Business Strategy And Global Economy Context Commerce Essay


The assignment is set on the context of Business Strategy and Global Economy. Business firms are influence by global economic factors and it is important to consider these factors while making strategic decisions. Competition between firms, their growth and above all the survival of the firms depend on their strategic and corporate decision makings. We are asked to critically analyse the corporate strategies of two competing firms operating in same industry.

We will consider Tesco and Asda, two superstore giants in the UK retail industry, for our analysis. From corporate strategic point of view we will make efforts to compare and contrast between them. Our analysis will be focused on major strategic aspects because of the word limit for this assignment.

Industry background

UK retail industry has a history of more than several hundred years, however great changes took place in the superstore culture of retail industries in the recent past. Starting in 1840 as Co-operative society it took the form of supermarket in 1920. After 2nd world war supermarkets expanded and got tremendous pace in growth which still continues.


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We will follow the prescriptive school of thoughts for our analysis to get a better understanding of strategy formulation of selected companies. A four stage analysis will be conducted in this effort to grasp wider and more comprehensive analytical perception of company strategies. We will endeavour to look into the following analytic areas:

Competitive Analysis

Internal Analysis

Strategic selection model analysis

Global strategic decision model analysis

3.1 Competitive Analysis

3.1.1 PETS analysis

Generally PEST Analysis is the very important factor in the macro-environmental influences. The PEST frame work categories environmental influences into 4 main types:

Figure: PEST factors.

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Political factor

Governmental Stability

Taxation policy

Foreign trade regulation

Social welfare politics

Economical Factor

Business cycle

Interest rates


Disposable income

GNP trends

Money Supply


Socio-cultural Factors

Population demographics

Income distribution

Social mobility

Life style charges

Attitude to Work and leisure


Levels of education

Technological Factors

Government spending on research

Government and industry focus on technological effort

New discoveries/development

Speed of technology transfer

Rate of obsolescence

Johnson & Scholes (2006)

PEST Analysis for TESCO and ASDA


The Political factor involves the contact of local, national, international political decision and the political steadiness & unsteadiness of the UK government. The Economical factors are buying power of buyers and suppliers in the company. The Economical analysis needs to inspect the influences of stock market and tax increase, against many other monetary matters. The Sociological analysis is all about studying the background culture. The Technological factors are the adaption of new and improved technology, Tesco online shopping is a major factor in their recent success. Some drastic changes that could affect Tesco in upcoming future are:

Political: government ban on smoking in pubs.

Economic: increased fuel Tax.

Sociological: an influx of cheap polish labour.

Technological: identity cards.

Online, available from: and [visited = 02/10/2010]


The Political factors are political conflict due to invasion of large number of foreign nationals in the country and unsteady Government due to govt. lack of ability to stable the economy. The Economic factors are increased demand due to online shopping, maximising the advertisement and contribution to local regional economies and recession -leads to unemployment. The Social Factors are-ageing population could lead to an increase to ASDA pension and in areas of high concentration of ethnic group, goods and services are targeted towards that ethnic group e.g. Southall/Slough. The Technological factors are new products i.e. mobile phones, mp3 player vacuum cleaner, self service and efficiency in stock control due to bar coding.

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3.1.2 SWOT Analysis

SWOT analysis of TESCO and ASDA:

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In 2008 Tesco secured commercial standing within the global market place winning at the ''World Retail Awards''. This is big achievement for Tesco group for further growth and sustainability.

Now days the world retail sector sales are going down or level of performance also going down, but the Tesco's sales gain in UK market is 13% and 26% growth in international markets.

Tesco is providing maximum level of customer service.

Tesco have reserve funds for further expansion.

Increasing market share

Tesco online

Brand value

UK market leadership reinforced.


The bad debt, credit card and household insurance were impacted by Tesco finance level.

Tesco is a price leader in UK retail market, but day by day reducing the profit margin.

Tescos current economic suggests the key value message will be successful there is a weakness in non-additional, mid to high ticket price items, that will be suffer from the increasing cost of living and lower incomes.

Leading as a leader in UK retail market.


TESCO is the third biggest international retailer. It's indicated a level of buying power and ensures the mainstream of economies scale.

The international growth of Tesco is increasing day by day.

In 2009 ¼ million customers grown the Tesco mobile and they are stimulated into profitable stage for further growth.


