Strategies Used By Tesco
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This dissertation aims to examine the strategies used by Tesco, a leading brand in the global retail food industry and one of the U.K.'s strongest retail companies, to drive growth and expansion in international markets. Although the literature on international business and strategy demonstrates both the considerable advantages and also the risks of global expansion by big retailers, there is far less research on how U.K.-based supermarket chains like Tesco continue to achieve success in global markets. Therefore, this dissertation will address two key questions. (a) how does Tesco sustain growth in competitive global markets? and (b) how does it manage the sensitive cultural, human and business issues which confront companies aiming to penetrate foreign markets? Addressing question (a) will require an examination of Tesco's branding strategy as well as its growth and revenue model in its diverse product divisions and question (b) involves a study into how Tesco's strategy translates to ‘local' business customs and values in order to satisfy the tastes and expectation of ‘local' consumers.
Globally, the retail food industry is still growing and was worth over USD2, 000 billion last year (Euromonitor, 2009). It is dominated by hypermarkets, supermarkets and industry discounters, at the expense of smaller players such as luxury foods retailers, independents or organic foods shops (Euromonitor, 2009). Although their sheer size, scale and market tactics have proved controversial for some of the world's biggest supermarket chains, such as Carrefour, Wal-mart and Tesco, they appear to have no plans to curb their plans for continued expansion. The global retail food sector shows increasing signs of consolidation among a few key market leaders; their strategies for overseas market expansion must be better understood in order for us to understand their implications for international business and resource management.
It is noteworthy that many retailers try, and fail, at expanding into overseas markets. In a fiercely competitive industry with complex supply chains, even more complex distribution networks and the most advanced technologies to satisfy millions of customers, Tesco is one brand which stands out. It has earned the respect and admiration of its partners and rivals alike with “its ambitious overseas strategy and its successful online delivery service” (McKinsey Quarterly, 2002: 135). It has optimized value in two key areas: non-food items and online grocery sales (McKinsey Quarterly, 2002).
Its growth strategy in these two areas merit further academic investigation because it holds lessons for retailers seeking to expand market share and presence in lucrative emerging markets like India, China, Vietnam and Brazil. Although the term ‘emerging markets' is still used of these countries, however, it has become increasingly clear that their economies are growing strongly in spite of, and after, the global economic crisis of 2008 and affords crucial growth opportunities for the saturated and difficult U.K. trading conditions faced by many retailers here. Although these markets are attractive to Tesco, however, they pose considerable challenges which cannot be solved by superior management and operational excellence alone. In a revealing interview with McKinsey Quarterly (2010), Tesco's deputy chairman, David Reid asserts that ‘cash' is still king when it comes to overseas expansion. He also highlighted the need for commitment. My dissertation will study a third ‘c': Culture. The role of cultural habits and preferences in retail food shopping is important and has a big influence on how well Tesco succeeds in overseas markets. Furthermore, Tesco will need to depend on local suppliers and networks in order to maintain the high standards of leadership, operational effectiveness and customer service synonymous with the Tesco brand.
It has been noted that brand commitment in different cultures is mediated differently according to whether it is individualist and driven by short-term gains (e.g. the U.K.) or collectivist and driven more by long-term gains (e.g. China) (Eisingerich and Rubera, 2010). Building a trusted brand in different cultures takes time and is a long-term strategy. When Tesco first ventured into Thailand, for instance, its aggressive stance towards small, family-owned enterprises came as an unpleasant shock to the Thais and provoked a backlash against the company
The dissertation will begin with an introduction which examines the food retail sector in the U.K. as a whole and examine some of the opportunities and challenges of overseas expansion available to companies in this sector. Relevant examples from the U.S. and Asian contexts will be used to illuminate specific points. Next, I shall undertake a comprehensive literature review of the key business and marketing models employed by supermarket chains and examine some of the strategies they use to solve issues related to penetration of foreign markets. At the end of this literature review, key research questions will be generated based on the gaps in the relevant literatures. Next, the methodology will be discussed. For the purposes of addressing the research questions, an extended case study method (ECM) is envisaged to be most appropriate, drawing upon company reports of Tesco, market reports and media coverage. To further triangulate the data, I aim to conduct a few in-depth unstructured interviews with Tesco's customers in different stores. The purpose for this would be to elicit consumers' views about how well the Tesco model of service delivery is working for different market segments. I shall use purposive sampling to access customers who come from non-British (or expatriate) backgrounds who can give insights into how Tesco compares with their own experiences with different supermarkets in their home (or adopted home) countries.
The interviews would be transcribed and coded to yield key themes which can feed back into the case study of Tesco. A critical analysis of the data and its implications for how Tesco maintains and grows its presence in global markets will be discussed. Finally, a consideration of the caveats of the dissertation and some possible directions for future research will be presented.
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