Effects of Globalisation: Case Study of Tesco
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Globalisation is a progression by which local markets, humanities, and beliefs have become united through a globe-spanning network of communication and trade (Gary, 2001). The term globalisation is occasionally used to refer explicitly to economic globalisation. It is the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of skill and technology. Globalisation of markets refers to the process of incorporating and unification of the individual world markets into a sole market. Jurgen argues in his publication in 2005 that the process engages integration of some common standard, worth, perception, taste and accessibility around the world and slowly enables the cultures to shift towards the use of common merchandise or service. It has been greatly argued that globalisation is not a fresh phenomenon, but rather it has been there since colonial age. However, its recent and tactful use can be dated to 1983, when Levitt published his article “The Globalisation of Markets”. (Kapferer, 2008).
One of the features of globalisation of markets is that the size of the company needs not to be large to create a global market. Even small companies can create a worldwide market. Factors influencing the locality of manufacturing facilities vary from country to country. They may be more favourable in foreign countries rather than in home country because of cheap labour or low taxes in foreign countries, which forces the corporations to establish manufacturing facilities in other countries. It is renovating the ways in which countries interact. State economies become incorporated as the flow of merchandise and goods expands outside the borders. In theoretical simulations, less trade barriers or decrease in transport costs generates increase in trade between consumers in another country and producers in the other. In the current atmosphere, businesses are more able to section their operations internationally, outlining each stage of manufacture in the country where it can be completed at the least cost, and communicating ideas for new merchandises and new ways of manufacturing products around the world.
The digital revolution that has charged up globalisation is alteringhow customersandcorporationsbehave. This revolution is cumulatingcompetition, decreasing prices, creating new simulated companies, allowing individuals to sell goods to each other deprived of a middle man. In the era of new vending, it’s more important than ever that the company shows that they are on the customer’s side and they arehere to make their lives a bit easier, a bit better. That’s the base of the faith companies want to build as they become the model for new business.
In addition, when outsourcing happens between neighbouring nations, such as the Pakistan and China or Mexico and USA, the exchange of production raises the intentions for businesses to produce in areas with comparatively low-cost access to far-off markets. Thus, the location of economic activity inside countries may alter (Hanson, 2001). The diversity of global market is still dominant even after the globalisation of markets and production. These discrepancies require the businesses to formulate diverse policies for each market. The global business firms compete with each other frequently in different national markets including their home markets. This essay will further explain the effect globalisation of markets and production has on an organisation by illustrating it with a case study on TESCO.
TESCO is one of the world’s largest merchant after Wal-Mart. It has followed an aggressive foreign expansion strategy into US, South Korea, Eastern Europe and China. It sources its goods globally and always purchases in great volumes, which helps it to keep costs down of its products. Substantial cost-cuttings are made through handling the supply chain efficiently and effectively. The corporation has introduced a points card which collects data from customers when they use it to buy items. The data is then used to provide discounts and offer savings with the range of products on deals. This builds loyalty and develop promotions that aim for specific customers. Through the use of this technology, TESCO has been successful to create a fair amount of customers for themselves and remains a leader within the UK market. (HSC Online, 2014).
The size of the business can be estimated by the figures provided by (Tesco, 2014) that it’s operating about 6,784 stores worldwide, engaging over 500,000 employees. That makes it the largest food supplier in the world. It also offers online services over its subsidiary, www.tesco.com. The largest company in UK’s market operates below four banners of Metro, Express, Superstore and Extra. The company vends about 40,000 food products, clothing and non-food lines. The company also produces own-label merchandises which are categorised in three levels, normal, value and finest. Apart from these, Tesco also provides several petrol stations, becoming one of Britain's major independent gasoline retailers.
One of the major retailers in the world, Tesco's early experiences with globalization was not fruitful. However, later Tesco started restricting its stores and merchandises according to the worldwide markets. It entered South Korea in the year 1999 by starting a combined venture with a deep-rooted native retailer Samsung. The joint venture assisted Tesco attain in-depth understanding of the marketplace and also helped it get the finest store locations (Tesco plc. 2014). Tesco began working in the country under the well-established 'Home Plus' banner. Tesco confined its stores according to the likings of the Korean customers and brought in several of its international best practices into the country.
