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Case study TESCO PLC

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Case study TESCO PLC

Case study TESCO PLC

Executive Summary

Every company involves in a strategic planning which is a very long and complex process. These strategic planning of company makes sure that company will face success or failure in future. Many kinds of theories and models are used while preparing these strategies. In case of TESCO, company is expanding a big time in international market which requires strategic planning on large and international level. But the case study in point shows that the company is showing the decline in profits and market share since 2012 and had to shut down its operations in US. The purpose of report is to find out the reasons why Tesco is not performing well in current years and what are the strategic problems in company. It will be followed by the some of the theoretical concepts that company can use. The report further will explore how the strategies model can be implemented in Tesco. The conclusion on basis of report and analysis shows that company should continue to diverse but it should not lose the focus from its current market and current products.

Introduction

The world which has become global in last 2 decades has now companies which have been operating internationally. Almost all the businesses want to go global, expand their business and reap the benefits of potential customers of foreign markets. Even if they are not going global, other companies come to their market and hence the competition increases for the business even in home country as well. To address the competition and be ahead of everyone, each company makes the strategic planning called business strategies wherein they get involved in major decision making. As per Surdu, Mellahi, and Glaister, 2019, business strategy and its formulation requires proper planning in advance, time and other business resources in order for it to be successfully implemented. Similarly, companies like Tesco which is in retail chain business and working globally needs to frequently change their strategies to accommodate the changing preferences of customers, to accommodate increasing competition, to give more value to customer base by giving them customized products and goods and to accommodate various external environmental factors as well. Ghauri, Wang, Elg, and Rosendo-Ríos, 2016, states that while making business strategies it is very important for a company to take the consideration of current scenario and future prospect as well. The study herein focuses on what strategies Tesco planned in terms of its UK market and what problems were faced by Tesco.

Tesco is third largest retail chain of world after Walmart and Carrefour. The company was founded in 1919 and in 1929, it launched its first store in Edgware, London, UK. Tesco is a UK based company but since its incorporation it has diversified hugely geographically as well as in market sectors. The market sectors covered by Tesco are Electronics, clothing, music downloads, retailing books, renting DVD, telecom and internet services, financial services, furniture and petrol and software. The company has shops, supermarkets, hypermarkets in 7 counties of Asia and Europe and is market leader in UK, Thailand, Hungry and Ireland.

Brief Summary of Case

The given case is about a global retail chain company named Tesco PLC. It has entered in the Australian market and giving a very stiff competition to Australian Supermarket Chain, Coles and Woolworths which currently holds 80% market share and among 20th largest retail chain of world. The case highlights how the world’s third largest company is struggling from some time both globally and domestically and hence proving the point that success at one point can not guarantees the success in future as well for any company.

The case states how company closed its fresh and Easy stores in US in 2013 and wrote down value of global operations in 2013 by US$ 3.5 billion. Also in its home market even after investment of £1billion in 2012-2013, the revenue of company kept declining. The reasons of declining revenues as per research were change in customer perception regarding the quality, prices, value for money, customer satisfaction and promotions declined. Tesco came up with various business strategies both tactical as well strategic to address this issue with better training of staff, Revamping products, refurbishing stores and better pricing of products (Rosnizam, Kee, Akhir, Shahqira, Yusoff, Budiman. and Alajmi, 2020). Entering the US market was strategic strategy for company but the execution of this strategy was not done properly. The two places where company failed is firstly, US customers don’t visit supermarkets as frequently as European customers. Secondly, the company did not provide customized product list to supermarket as per the taste of US costumers.

The last part of case details about the competitive strategy Tesco was taking to outcompete its rivals. As per Wood, Coe, and Wrigley, 2016, the company was involved with merger, acquisition and taking over of many stores like Euphorium bakery in London, Girraffe restaurant chains and Harris and Hoole Coffee chains to develop them in retail destinations for customers.

On basis of Tesco case, in the following report the problems with the strategic actions taken by Tesco will be discussed along with some theoretical concepts and what other strategic planning Tesco can have done.

Identification of Strategic

Issues Tesco was the UK’s leading and world’s third largest supermarket brand. TESCO was able to successfully expand its stores in foreign land also along with its local dominance. But after 2013, the company started noticing declining in profits in local market and also saw shut down of its US operations.

The dominance of US over all the supermarket were because of three factors namely innovative marketing y company, channel mix and operational efficiency. But the decline in profits and fail attempt in US were due to some of the strategic issues of company which are listed below:

1. Internationalization Strategy:-

As per Tesco strategy planning, they realized that their UK market was mature so Tesco decided to capitalize on global opportunities and expand in foreign market. As per Evans,. and Mason, 2018, Tesco tried to take benefit of its goods position and emerging market opportunity. But while going global the company first must ensure that its local market growth is proper and the company is in proper order to take that growth leap. In terms of TESCO, it lost its place and growth in home market at the expense of growth in international markets. The company was sourcing money for expansion through local market which itself comes under strain and trouble after the recession. Also Tesco was expanding big in different international markets but still following the same operational strategy of UK everywhere. For example, In America, people like to buy branded products but TESCO is known for private brands and therefore, is not in accordance with the preference of American customers. So, in order to be successful it had to come up local operational excellence.

