The chosen multinational company

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Executive Summary

From the choice provided by Brief 304098, the chosen multinational company is Tesco PLC.

Tesco PLC has developed from a UK national grocery retailer into a multinational operation, with investments in stores in Asia (814), central Europe (746 including Ireland) and more recently in the USA (53). The UK still remains their largest enterprise with 2,115 stores and over 280,000 people employed. In total there are over 440,000 people employed world-wide.

Total group sales for fiscal year 2008 were approximately £51,770 million, including £11,800 million from none-food product lines, which illustrates the achievements made in expanding the business beyond their earlier traditional food product line. Group pre-tax profit was £2,803 million for 2008, compared with £2,653 million for 2007, producing a 5.7% increase.

The group is paying attention to environmental conditions going forward, and providing the investment to support this, with the ‘Fresh & Easy' project an example of their commitment in this direction.

We considered potential new countries that Tesco could consider for future international growth, and Australia has been chosen as a theoretical target, the main reasons being that it is an English speaking country with a western style culture. We also recognised there would of course be competitors to Tesco, traditional national traders in place for many years, offering a similar business model. Three companies were given as competitive examples, viz. Coles Stores, Woolworths and the Franklin Group.

The Report also covers an evaluation as to whether Tesco's strategies will be adequate to sustain their competitive positioning in the long term, and from the areas evaluated it is fair to suggest that from their record of non-food product expansion into so many different areas they will achieve this objective. Examples of non-food services already in place are; financial services, telecom, fuel retailing, clothing, furniture and more recently legal services, where they seem to be setting a trend, as reporters refer to the 2006 Government Bill introducing relaxation from the traditionally restricted legal services as ‘Tesco law'.

1. Introduction

The chosen multinational company for this project is Tesco PLC, which is a very well known British supermarket group that has set up a number of stores and depots in many overseas countries.

During past years in addition to its UK stores Tesco has opened stores in North America, several Asian countries along with a number in central European countries. This paper will also discuss the issues facing Tesco and suggest a new export market for consideration, and supporting the choice with reasons for the selection. We will also consider the environmental and economical issues it faces that may be coincident with, or having a supplementary impact on their plans.

2. About Tesco PLC

Non Executive Chairman; David Read

Chief Executive; Sir Terence Leahy

For fiscal year 2008 Tesco's total sales were approximately £51,770 million, and non-food sales were 23% of the total at £11,800 million; an increase of 12% compared with 2007[i]. Group pre-tax profit was £2,803 million for 2008, compared with £2,653 million for 2007; a 5.7% increase. Export sales contributed £700 million which their report says is a similar amount for total group sales 10 years ago!

Return on Capital Employed (R.O.C.E.); 12.9% [ii].

Net Cash Flow; £3,343 million: Net Debt £6,200 million [iii]

Tesco has 2,115 stores in the UK with 280,373 employees, 746 stores with 83,705 employees in Ireland and central Europe, 53 stores with 669 employees in the USA and 814 stores in Asia with 77,544 employees, in total 3,728 stores and over 440,000 employees world-wide[iv].

Their USA operations began during November 2008, and they have 11 stores in Nevada, 28 in southern California and 14 in Arizona, which has to be considered as very good progress in less than one year's operation[v].

In line with many supermarket groups, they also offer online shopping which seems to be growing in popularity and Tesco's increased by 30% during fiscal 2008.

Listed on the FTSE Stock Exchange

They claim to be the third largest grocery retailer in the world!

3. Tesco's Current & Potential Strategy

Their strategy is to continue to expand their non-food products to achieve the same level of sales as their food products, and increasing the number of overseas stores will support this strategy, and the management sees this as a way of continuing their progressive growth[vi].

The future strategy is also to maintain food products as a core business alongside further moves into non-food products, particularly as food will continue to be their core business in the UK. Non-food sales include; financial services, fuel retailing, clothing, telecom services viz. mobile phones and broadband services, electrical goods and furniture. According to the Chairman's report they moved into financial services 10 years ago. Read, D 2008 ‘A successful year'; Annual Review and Summary Financial Statement 2008 (Page 5).

