesco
3
Tesco PLC - Retailing Services. Accessed on 15 September 2010
http://www.tescoplc.com/plc/about_us/strategy/services/
4
“Tesco Trials Nations First ‘Drive-Thru’ Supermarket Service,” 23 August 2010.
Accessed on 15 September 2010 http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-
23/Malley 6
allows the corporation to keep a better track of their inventory
goods. In turn, this notifies its employees the correct stocking
measurements while, also corresponding to their suppliers what
goods are in demand 5.
IV. Recommendations
Tesco.com has proven to be a success for the corporation
but currently is only operating in the United Kingdom, the Republic
of Ireland and South Korea 6. For Tesco to maintain and improve
their business it would be beneficial for all their foreign stores to
incorporate online shopping for all their customers.
Adapting to Local Markets
As Tesco stores continue into global markets, it is essential for Tesco to
alter to the specific consumer market. In order to accommodate to the customer
Tesco’s adjustments are made through their retailing services and marketing
strategies.
I. Retailing Services
a. Cultural Tastes
By using comparative advantage theories, each Tesco branch
can adhere to each country’s specialized products. Each
country’s consumers maintain specific staple products that
Tesco must be able to adapt to their consumer’s preferences
when exporting their products to their global branches. Such
5
Friedlos, Dave. “Tesco to extend electronic labeling,” 13 July 2006. Accessed on 14
September 2010 http://www.computing.co.uk/computing/news/2160215/tesco-extend-
electronic
6
Tesco PLC - Retailing Services. Accessed on 15 September 2010
http://www.tescoplc.com/plc/about_us/strategy/services/Malley 7
as, incorporating increased levels of curry products in India or
enlarged rice products in China 7.
b. Cultural Shopping
Not only does taste affect consumer’s choices but consumer’s
shopping habits.
x Shopping Forms
o Tesco’s India branches are “cash and carry”
stores, which sells its products by bulk to its
wholesale consumers 8.
o Tesco’s international stores located in South
Korea and China, these branches are
“hypermarkets,” which not only incorporate a
large variety of food products but a very large
amount of non-food products as this consumer
base prefers to do all their shopping at one
store 9.
x Interactive Shopping
o In China, fish is a staple product to the
consumer and is sold in a non-western
manner. Where as instead of packaged fish,
live fish is placed in a tank and the customer
catches’ their own live fish 10.
x Organic Shopping
o Tesco branches in Japan must rotate stock
products constantly as these customers will
buy fresh items and produce several times
throughout the week 11.
o In Thailand, Tesco branches incorporate a
“Fresh Market Hall,” where local vendors sell
7
Corporate Watch. “Tesco: A Corporate Portfolio.” Accessed on 21 September 2010
http://www.corporatewatch.org.uk/?lid=252
8
“Being Successful in International Markets-New CEO of Tesco is Model Example.”
Accessed on 20 September 2010 http://blog.communicaid.com/cross-cultural-
training/being-successful-in-international-markets-–-new-ceo-of-tesco-is-model-example/
9
Corporate Watch.
10
“Being Successful”
11
Corporate Watch.Malley 8
fresh produce and local specialties. Thus,
Tesco has achieved being the number 1
grocery competitor in the Thai market by
adapting to its customers 12.
II. Marketing Strategies
Tesco’s marketing strategies vary between countries to adapt to its
customer base. For instance, the Tesco Clubcard is incorporated
in many of their branches worldwide but have operating differences
between countries. For example, Tesco’s South Korea branches
offer clubcard points to customers who travel by bicycle to their
stores 13.
Tesco’s first quarter sales of 2010 increased 8.2 percent as international market
revenue rose 11.9 percent 14. To continue growth and expansion in the food
service industry, Tesco must rank the importance of adapting to their local
branches is critical. Thus on a scale from 1 to 10, Tesco would rank at a high 8.
Mistakes of Tesco
In 2007, Tesco launched its supermarkets in the United States as a
convenient store, Tesco’s Fresh and Easy. Since its opening, these stores have
received poor performance levels and non-profitable returns. This may be
attributed to not fully understanding its American consumer base or to the global
recession. Leahy is still hopeful that stores will turn around and make a
comeback in the United States. The issue that might even be of bigger
12
“Tesco Expansion boosts Thai market growth,” 2 April 2003. Accessed on 20
September 2010 http://www.foodanddrinkeurope.com/Retail/Tesco-expansion-boosts-
Thai-market-growth
13
Corporate Watch. “Tesco: A Corporate Portfolio.” Accessed on 21 September 2010
http://www.corporatewatch.org.uk/?lid=252
14
“Int’l Growth will drive Tesco’s Long-Term Success,” 15 June 2010. Accessed on 21
September 2010 http://www.hemscott.com/news/comment-archive/item.do?id=98991Malley 9
consequence is current CEO, Sir Terry Leahy, will be retiring in 6 months,
leaving this issue unresolved and into the hands of a new CEO 15.