The present scenario of the world market is on danger position because of ''credit crunch''.UK and American markets have been affected by economic concerns through the ''credit crunch''.

The raw material costs of food and non-food are increasing day by day and it will be effect on overall profit margins.

International expansion.

Wall mart/ Asda is the nearest competitor.



Asda is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.

Asda has grown substantially over recent years, and has experienced global expansion.

A focused strategy is in place for human resource management and development. People are key to Asda's business and it invests time and money in training people, and retaining a developing them.


Asda is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.

Since Asda sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Asda is not a global company.


To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region.

The stores are currently only trade in a UK market. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India.

New locations and store types offer Asda opportunities to exploit market development. They diversified from large super centers, to local and mall-based sites.

Opportunities exist for Asda to continue with its current strategy of large, super centers.


Being number one means that you are the target of competition.

The cost of producing many consumer products tends to have fallen because of lower manufacturing costs. Manufacturing cost have fallen due to outsourcing to low-cost regions of the World. This has lead to price competition, resulting in price deflation in some ranges. Intense price competition is a threat.

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3.2 Internal Analysis

3.2.1 7-S Model

Every organization should have a corporate strategy for its successful business endeavour. 7-S model is a frame work of activities for analyzing organization with their usefulness.

Strategy: Every business organization has a detailed goal for its future growth or development could be defined as a strategy which formulates to gain a sustainable competitive advantage. Now we can breakdown what is competitive advantage to make clear the sense of strategy, it is classified with two way:


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Exclusive licenses

Statutory monopolies


Strong Brand

Leadership: ASDA cost leadership could be an example.

Tacit Knowledge and skill

Teamwork: ASDA and TESCO employee are motivated with team work which is the similarities in same industry.

Organizational culture:

Business process


As a whole we can describe the organizational strategy should be capable with technical, financial, marketing and explicit knowledge with nonexclusive licenses.

Structure: Structure is an outline work of an institute which activities are synchronized by the members. The structural form is divided into four well-designed form, division, culture, matrix formation, and network construction.

Systems: Systems is a set of process, including modernization systems, reimbursement systems, management information systems, and capital distribution systems, which direct everyday movement.

Style: Style is the leadership approach of top management, how the organization employee's present themselves outside of their business world with the dealing of their supplier and customers.

Skill: Skill and staff is considerate under the leadership- management synergy. Skill and competencies is measure what the company does best exist in the organization. Skill member in the organization is the key characteristics for business achievement.

Staff: Six's model is described and measure in a organization how the human resources are developing their people, trained, socialized, integrated, motivated, and how their carrier are managed.

Shared value: Shared value is last model, where the employee can empowers themselves with super ordinate goals, value and aspiration, corporate objective as well the core idea around which a business is built. Its influence a group of worker to work together for a common objective

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As ASDA and TESCO are operating in the same industry internationally they have some similarities in their strategic planning according to their Tangible & Intangible, style, structure, systems, skill, staff and shared value. In the world retailed super market business both company are using their monopoly idea. Both companies are trying to promote their own brand. It could be their strategic plan is different from place to place and one country to other country to gain the market but the concept is same. For example both of the company is trying to cost leadership business approach over the world. The team work effort strategy planning, organizational culture, work shifting systems, self check out approaches, staffing policy, company shared value, staff bonus, pattern of business style, structure of organization organogram are very same in previous, present and for the future. Where as, it could be changed little bit according to their necessity.

3.2.2 Boston Consulting Group (BCG) model analysis

BCG model is all about allocating the resources in various units of a company. It is based on product life cycle theory. It is used to identify what priorities should be given in the product portfolio of a business unit. This model is developed by Boston Consulting group. It basically focuses two areas. These are Market Share and Market Growth. The main idea at the back of this dimension is the bigger the market share of a product has or the faster growth of a product. This model shows the different business units on a graph of the market growth vs. Market share relative the organisation. It can also be used as analytical tools in brand marketing, product management, strategic management.

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Four Categories:


Slow market share and low growth product are considered as dog. This product neither generates nor consumes a huge amount of cash. Dogs are used as a trap in business because money engaged in business which has little potential.

Question Mark:

Question mark is also known as "problem child". It is a rapid growth product which also consume large amount of cash. It does not generate large money because of lower market share. It has the potential to gain market share and become a star. If it fails to do so, It will be a Dog. Because of its lower market share and low growth rate. It should be analysed carefully, whether to invest more for market share.