Economical Issues - in order to maintain their market share they reduced food prices during 2008 to combat the recessionary pressure in the UK caused by the ‘Credit Crunch' effects which reduced trading levels, and including the impact from competitor's recovery plans. Additional efforts and plans were also introduced to reduce staff absenteeism which they claim achieved a 5.5% reduction in absenteeism in stores and 10.3% in depots, filling over 121,000 more shifts and 31,200 more shifts respectively in stores and depots, which provide very good operational benefit.[vii]

Environmental Issues - Tesco only sells energy-efficient light bulbs in their stores. They do not use Styrofoam in their packaging, and supply re-usable plastic bags and canvas bags to their customers. They recently introduced ‘Fresh & Easy' as a pilot member of the leadership in energy and environmental design (LEED) volume certification programme. This is a third-party programme and is the accepted benchmark for the design, construction and operation of high performance green buildings. This project seems to have started with their recently introduced American sites. To create and support a scheme as described above, clearly require a great deal of finance which Tesco has had to provide.

4. Theoretical Framework Discussion

The Motivation For Expansion

Tesco certainly has plans to continue to expand internationally as it has previously, making tremendous efforts to create an international market for its products. Their continuous direction for growth is the motive, which could only go so far and achieve so much in the UK and Irish markets. As they are already achieving £700 million from international sales they are demonstrating their ability to operate successfully in international markets. Before opening new facilities in international markets Tesco carries out surveys of customer preferences in the locality it is planning to enter, thus paying close attention to customers' needs prior to geographical market entry. As customers' requirements change they change, as stated in their Annual Review. Leahy,T 2008,‘60%+ of Group sales area is international' Annual Review and Summary Financial Statement 2008 (page 9). Whilst this probably seems and obvious thing to do before setting up stores and depots in foreign countries, the writer believes it is the preparation they carry out that has greatly assisted towards their previous successes.

Another new market sector they have recently entered is Legal Services. As reported by Times Online on the 15 November, 2006 plans for a new Government Bill were introduced in the Queen's Speech that will allow “non-lawyers to own and operate law firms for the first time”. ‘Era of Tesco Law is upon us' Times Online 15 November 2006, viewed 15 April,2008, ( this has meant that many different companies will be allowed to offer legal services, providing they can ensure the correct standards are applied and maintained. From the title of the article referred to above, it seems that Tesco were deeply involved in the campaign to bring about this change in the law relating to the legal profession. A website search located Tesco's portal offering these services, viz., which seem to be offered as a third party rather than from their own company, i.e. Tesco acting as agents for a law firm. Further searches revealed an article written in the Business Section of the Leicester Mercury by Noel Walsh, vice-president of Leicestershire Law Society, stating that “within the next three years we shall see legal services becoming available to non-law firms in what has become known as ‘Tesco law'” which further suggests that at this stage Tesco are not yet handling this type of work directly. Walsh, N ‘We're ready for Tesco law', ‘Leicester Mercury', 14 April, 2009, P. LMO2, viewed 16 April 2009.

The above paragraph is a further example of Tesco management's motivation to pursue further channels for new business opportunities.

Tesco's management must apply the same careful and investigative criteria to potential new store locations as they have done in the past.

One would think that given the size of the German economy, the largest in the EEC, Germany would be a target country for consideration. However, from Wal-Mart's previous experience this country should be treated with caution. Wal-Mart opened stores commencing in 1998 and over a period established 85of them. Wal-Mart's approach was to repeat their successful US model, without any modification to suit the European, or at least the German consumer style of product preferences and presentation. As the largest retailer in the world (their claim), Wal-Mart assumed the same model which they had used to achieve their world status (which was mainly due to the extremely large American economy) could be repeated in Germany. Whereas as reported earlier in this paper, Tesco's strategy is to investigate customer preferences for each target country they select and where necessary, and in order to gain a market share change their model by installing the same or very similar practices to the purchasing cultures of the successful local or national competitors.