Fixed Costs
Tesco’s 2009 Costs
Fixed Costs £m Variable Costs £m Total Costs £m
2,514 50,109 52,623
Tesco’s corporation operates on a low fixed costs platform due to the high
variable costs associated with the company. These fixed costs include building
permits including rent and utilities, executive salaries and manufacturing costs
such as land maintenance and transportation device maintenance. About 95
percent of Tesco’s costs are variable costs due to production costs including
suppliers and hourly employees wages 16.
British Airways 2009 Costs
Fixed Costs £m Variable Costs £m Total Costs £m
694 220 914
The supermarket’s industry overhead is not as severe as the air
transportation industry. For example, British Airways must accommodate their
business strategy accordingly to high fixed costs factors, which account for 75
percent of British Airways total costs. These fixed cost factors include fueling,
aircraft maintenance, runway fees and government taxations. These fixed costs
are not only expensive but the airline industry is easily affected by the high and
15
Rigby, Elizabeth. “Fresh Horizons uneasily scanned,” 20 September 2010. Available
at www.ft.com/insidetesco
16
Tesco plc. “Annual Reports and Financial Statements 2009,” 5 October 2010.
Available at: http://www.tescoplc.com/plc/ir/ar/archive/ar2009/Malley 10
low fluctuating demand periods 17. Thus, Tesco’s fixed costs are low compared to
the airline industry.
International Trade
As the Tesco corporation continues to grow and expand their stores into
foreign markets has led for a necessary movement of understanding international
trading policies. To maintain low operating costs, Tesco must comprehend and
practice comparative advantage theories for their business.
x Using Ricardo’s comparative advantage theory is beneficial for Tesco to
use in the production and exporting of goods to each country. This will
further educate the company as to which goods should be bought from
local vendors and what needs to be exported in for the specific store.
o For example, Japan has a lower cost production in producing rice
thus it would be cheaper and more efficient for Tesco to buy rice
from Japanese wholesalers than exporting it into the country.
o In China, Tesco can produce part of their clothing line fabrics
specifically for outdoor and extraneous labor cheaper than in India.
In India, Tesco produces their more ornate fabrics than China
because it can be done faster and cheaper 18.
As Tesco develops in foreign markets, it is critical for the company to
practice efficient international trading and profit from using the specialization
techniques used in comparative advantage theories. This is done control costs
to a minimum and keeping prices low for their consumers.
17
British Airways. “Annual Reports and Accounts,” pg. 71 4 October 2010. Available at
http://media.corporate-ir.net/media_files/IROL/69/69499/BAI_AR_2010_final.pdf
18
Hall, James. “Tesco’s International Sourcing.” Telegraph. 23 February 2009. 28
September 2010. Available at
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-
International-Sourcing-the-machine-behind-the-machine.htmlMalley 11
Foreign Direct Investment
I. Investments 1
Tesco's Investments over 10 Years
50,000
45,000
40,000
35,000
30,000
Total Inward Investment £m
25,000 Total Outward Investment £m
Total Investment £m
20,000
15,000
10,000
5,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
Total
Total Inward Outward Total
Investment Investment Investment
£m £m £m
2000 5,713 1,145 6,858
2001 6,720 1,476 8,196
2002 7,131 1,995 9,126
2003 8,445 2,851 11,296
2004 8,990 3,090 12,080
2005 9,243 3,656 12,899
2006 15,367 7,082 22,449
2007 16,630 8,177 24,807
2008 19,538 10,626 30,164
2009 29,962 16,091 46,053
19
19
Tesco plc. “Annual Reports and Financial Statements 2000-2009,” 5 October 2010.
Available at: http://www.tescoplc.com/plc/ir/ar/archive/ar2009/Malley 12
II. Investments 2
% Values of Tesco's Investments
90.00
80.00
70.00
60.00
50.00
% of Inward Investment
% of Outward Investment
40.00
30.00
20.00
10.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
% of
% of Inward Outward
Investment Investment
2000 83.30 16.70
2001 81.99 18.01
2002 78.14 21.86
2003 74.76 25.24
2004 74.42 25.58
2005 71.66 28.34
2006 68.45 31.55
2007 67.04 32.96
2008 64.77 35.23
2009 65.06 34.94
20
III. Investments 3
20
Tesco plc. “Annual Reports and Financial Statements 200-2009,” 5 October 2010.
