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Tesco is managing its operations on a global scale, thus, it will be affected by political and legal factors. Additional external factors would be sourced from entities such as the European union in mandating new trade laws. Balchin (1994) states that legislations related to employment put in place by the government has provided incentives to retail employers to provide jobs for people from different backgrounds. The effect of this is that people from other demographics would be provided opportunities for work, such as students, the elderly and even disabled people. The effect on Tesco itself would be that if Tesco would to adhere to these laws, this would produce loyal employees.
According to the office for national statistics, in the past 5 years, the unemployment rate for people above the legal age has dropped steadily. This factor would likely indicate that the economical condition is slowly improving as economical factors would definitely affect demand and cost of goods. However, it is still imperative for the Tesco’s higher management to ensure precautions are in place if the unemployment rate were to drop. Although Tesco has a large presence internationally which brings them high profits, its performance would be dependent on the health of the UK market, thus a recession would cause a slowdown which in turn could have detrimental effects on Tesco.
Social attitude trends change gradually from time to time. It influences how people act and think, which in turn would affect their preferences and decisions and possessing different attitude and behaviour , each of these issues could be considered by the management of Tesco in planning their strategies. According to Calof et al. (2005) consumers are becoming more knowledgeable and demanding. There is also the ever more increasingly materialistic attitude of current generations. The demand of quality products with the lowest price is a common theme.
Advancement of technology has provided various opportunities for Tesco. The internet has helped shaped consumer purchasing behaviors (Siddiqui et al., 2003). Online shopping with facilities for home delivery and secondly, self service checkout points have provided convenience and ease for customers which also lowers labor costs.
Customer satisfaction levels have increased due to this and a majority have also adopted a more personalized style of shopping. Although there would be drawbacks to this as automation has cut the need for face-to face- services thus reducing jobs, it does increase the need for more technical and high skill based jobs. This is because the maintenance of such machinery and programs would require skilled labour.
Tesco would have to abide by certain government legislative and rules which could affect the performance of the company. Government intervention in providing restrictions for monopoly and by reducing a buyer’s power in a sector, it could limit its entry into that particular sector (Mintel report, 2004).
As time goes on, people are becoming more aware of their environmental footprints. Environmental NGOs and activists constantly monitor the potential harm that could be caused by businesses. The public demands a cleaner, greener and more sustainable world (Albino et. Al., 2009).
Regulatory bodies are also concerned with pollution caused by factories of businesses. These factors would cause consumers to opt for more green products or from those socially responsible businesses (Bergmiller et. Al., 2009) and this should not be ignored by retailers. By proactively implementing policies to preserve the world, a retailer can possibly affect the view of consumers on its company and brand (Doyle et. al., 2006).
According to Johnson et al (2011 :74) a resource based view allows certain organizations to view its key strategic capabilities and using them as a means of competitive advantage. The table below highlights aspects linked to the core competences of Tesco.
Tangible Resource Physical Resources: Being a global organization, it has in its disposal, various networks globally. This would indicate that Tesco has access to not only global logistic systems but also the experience of operating in international markets.
Financial Resources: Tesco is considered the second largest retailer in the world by profits. The entity has access to significant financial resources providing Tesco with the means to settle capital needs internally.
Intangible Assets Years of operating in International Markets: Currently, Tesco operates in over 10 international markets, providing the firm with the access to various experiences and lessons learnt. This is significant as it serves as an important aspect which could assist in devising an international strategy for its business.
Brand Image: Tesco is a well known brand and is recognized across the globe. This would serve as an important factor in terms of competitive advantage from a brand awareness point of view.
Organization Structure Tesco’s organizational structure and the ability to have access to its expertise of over 100,000 employees puts the firm in a unique position in terms of internal expertise.
Two main components for the main competencies of Tesco, this would be employees and the other being its customers. According to Kotler and Keller (2009) the staff are the ones that determine level of competitiveness through the business processes whereas customers would influence external factors such as profitability. If performance were to drop, Tesco would have to divert focus on how to satisfy its customers more compared to its competitors.
Review of Tesco’s annual report has shown that, within 6 months of introducing its club card, Tesco has achieved 17% of its customer usage. This proves that the usage of the clubcard not only enhances customer loyalty, it could also act as an effective customer relationship management for Tesco as they would have access to data and would be able to analyze its customers.This could inevitably reduce costs and improve the company’s service quality and customer satisfaction.
Wood and Mccarthy (2014) considers the company as being known to provide various value deal products to its customers. They also place an emphasis on ensuring convenience for customers. Tesco’s global operations has in their arsenal, strengths such as online shopping and joint ventures, as well as employing local skilled workers. (Koen, Bertels and Elsum, 2011). Tesco also benefits from economies of scale due to their abilit to purchase items in bulk (Blythman, 2012). This would benefit policies of Tesco keeping prices low and competitive with other big retailers such as Asda or Sainsbury’s. Lastly, their clubcard loyalty programme provides incentives to retain customers this creating long lasting relationships. (Felgate, Fearne and Di Falco, 2011).