Louisa Schaefer reports in DW-WORLD.DE that according to the study carried out by Andreas Knorr and Andreas Arndt of the University of Bremen Wal-Mart upset labour relations with their employees, by for example pressuring their German managers to adopt the same American practices in the workplace. Schaefer, L. ‘World's Biggest Retailer Wal-Mart Closes Up Shop in Germany', quoted in a study by Knorr, A & Arndt A. 2006, DW-WORLD.DE, Business Section, 28/07/2006. [viii] According to the aforementioned study, the closure of 85 stores was likely to cost Wal-Mart $1billion. In the same report by Louisa Schaefer Wal-Mart's Chief Executive, David Wild admitted to some really bad mistakes during an interview for ‘Welt am Sonntag' newspaper by trying to sell American products, the main reason being because their product buyers were American. Ironically, the main beneficiaries from this calamity were the Metro Group who had been seeking extra sales floor space in Germany and acquired Wal-Mart's 85 stores for far less than the market value, although the purchase price wasn't disclosed.

Considering their R.O.C.E. of 12.9% (ref. Item 2. above), this is not particularly high, and until a few months ago, i.e. before the credit squeeze began to bite one could obtain a better return on equity market bonds and other investment products. The R.O.C.E percentage doesn't seem to be due to the price cutting that Tesco had to engage in during 2008 because it is slightly higher than the fiscal 2007 level of 12.6%.

Net Cash-flow of £3,343 million is good, and so it should be for a retail business that receives the majority of its revenues at point of sale.

New Potential International Market

Now let us consider a possible new overseas country where Tesco could set up additional stores. According to the previously referred to ‘Annual Review and Financial Statement 2008' although Tesco has stores in south-east Asia it has none in Australia or New Zealand, both English speaking countries with similar western style national cultures to the UK, Ireland and North America. These two countries form part of the pacific basin, as do some of their Asian operations. Although geographically close, the types of food products Asians generally purchase are quite different to the western types Australians and New Zealanders would purchase. So, therefore, there would not seem to be the logistical advantage for moving food stuffs between the two regions as one might first imagine, although there may be advantages in utilising distribution of vehicle fuels, viz. petrol and diesel.

Since Australia has a larger economy than New Zealand we will focus on the potential in Australia.

Some Australian Competitors to Tesco;

Coles Stores

Coles Stores has 760 stores and employ 92,000 people. Stores are situated in Queensland, Tasmania, New South Wales, South Western Australia and Western Australia. Coles Stores sell similar grocery products to Tesco, including on-line shopping. Whilst it hasn't been possible to obtain financial data on their level of revenues, one can assume given the number of stores that they would become a significant competitor.[ix] Coles Stores is owned by the very large Westfarmers Group, which owns many different companies, and appears to be a holding company rather similar to companies such as Hanson and Invensys of the UK.


Woolworths is another competitor to be considered, it commenced trading in the 1920's in Sidney and now has over 700 stores across Australia. They also offer online shopping, in keeping with many groups these days. In 1985 Woolworths acquired Australian Safeway stores, which they say gave them market leadership in the 1980's.[x]

Franklin Group

Franklin Group is a smaller group than the previous two mentioned above and have 80 stores around the suburbs of New South Wales. This supermarket group was founded in 1941 by Frank Lindstrom, which is where the Franklin's name originated. Even though they are a small group, they are well established and with plans for further expansion, and according to their website they are seeking to add between 5 to 10 additional stores per year over the next few year, under the current South African ownership of Pick 'n Pay who re-launched the Franklin Group in 2002. Franklin is also environmentally conscious with their offering of ‘envirobags', etc. and with the slogan “say no to plastic bags” helping to reinforce this policy.[xi]

The three examples shown above of typical competitors that Tesco would face, should not cause them too much concern, or offer any significant resistance to seriously considering Australia as a potential new international market to enter. They seem to have overcome any globalisation problems they may have encountered in Asia, central Europe and in America with some good results after only commencing American operations during the latter part of 2008.