Globalisation of markets and production has a great role in making Tesco plc. Britain’s largest retailer, as a major multinational corporation. 65 % of its operating lie outside the UK with 12 international subsidiaries (ibid). During the progression of expansion Tesco has been able to capture and benefit from the innovation which emerged from international subsidiaries. Due to the interconnection of the markets, Tesco’s organizational structures and operating skills have been continuously transformed as it has learned to operate in and adapt to host economies. The firm has transferred knowledge from the UK around its international operations using intra firm networks of telecommunications and face-to-face best practice transmissions. Innovatory practices emerging within the international subsidiaries have also been captured via bottom up processes of organizational learning.
Only thanks to internet, Today, Tesco have been able to include 13 countries in its business empire which give it access to over 3 billion people, which is about 54% of the total world’s population. Because of the advent of technology, the process is so progressive that (Tesco Plc., 2011) claims it would have been the world’s biggest online grocer if they knew it back in the early 1980. That means 13% of all card transactions in the Britain would be on a Tesco credit cards, or there would be more than six millionclub card holders just in South Korea (ibid)
Tesco has been successful in using the concept of outsourcing and cashing the productivity out of it throughout the past years. The Multi-floor store design and operational services were developed in Tesco’s East Asian subsidiaries. Afterwards, being transferred into Britain in the form of “stores on Stilts” designs which first appeared in Altrincham in 2002 (Aim research, 2014). The Low-build-cost stores technique was first developed in Thailand and then was transferred to Europe and used as a benchmark to assess its Central European developments. Food hall merchandising techniques (emulating East Asian “wet markets”) being transferred to and used to enhance “retail theatre” within its Central European hypermarkets (ibid). International production has been so successful that Tesco has extended its applications management outsourcing contract, in a deal worth of £18 million (CIO, 2007).
Philip Clarke in his first speech as the CEO of Tesco Group said “We are in a new era of retailing, creating great opportunities and challenges for every retailer, and putting even more focus on consumer trust” (Tesco plc., 2011). Thus, Tesco have embraced thetechnology,built the team, and fostered talent. And In return the globalised market gave them one of the most successful businesses of our times.
Clark proclaimed that by the completion of the year Tesco will double the amount of stores with non-food Click and Gather to 600 (ibid).
Globalisation affects all three levels of manufacture, but in diverse behaviours. Globalisation make available a market for main industries, but demand can occasionally take importance over sustainability, to the disadvantage of long-standing reasonableness. Minor businesses benefit from globalisation because businesses select zones where the market suits them, but this may lead to redundancy for trained employees who reside in countries with a greater standard of living. Globalisation, joined with technology, is a benefit for tertiary trades when corporations can sell services on the international marketplace without repositioning. They are, however, vulnerable to market variations.
Anyhow, Because of the interconnected global market, companies can achieve increased revenue opportunity through global sales. They are able to reach a bigger customer base with better success chances. Through globalisation of production, they can also enjoy reduced production costs by producing in low cost countries such as Apple Inc. is producing most of its products in China. With these businesses investing in developing companies, it also increases income for these countries which creates an overall good environment for economic activities.
Fascinating as it seems, the changed atmosphere causes the traditional norm of running a local businesses to become null and void. Businesses nowadays need to be on a bigger market to gain the competitive advantage above its rival businesses. Global planning might seem fancy and fruitful, but global execution is definitely not an easy task. Extremely talented team is required to sustain a business in such competitive environment. Furthermore, some countries might take global production as exploitation of their workers which can damage a company’s image. Thus, with careful planning and innovation, companies today can be much more successful than they ever was.
HSC Online. (2014). Business studies operations: influences. Charles Sturt University. Site accessed by the URL: http://www.hsc.csu.edu.au/business_studies/operations/4408/Part%202%20Influences.htm
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Jurgen, O. (2005). Globalization: A Short History. Princeton University Press
Gary, J. Wells, Robert, S., Ray K. (2001). Globalization. New York: Novinka Books
Kapferer, J. N. (2008). The new strategic brand management: Creating and sustaining brand equity long term (Fourth Ed). Kogan Page Limited: United Kingdom
Hanson, G. H. (2001). The globalization of production. Article retrieved from http://www.nber.org/reporter/spring01/hanson.html
Tesco Plc. (2011). Philip Clarke's keynote address to the British Retail Consortium Symposium. Retrieved from http://www.tescoplc.com/index.asp?pageid=17&newsid=541
Aim research. (2014). Globalisation of innovation. Advance institute of management research: Accessed by the URL http://www.aimresearch.org/uploads/file/Presentations/Globalisation_of_Innovation.pdf
CIO (May, 2007). Tesco extends outsourcing. Accessed by the URL http://www.cio.co.uk/news/networks/tesco-extends-outsourcing/?otc=103
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