Available at: http://www.tescoplc.com/plc/ir/ar/archive/ar2009/Malley 13
% Change of Tesco's Investments over 10 years
100.00
90.00
80.00
70.00
60.00 % Change of Total Inward Investment
% Change of Total Outward
50.00
Investment
% Change of Total Investment
40.00
30.00
20.00
10.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
% Change
% Change of of Total % Change
Total Inward Outward of Total
Investment Investment Investment
2000
2001 17.63 28.91 19.51
2002 6.12 35.16 11.35
2003 18.43 42.91 23.78
2004 6.45 8.38 6.94
2005 2.81 18.32 6.78
2006 66.26 93.71 74.04
2007 8.22 15.46 10.50
2008 17.49 29.95 21.59
2009 53.35 51.43 52.68
21
Over the past 10 years, Tesco’s investment strategy has been very
efficient and effective. By obtaining financial data from Tesco’s annual corporate
reports the observer will notice by the end of the decade Tesco increased it’s
total investment projects by almost 40 million pounds (See Investments 1). As
the company gained profit and secured the “Core UK” business strategy, Leahy
21
Tesco plc. “Tesco Annual Reports and Financial Statements 2000-2009,” 5 October
2010. Available at: http://www.tescoplc.com/plc/ir/ar/archive/ar2009/Malley 14
acquired and expanded Tesco supermarkets across global markets. Thus,
increasing outward investment by 18 percent (See Investments 2). In 2009, as
European markets decreased due to the global economic conditions, Tesco’s
Asian markets elevated as Tesco acquired 36 stores in South Korea allowing for
a profit turnover of 11 percent 22. In 2006, Tesco’s investment projects nearly
doubled and the percent change of outward investment growth advanced 93
percent (See Investments 3), due to Leahy preparing to open “Tesco’s Fresh and
Easy” in the US market acquiring almost half of outward investment funds23.
Although as Tesco continues to lose profits in the US market, reports state Tesco
is hopeful to break even by the fiscal year 2012 and plan to open almost 400
stores throughout the next two years in California 24.
Political Factors
Tesco’s inward investments have undergone scrutiny as the corporation
continues to expand and grow across the UK. Tesco’s ability to capitalize on
many of the UK’s land banks to establish more stores across the area developing
into “Tesco Towns 25.”
I. Political Contributions
x Government parties, especially the Labour Party, have come under
attack for letting superstore grocery store chains, such as Tesco,
monopolize and bully small businesses in the UK. In 2003, Tesco
22
Tesco plc. “2009 Annual Report and Financial Statements,” pg. 22. 5 October 2010.
Available at: http://www.investis.com/plc/storage/tesco_review_09.pdf
23
Tesco plc. “2006 Annual Report Summary and Review,” pg. 7. 6 October 2010.
Available at:
http://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_20
06.pdf
24
Felsted, Andrea. “Tesco expects US arm to break even,” Financial Times. 6 October
2010. Available at: http://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-
00144feabdc0.html
25
Howker, Ed. “The Big Question: Is Tesco now to powerful in Britain, and can it’s
growth ever be checked?” 5 March 2009. The Independent. 19 October 2010. Available
at: http://www.independent.co.uk/news/business/analysis-and-features/the-big-question-
is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlMalley 15
has donated a little more than £20,000 pounds between the Labour
and Liberal Democrat parties. Even Ursdaw, Tesco’s prominent
union for their workers, were only given £16,000. As for the rest
£5,502 was allocated to the Conservative Party, £1, 300 to the
Plaid Cymru, £1,203 Fianna Fail 26.
x Not only has Tesco made sufficient political contributions, but has
hired many prominent political advisors as key employees for the
company. For example, Philip Gould, one of Tony Blair’s chief
advisors, was hired to improve Tesco’s lobbying practices giving an
extreme advantage to obtain government insight.
II. Committees
x During the early 2000’s, the Tesco corporation had members sitting
on six different government committees. This was a significant
increase compared to their other supermarket competitors, thus
coining phrases such as “Tescopoly,” to develop as competitors
were becoming more jealous of the market share Tesco was
monopolizing 27.
x Local Planning Commissions in the UK have tried to control
Tesco’s acquisition of numerous land banks to try and stimulate
local markets, example convenience shops. This has been
unsuccessful as these commission officers’ terms are very short
and the planning requests take longer than most officers can finish
a term, thus permission is usually always granted to Tesco 28.