5. Will Tesco's Strategies be Sufficient to Improve Its Long Term Competitive Positioning?

This is a very interesting question, as to how Tesco will approach and pursue its long term objectives. Observers of Tesco's changing fortunes and services during the last years will note as their portfolio has grown and expanded well beyond their original grocery product lines, into what some may consider striving to be ‘all things to all men' in the customer and consumer services market, as the strategy to follow to increase their financial strength, which in turn will add further stake-holder value and move them closer to Wal-Mart on the international stage.

Potential Problems - as they continue to expand their overseas interests they will increase their exposure to foreign currency fluctuations against their home-based British Sterling currency. This will require some very professional monitoring and they will need to have control mechanisms in place to determine the times when to hedge, sell and buy foreign currencies according to the movement of what has already become quite a number of foreign currencies. As we may see in the first main paragraph under Item 2.above, during 2008 Tesco obtained sales of £700 million from those foreign countries it is trading in. Although in percentage terms this is only around 1.5% of total sales it is destined to increase as Tesco continues with its growth strategy through international market expansion. From the writer's own business experience of managing a company with 75% export sales, exchange losses can easily become a problem unless careful control is maintained. Similar sized American companies generally seem to avoid this type of potential problem by always insisting their overseas suppliers and customers trade in US dollars, and will mostly get away with it; other countries, including Great Britain cannot and hence the points made above.

     With further reference to Item 2.above, Tesco had a net debt of £6,200 million for fiscal year 2008 which may limit any future loans required to fund further overseas expansion. Given the current state of the UK's banking situation, and with pension fund liabilities annually increasing brought about by the current, and anticipated medium-term poor equity and bond market returns, this area may cause difficulties and even possible delays to their expansion programme.

     On the environmental front, this should not present any new problems for them as they are already practicing modern applications as discussed earlier, in their other national and international stores, and the group management seems to be aware of the standards and is supporting green policies.

     In summary, based on Tesco's sales and profit growth and achievements in new product lines, be they telecom, financial services, legal non-lawyer services, etc. along with their export market progress, they would seem to have the wherewithal to make further export market expansion and follow their strategy successfully.

     Another consideration towards their continued growth has to include Group management, and I think in particular the Chief Executive Office, Sir Terence Leahy, who seems to have been instrumental in creating the strategies and managing them towards the global shape they now have, joining the company at an early age, allegedly as a shelf-packer! As for many large and even smaller companies, the entrepreneurial and inspirational leaders are a key to the successful growth and maintenance of these companies, so careful planning for succession is paramount for the Group's longer term future.

  1. Tesco, Annual Review and Financial Statement 2008 (Page 7), PDF; [Online] Available ;
  2. Tesco, Annual Review and Financial Statement 2008 (Page 4), PDF; [Online] Available ;
  3. Tesco, Annual Review and Financial Statement 2008 (Page 33), PDF; [Online] Available ;
  4. Tesco, Annual Review and Financial Statement 2008 (Page 3), PDF; [Online] Available ;
  5. Tesco, Annual Review and Financial Statement 2008 (Page 3), PDF; [Online] Available ;
  6. Tesco, Annual Review and Financial Statement 2008 (Page 7), PDF; [Online] Available ;
  7. Tesco, Annual Review and Financial Statement 2008 (Page 12), PDF; [Online] Available ;
  8. Schaefer, L. (2006, Business Section), DW-WORLD.DE ‘World's Biggest Retailer Wal-Mart Closes Up Shop in Germany' quoted in study by Knorr, A., Arndt A. [Online] Available ;,2144,2112746,00.html
  9. Coles Stores, [Online], Available ;
  10. Woolworths, [Online],Available;
  11. Franklin Stores,[Online], Available;