Why Trade Internationally: Research on Tesco

Introduction

In this report I will be gathering research and evidence about business that trades internationally. I am going to be researching about is Tesco’s operation in Poland. Tesco operates in mostly developed economies for example Czech Republic, France, Hungary and many others.

Activities

The reason why Tesco has become the number one retailer in the UK is because they as an organisation has been determined to successfully cover all business sectors to their full advantage in order to grow and maintain their number one spot. Over the years Tesco has been successful in many different sectors of business for example in 2013 Tesco bought a 49% stake in a chain of coffee shops called Harris and Hoole. The hair and beauty sector also has been very successful for Tesco as they opened 70 new in-store beauty shops across the UK. The reason why they were and still are so popular in the beauty sector is because they offer treatments from, manicures, threading and waxing and they also sell high ended brands such as Clarins and Clinique at discounted prices. They’ve also opened estate agencies, launched their own online property service and have their own mobile network. They also have their own travel service and health services such as in-store chemists, opticians and dentists. Tesco also has different online delivery options. Tesco delivers to more than 98% of residents in the UK. They have many different options to satisfy all customers. They offer contracts with different types of deliveries. For example customers can choose a one month contract or a six month contract for free delivers any day including same day deliveries, they also do midweek deliveries in order to satisfy all customers.

Structure

Tesco’s organisational structure is called a divisional structure which is a type of organizational structure that groups each organizational function into a division. These divisions can correspond to either products or geographies. A divisional structure works for Tesco because the flow of communication is much tighter which is what is needed with a big organisation like Tesco. At the top of the hierarchy structure is the CEO who is the controls the chief executive and the non-executive chairman. The chief executive and the non-executive chairman control the chief financial officer and the financial officer controls the executive directors and the directors control the managers and the mangers controls the employees.

Tesco has 10 members. At the top is the CEO who is the head of all the staff and that’s the person who takes all the major decisions regarding the company. Other people on the board include the chairman, the chief finance officer, chief executive officer and other non-directors. They also have an executive committee with 9 people each heading different departments. The second level is called the mediate level these are the ground staff and the board of directors. They perform functions such as funds, personal relations, marketing and advertising. The top of the base level is held by a regional manager. Under him are the store managers. These stores are divided into 3 different department’s food trading section, non-food trading section and a personal section with assistants working in them under different team leads and assistant- managers. This is Tesco’s organisational structure.

The reason Why Tesco’s operate internationally Tesco’s is the only British based supermarket chain that operates overseas. They currently operate in 13 countries. The reason why Tesco entered the Polish market was because they wanted to expand into Central Europe, they did this through the “Acquisition of 31 Savia stores” in 1996. Their services is currently offered in 10 regions of Poland and in 2012 Tesco launched their grocery home shopping service in Poland. The reason why Tesco wanted to expand internationally was to grow and stay in for the “long run”. Tesco was the top leading retailer in the UK and in order to increase profits they wanted to offer their already successful products to other countries in order to become as successful and increase their profits. In addition the business in Poland is similar to the business in the UK for example if something sells good in the UK it is more likely to become as successful in Poland.

Another reason why Tesco wanted to expand internationally was to exploite their brand for example in 2017 Tesco soponsered the fourth season of Downton Abby, they wanted to expand that type of sponsoring through different countires. Poland as of 2017 is the fastest developing country within the European Union so Tesco’s operations in Poland would be easier to go into. Tesco’s is one of the 11 largest investors some which include Rolls Royce and BP. Also importing and exporting between Poland and UK is very easy because they have access to the emerging markets of eastern Europe and they have a large domestic market. Import and Export rates to Poland. A benfit of exporting to Poland is that they have a healthy economy with the world bank they have grown 3% from 2017 to 2019. This means that they woud be in growing demand from different emerging markets and also they would have increased exports. According to the office of national statistics in 1999 up to 2006 the UK and Poland roughly exported the same amount of goods they exported however in 2007 onwards the UK has been buying more trade from Poland than the UK and this number dramatically increases through the years. By being a member of the European Union it allows the UK to trade more freely with other countries however due to Brexit the UK will have to pay additional Taxes to import goods which would bring additional costs because they would be buying more than selling to Poland. From this graph we can see that the exports of goods and services going to the EU have dropped from 54% to 43%.

Financial performance/ Types of finance available for Tesco

As Tesco is one of the biggest supermarkets in the UK they have strong financial stability. For example in 2007 Tesco saw a profit of 1. 8 billion which was more than their profit in 2005 which was due to the tunnel collapse in Gerrard’s Cross which charges them a total of £35 million. This demonstrates strong growth within the market. A big business like Tesco would need to research all possible options of finance in order to move into internationally territory. One method of payment that Tesco has access to is Prepayment by the importer. This is if a business like Tesco’s wants to import British goods, they would need to pay in advance in total or a part payment. By paying cash in advance for anything requires a strong trust between the two countries. One benefit of this type of finance is that the country would have greater liquidity as cash flows into the business before the product has been sold. This would be available for them because they are a well-known company. The second type of payment that is available for Tesco’s is letters of credit. This is when the bank guarantees that the seller of the product will receive an agreed payment from the buyer. This type of finance is very commonly used for international trade. As soon as the order is complete the bank will make sure that the payment has been fully made by the importer. Letters of credit also is evidence for customs or any other legal practices. In addition export banking would also be available for them. This is financial support and guarantee that is given to foreign businesses to help in buying goods or services from UK exporters.