III. Millennium Dome
x In 1998, The Observer, speculated Tesco donated £12 million to
the new government project, The Millennium Dome, as a “quid pro
26
Corporate Watch UK. “Tesco: A company profile.” October 2004. 19 October 2010.
Available at: http://archive.corporatewatch.org/profiles/tesco/tesco3.htm
27
Howker, Ed. “The Big Question: Is Tesco now to powerful in Britain, and can it’s
growth ever be checked?” 5 March 2009. The Independent. 19 October 2010. Available
at: http://www.independent.co.uk/news/business/analysis-and-features/the-big-question-
is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.html
28
Howker, Ed.Malley 16
quo” situation. At the same time, legislation was undergoing for a
tax to be stipulated on car parks for shopping centers, which would
cost Tesco almost £40 million pounds. After the donation was
made, the tax fell through and was not passed 29.
It is a question of power and how much should be allowed and what is
deemed unfair. Tesco’s practices are of a strong, independent company who
has developed the supermarket industry as a thriving business. Should Tesco
be punished for giving consumers the option of either buying from their store
instead of local stores, ultimately it is the consumer’s decision where they shop
and many consumers cannot argue with Tesco’s low costs and wide product
selection.
Operation Pressures
i. Tesco generally operates with low cost pressures running business
operations, but maintains high cost pressures from consumers to ensure
that product prices remain low. Currently Tesco has had some struggles
with sustaining their low prices to consumers as the recession increased
inflation amongst various countries, thus leading to a difficult trading
market 30.
ii. Tesco faces pressures more from their consumers and base success off
of customer retention. Hence, the initiation of Tesco’s loyalty program, the
Clubcard to act as a switching cost for the company. The Clubcard gains
access to important information while providing substantial incentives to
customers allows for high consumer retention in their market. By creating
incentives in this program, promotes Tesco’s products beyond groceries,
29
Corporate Watch UK. “Tesco: A company profile.” October 2004. 19 October 2010.
Available at: http://archive.corporatewatch.org/profiles/tesco/tesco3.htm
30
The Guardian. “Tesco Suffers due to falling food prices.” 15 June 2010. Accessed on
8 November 2010 at http://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-
falling-food-pricesMalley 17
opening consumers to all of Tesco’s markets, such as financing, telecom
mobiles and non-food items 31.
Local Adaptation
i. Tesco’s working practices remain the same across countries. Through
their supply chain, management and processing tasks are completed in
the same manner. When entering the global market, Tesco formulated
their operations and technology as “Tesco in a Box,” to allow for
implementation ease across countries. This contains technology for store
inventory purposes, Tesco’s Clubcard etc32.
ii. Although set up is somewhat simplified, Tesco’s main concern is adapting
to the local market of consumers. The pressure to meet customers needs
are very high and a must for Tesco to succeed in that market.
Adaptations include not only considering food and cultural tastes amongst
countries but different types of shopping stores.
a. In Asia, Tesco implemented “hypermarkets,” which are mega
supermarkets that carry an equally high amount of food and non-
food items. In the United States, “Fresh and Easy” stores are
convenient-like, organic shopping stores. India manages “Cash
and Carry” stores to provide bulk shopping to consumers and
suppliers 33.
iii. Shopping habits vary across countries, which is the reason Tesco
emphasizes on market research to help determine what their customer
wants and needs. As a result, the Tesco Clubcard helps further their
31
Finch, Julia and Zoe Wood. “Tesco’s Sir Terry Leahy to Step Down after 14 years.”
The Guardian. 8 June 2010. Accessed on 9 November 2010 available at
http://www.guardian.co.uk/business/2010/jun/08/tesco-sir-terry-leahy-steps-down
32
Holland, Maggie. “Tesco checks out UK best practice for Global Success.” 15 March
2007. Accessed on 8 November 2010 available at http://www.itpro.co.uk/107734/tesco-
checks-out-uk-best-practice-for-global-success
33
Corporate Watch. “Tesco: A Corporate Portfolio.” Accessed on 9 November 2010 at
http://www.corporatewatch.org.uk/?lid=252Malley 18
research within each country deciphering if consumers are money
conscious, how often a customer will shop and which brands they prefer.
Strategy
i. Tesco maintains a transnational strategy, with an emphasis on local
markets and cost reduction pressures, especially from their consumers.