Tesco has diversified into wide array of products and services including providing credit. Ruddick (2014) mentions that this has resulted in profits being affected negatively from credit card debt and high levels of insurance claims from households. To improve on their technological assets, large investments of cash would be required to improve their web technology as well as refurbishing stores. This would impact cash needed to accomplish price strategy goals. (Ruddick.2014). This would ultimately affect sales. Another issue that could be highlighted is Tesco’s own insufficient experience in markets it intends to enter such as the smart phone and table markets (Woods and Gibs, 2014)
In this era of rapid technological advancements, opportunities which Tesco could take advantage of would include areas such as digital entertainment through their investment in Blinkbox (Hall, 2011). The aforementioned move by Tesco to enter into the tablets and smartphones industry could complement this investment rather well, particularly in foreign asian markets. (Piercy,Cravens and Lane, 2010). By doing this, greater convenience could be offered to its customers through online shopping.
Tesco’s current number one position in the UK’s retail sector means that they would not lack sources of competition from other large retailers such as Asda, Sainsbury,Morrison’s and Lidl and Aldi (Stevensons,2014). According to Brand Finance (2014), one brand that continuously competes with Tesco on a global scale is Walmart. As the ninth most-value brand in the world, Walmart possessed the necessary resources and expertise to cause Tesco problems, such as the takeover of Asda by Walmart which Tesco continuously tries to resist. The effect of consumer from small towns disdain for out of town stores could also impact Tesco’s expansion plans as these neighbourhoods would be concerned with the livelihood of small shops. (Stevensons, 2014).
Tesco could consider entering into the Asian sector through Singapore or Japan, by doing this Teco could provide opportunities for expanding its operations and increasing its influence. A strategy that could be considered would be entering into a strategic alliance preferably with one of the retailers which already has a dominant presence in Asia. This would improve growth and also provide opportunities to use current core competences and resources of the company. By entering into a joint venture, Tesco would be able to draw on its partner’s wide operating expertise as well as local market knowledge to tailor its delivery of providing a more effective shopping experience to its customers. As a result, Tesco would be able to claim a larger market share as well as economies of scale. (Lynch 2012)
A well thought out product development strategy would have to be drafter by Tesco’s higher management it was to plan on providing new products to its existing customers. (Johnson & Scholes 2011). This would include hiring market research companies on gauging the customer’s expectation, needs and views on a product to see if it would be a success. In relation to a company’s product mix, a proper plan of action should also be made and followed. This is to ensure that there would be no lack of focus on key areas to ensure the new product would be a success. The execution and size of the expansion should also be taken into account. This is to ensure that it would not affect the company’s current principle and diversity of its portfolio. However, introducing a new product would increase research and development expenditure, which in turn increases cost. (Lynch 2006)
A joint venture or strategic alliance provides opportunities for growth without compromising ownership of the company. This would be true for Tesco especially if it were to focus on expanding into markets of different regions. If Tesco were to partner up with an existing business with an established presence in Asia, it could reduce the risks for Tesco as well as providing other benefits such as
lBenefiting Economies of scale and synergy
lAccess to the partner’s intellectual property
lRemoving potential partner as a competitor if JV or alliance were not formed
lSharing of information and expertise
Thus, the proposed strategy would be Market development and Diversification either through a joint venture or a strategic alliance.
One of the main sources of success would be Tesco’s strategy in emphasizing its business models. One of its core purpose would be to earn lifetime customer loyalty, this is proven effective through the results of introducing its Club Card programme. Its business model is simple, as customers are the parties that influence how products are moved in and our, thus customer’s view and preferences are used to improve business performance.
Due to a disastrous decision by Tesco to delay payments to boost profits that resulted in a proposed legal action by its shareholders, proposals to expand into newer markets for growth would not seem to be unacceptable to its shareholders. However, Tesco would have to refrain from making similar mistakes if it were to retain shareholder confidence
Due to Tesco’s large access to a wide array of resources and expertise, it does provide Tesco with the capability to penetrate into different markets as it has unique physical and intangible resources to help it take up its responsibilities as well as to produce results.
A few recommendations could be specified to enable Tesco to grow into a more dominant brand with even more success both locally and internationally.
Tesco also faces stiff competition from Asda’s and Sainsbury’s as well as Walmart on a more global scale, if they wish to be viewed as the number one “one stop shop” then effort would need to be placed into the non-food areas otherwise customers would prefer to use a different supermarket that does satisfy their consumer needs.
Currently there has been a serious case for concern that carbon foot print needs to be reduced. As with all supermarket and retails, there exists a presence of high level of waste; cardboard, plastics and paper. This problem would need to be addressed although Tesco themselves have stated that they wish to be carbon free by 2050, they need to ensure that steps have been taken to ensure it is realized.
These variables could be reduced by having less packaging on their products, promoting recycling as well as removing the use of plastic bags altogether and instead utilizing long life bags that customers could use when they visit Tesco stores.
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