2. Technology and multichannel mix strategy:-

The technological innovations in today’s world give competitive edge to the company. Broadband connections, 4G services, Mobile tablets now play important part in retail and use of this technological innovations can help with business growth, Enhanced models for better better customer services, better understanding of customers and their requirements and need. TESCO has invested big time on technology by coming up with online only stores concepts. The closing down and less investment onto large superstore, hyper stores and physical stores and opening of online ones will result in more operational efficiency. This multichannel strategy helps in keeping the operational costs at minimum. According to Fatricia, 2017, but TESCO was not able to integrate the operational efficiency, customer service and employment model while working with multichannel operations. Tesco failed in integration of online and physical channels which resulted in the loss of profits.

3. HRM Strategy:-

With introduction of online stores and technological innovation, Tesco Forgot that human capability can not be substituted by technology. So in reactive measure TESCO had to come up with turn around strategy of hiring more staff at physical stores and giving them training. The company should also research about the motivation and satisfaction levels of employees and staff.

4. Too much Diversification:-

Diversification of company in telecom sector and financial services was of poor taste. Company spent £30 million in banking and insurance system but company only could take 4.1% shares in big insurance houses. Also the launching of mutual funds and insurance required the huge investment from company’s side and created the financial crunch for TESCO. Companies which are typically in finance market comes up with new innovations but TESCO can’t compete with them there as it is not company’s strongest point.

5. Rising prices of raw materials:-

Rising prices of raw materials globally cause the increase in the prices of existing products. The increased prices then are passed to customers who have the products available at low rates in their domestic market.

Besides these there were some more strategically issues that company was facing like investments in the club cards of the company was high, financial decision making was poor and there were some ethical issues with company as well (Alam and Raut-Roy, 2019).

Relevant Theoretical Concepts

The business strategies of companies depend upon the type of business and the market they are in and are operating. The business strategies of company are formulated by keeping, companies, vision, mission, goals and objective in mind and it’s a very long and complex process. Company should use tool like PESTEL analysis before going in the strategic planning stage.

PESTEL ANALYSIS

It shows how external factors are going to affect the company.

a) Political Factors:-

Since TESCO is operating worldwide, the different political factors of different countries have direct effect on the companies’ operations.

b) Economic Factors:-

The external and economic -factors like taxation, prices, expenses and revenue influences the performance of the company.

c) Socio cultural factors:-

In case of TESCO it found out that the people are becoming more health conscious so it introduced the organic food in market. IN different countries people have different cultures, belies and social enigmas, the company must keep this factors in mind before coming up with any strategic planning.

d) Technological Factor:-

The company should look out for any kind of technological changes happening and take the use of technologies and their up gradation. Like in case of TESO, company opened many online and virtual stores to cater the people who did not want to go tp physical stores (Durand, Grant, and Madsen, 2017).

e) Legal factor:-

This factor affects the company directly. For example any change in legislation regarding storing of food items should be monitored by the company.

Other strategic management theories for TESCO

1. Profit maximising and competition based theory:-

s per the theory the main objective of any business should be to increase the profit margins of company and to have a competitive advantage over the rival companies. According to this theory the external market positioning is very important to have sustained competitive advantage over rivals.

2. Resource based theory:-

As per the theory the main resources of the competitive advantages for affirm is its internal resources and not the external positioning. It states that the firm with more unique resources capabilities have more competitive advantage and not depends on the external environmental opportunities and threats. If the company owns and controls certain types of resources than it has promise and potential to generate the competitive advantage and therefore, to be successful in its endeavours.

3. Survival based theory:-

As per the theory the organization should continuously adapt and change according to changing markets to be in competitive position. If the company doesn’t predict the change and evolve with it, it will lose its competitive advantage to rivals. Also in different territories, company should evolve and adapt according to their local environment.

4. Human Resource based theory:-

This theory states that human resources play a very important part in development of strategies in organization. Human resource is the biggest advantage a company can have and while planning strategically, these human resources should be taken in account and used strategically.

5. Agency theory:-

This theory states there should be very good relation and communication between shareholders and their agents (company managers). The shareholders decide where they want to take the company and vision of an organization and when the communication is clear and relations are good, the agents get exactly what shareholders need, make strategies accordingly and fulfil those visions for company.