This is the optimal strategy for businesses and the right strategy for
Tesco. Therefore, it is critical for Tesco’s business to continue focusing
on local market needs and cost pressures specifically from their
consumer’s viewpoint, to provide low prices to their products, as theses
strategy’s help the business grow and develop while maintaining their high
position in the supermarket industry.
Business Development Strategy
i. Which Market’s to Enter and When :
a. Tesco examines stores underperforming in hopes to acquire them
for potential profit growth. Mainly by attaining favorable markets
where the economy is stable and the political environment is
secure.
b. Tesco will usually enter a market early but will only buy at the
market’s lowest selling point, to increase their turnover 34.
ii. Scale of Entry
a. In many cases, such as China and other Asian countries, Tesco
entered on a large scale entry method to stay ahead of competition,
such as Walmart and Carrefour, and to expand international stores.
b. In 2002, £377 million pounds buying acquiring T&S stores located
in China. Also an additional £140 million pounds was produced for
store expansion and redevelopment in Shanghai 35.
34
Corporate Watch. “Tesco: A Corporate Portfolio: China.” Accessed on 17 November
2010 at
http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#MarketshareandimportanceMalley 19
c. In 2008, Tesco nearly spent £1 billion pounds in South Korea
through store acquisition purchases alone, which has led Tesco
close to succeeding their number one competitor in South Korea,
Shinsegae markets 36.
iii. Entry Mode
a. Tesco international success can be attributed to their
developmental strategy of acquiring international firms and
reconfigure these stores to the Tesco model.
While Tesco was increasing their expansion internationally,
in 2004, Tesco entered into a joint venture with Topland, a
property group, of £650 million pounds of Tesco’s UK
property. This was to improve Tesco’s credit rating and a
way for the company to pay off their expanding debt 37.
b. When entering a new market, Tesco has always followed an
acquisition model, except in the United States. Tesco decided to
pursue an organic growth entry mode, which has proven to be so
far, unsuccessful and costly for the company. By entering in a
limited scale by opening shops across California, placed Tesco in a
high risk operation, where profit turnover would need to be quick
and incur a large revenue of profit. By expanding into the US
market would not only create profits for Tesco but there would be a
high reward of further establishing the competition between Tesco
and Walmart, in hopes for Tesco to gain profit off of “Walmart’s
territory”. Instead of following their previous models, Tesco has
35
Corporate Watch. “Tesco: A Corporate Portfolio: China and International Expansion.”
Accessed on 16 November 2010 at
http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#expansion
36
Finch, Julia. “Tesco spends 1 billion store acquisitions in South Korea.” 15 May 2008.
Accessed on 17 November 2010 at
http://www.guardian.co.uk/business/2008/may/15/tesco.mergersandacquisitions
37
“Corporate Watch.”Malley 20
had to pay for the mistake where in the first year Tesco lost 208
million dollars in its first year of operations38.
Success of Strategy
i. Therefore, it is easy to register the success of Tesco’s development
growth specifically in Asia and Europe, by following their company’s
subsidiary skills. Tesco’s risk of enforcing a new business developmental
strategy in the US has cost Tesco significantly. Tesco may have had
better success in the US market if they acquired a US supermarket chain
and reform the business to the Tesco’s supermarket model.
Human Resource Management
i. Tesco employees 380,000 people worldwide, with 260,000 employed
within the UK equating Tesco as the largest private sector employee
corporation 39. Thus, Tesco places human resources management highly
and as part of their core competencies to integrate a geocentric policy for
the corporation. By attaining a large number of employees due to their
expansions across the globe, it was necessary for Tesco to retain a
significant quantity of employees, as each store requires many employees
to help run daily operations smoothly. Part of their management
technique is to ensure managers know a significant amount of detail of
their specified market, this is extremely important when they open an
international branch to ensure that the local knowledge of a new market is
implemented within the store’s daily resources. For Tesco to operate at
it’s current pace and size, Tesco has had to hire employees in 5 key areas
of business, such as “store management, site location analysts, marketing
and financial personnel, supporting and sustaining international
38
Goodwin, Christopher. “Fresh & Easy: Tesco’s Great American disaster unfolded.” 27
April 2009. Accessed on 17 November 2010 at
http://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-
great-american-disaster
39
“Tesco in Numbers.” The Telegraph. 18 April 2007. Accessed on 8 December 2010 at:
http://www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.htmlMalley 21
operations”. These sectors are necessary for Tesco to establish success
in many diversified cultural markets of their business 40.
40
Palmer, Mark. “Retail Multinational learning: a case study of Tesco.” Accessed on 8
December 2010 at:
http://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20metho
d%20studies/Tesco.pdfYou can also read