6. Contingency theory:-

This theory states that there is not one fool proof strategy for an organization. Organizations should make their strategy planning as per the situations and conditions around the. During the planning, evaluating and implementing strategies, the conditions and situations should be monitored and the strategies development should be based on them.

Application of Strategy Model

Following models can be implemented by TESCO

1. ANSOFF MODEL

Ansoff model is a tool which helps the company in market growth by combining their current and new products (Lasserre, 2017). It includes:

a) Market Penetration:In order to make UK market a model for the global market, TESCO should emphasise on market penetration in UK market. It will uplift UK market and therefore, the profits of company will increase as well.

b) Market Development: IN order to increase their market, share and market penetration TESCO should take their well established products to new local market and therefore develop their market first in their country.

c) Product Development: Once they penetrate and develop new market then they should offer the new products in new established market and thus, developing their product line.

d) Diversification: TESCO has already diversified in many market segments and wants their finance and Telecom market to flourish. But it is always best to introduce new products in new markets.

2. BCG MATRIX MODEL

BCG is used for strategic planning and mainly based on the product’s life cycle.

a) Star: It shows the matured product and market of company and in TESCO’s case it is retail industry. It gives the maximum income to company has more market share. The company has unique resources regarding this, therefore, company should invest more on this area.

b) Cash Cows: For TESCO food market is their cash cows because of large market share but the market has reached to their maturity level. The company should do some product innovation here to keep this market booming and keep their position.

c) Question Mark: These market use lot of money but have very less market share and therefore their success becomes a question mark. Finance, Telecom and insurance are such markets for TESCO.

d) Dog: These are small market with mature industry. There is no scope of growth so companies usually liquefy them. TESCO if find any idle product, they should discontinue it.

Conclusion

From the study its clear that the the new strategy TESCO should plan in accordance the given models. It should diversify according to market but should not lose focus from its core market. There should exist a proper balance between new and existing markets and products as well. The company should use some loyalty rewards scheme for their loyal customers. The message should also be well communicated through out the organization from shareholders to the agents that is the managers (Awadari, and Kanwal, 2019).

References

Surdu, I., Mellahi, K. and Glaister, K.W., 2019. Once bitten, not necessarily shy? Determinants of foreign market re-entry commitment strategies. Journal of International Business Studies, 50(3), pp.393-422.

Ghauri, P., Wang, F., Elg, U. and Rosendo-Ríos, V., 2016. Market driving strategies: Beyond localization. Journal of Business Research, 69(12), pp.5682-5693.

Rosnizam, M.R.A.B., Kee, D.M.H., Akhir, M.E.H.B.M., Shahqira, M., Yusoff, M.A.H.B.M., Budiman, R.S. and Alajmi, A.M., 2020. Market Opportunities and Challenges: A Case Study of Tesco. Journal of the community development in Asia, 3(2), pp.18-27.

Byrom, J. and Medway, D., 2018. The changing nature of food retailing and distribution: Using one case to understand many. Case Studies in Food Retailing and Distribution.

Wood, S., Coe, N.M. and Wrigley, N., 2016. Multi-scalar localization and capability transference: exploring embeddedness in the Asian retail expansion of Tesco. Regional Studies, 50(3), pp.475-495.

Evans, B. and Mason, R., 2018. The lean supply chain: managing the challenge at Tesco. Kogan Page Publishers.

Alam, S. and Raut-Roy, U., 2019. Evaluating the Effectiveness of Reward Strategy at Tesco: Evidence from Selected Stores in UK. Indian Journal of Industrial Relations, 55(1).

Fatricia, R.S., 2017. STRATEGIC ANALYSIS OF TESCO SUPERMARKET. Jurnal Manajemen Terapan dan Keuangan, 6(02), pp.69-86.

Durand, R., Grant, R.M. and Madsen, T.L., 2017. The expanding domain of strategic management research and the quest for integration. Strategic Management Journal, 38(1), pp.4-16.

Lasserre, P., 2017. Global strategic management. Macmillan International Higher Education.

Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International Social Research, 10(51).

Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.

Awadari, A.C. and Kanwal, S., 2019. Employee participation in organizational change: A case of Tesco PLC. International Journal of Financial, Accounting, and Management, 1(2), pp.91-99.

Loonam, J., Eaves, S., Kumar, V. and Parry, G., 2018. Towards digital transformation: Lessons learned from traditional organizations. Strategic Change, 27(2), pp.101-109.

Grundy, T.D., 2017. Dynamic competitive strategy: Turning strategy upside down. Routledge.

Morgan, N.A., Whitler, K.A., Feng, H. and Chari, S., 2019. Research in marketing strategy. Journal of the Academy of Marketing Science, 47(1), pp.4-29.

Srivastava, A.K., 2017. Strategy Execution Act: Channelizing Strategy Execution Operations into Actions.

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