Star generate a lot of money for the company at the same time it also consume money because of its high growth rate. If a star can be stable at its level, once it will become a cash cow when the market growth rate decline. A company should have star which will become a cash cow at the near future and it will generate cash for the company.

Cash Cow:

These are considered as the leader of a mature market. It provides more cash than it consume. These are the main profit area of a company. in this case, company should invest as little as possible. It provides a steady cash flow to the company, by which company can maintain its administrative and operating cost. It also can provide the dividend to the shareholders.

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BCG analysis regarding TESCO and ASDA:


Tesco is the UK's largest retail shop and third largest in the world. In the year 2009, Tesco's total revenue was £12 billion. It has several divisions from which we figure out some sectors which are generating cash and some are consuming cash.

Tesco Electronics which is known as Tesco Technika, that is providing TV, camera, phone, DVD etc. Because of low market share and low growth rate, it is consuming a huge amount of cash. So, we can consider it as dog.

Tesco clothing and jewellery is also consuming a large amount of cash because of its high growth rate. It's a very potential sector for them. They have to invest here for capturing the market share. So, this is really a problem child for them.

Tesco cosmetics have huge demand in the market. It can become a cash cow for them. They need to decline the growth rate for it.

Tesco bakery is a cash cow for Tesco. /they need to invest as little as possible in this sector because, it is consuming very less but generating a huge amount of cash.

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Asda is the second largest retail shop In UK and a sister concern of Wall mart. Its total revenue was £3 billion.

Asda furniture can be considers as a dog because of its low market share. It's consuming a huge number of cash.

Asda Internet is covering only Croydon and south London. If they invest more and cover the other areas of London, they will be benefited. That's why it's a question mark foe them.

Asda's home brand clothing named George is a profitable sector for them. If they can maintain this level, it could be a cash cow for them in near future.

Asda groceries are generating a huge number of money. So, it's a cash cow for them. However, they can allocate fund in furniture sector.

Online, available from: [visited on 20/02/10]

3.3 Strategic selection model Analysis

3.3.1 Michael Porter's Generic Strategic Model:

Generic Strategies can be applied to products or services, and to organizations of all sizes. Porter categorised the strategies in three steps:

Cost Leadership



He then subdivided the Focus strategy into two parts:

Cost Focus and

Differentiation Focus.

These are shown in a figure below:

Porter (1998)

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Cost Leadership Strategy:

Generic strategies are methods how to gain competitive advantage. It develops the frame that gets a company the sale and takes the advantage from your competitors. We can achieve this within a Cost Leadership strategy in two main ways:

Rising profits by minimising costs, while charging average prices.

Rising market share by charging lower prices. In this case, we have to reduce costs to get reasonable profit on each sale.

The Cost Leadership strategy is to being the principal in terms of cost in your industry of market. Getting first position amongst the lowest-cost producers is not the main thing. Other low cost producers may try to undercut your prices and therefore obstruct your trying to increase market share.

Successful companies in achieving Cost Leadership usually have:

Enough capital to invest in technological support that will bring its costs down.

Well-organized logistical support.

Available low cost labour, materials, facilities, etc.

2. Differentiation Strategy:

This strategy works to make your products or services different from and more attractive than your competitors. This depends on what type of industry it is and what sorts of products and services are you giving. This also typically involve features, functionality, durability and another important thing, the brand image, that your customers value.

Organizations need some elements to make a success of a generic Differentiation strategy. These are:

Excellent research, development and innovation.

The capability to serve good-quality products or services.

Useful sales and marketing department.

3. Focus Strategy:

Focus Strategy is more powerful form of either the Cost Leadership or Differentiation Strategy. It is designed to deal with a focused segment of the marketplace, product type or cost management process. It is based on the idea of serving a particular target in such an exceptional manner, that other companies cannot compete. Focus Strategy is like a moderator of Cost Leadership and Differentiation Strategy.

Online: available from: [visited on 20/02/2010]

Implementation of Porter's Generic Strategies model on TESCO and ASDA:

When ASDA came from United States to UK market, they brought Cost Leadership strategy with them. They offered 'smart price' in some particular items and managed to take advantage over their rivals like Tesco by implementing the strategy. Tesco overtook ASDA in last few years by implementing the same strategy in their own way, offering 'price cut' in some of their particular products.

When a company differentiates its products, they need to charge a premium price, because of extra cost. Tesco introduced Clubcard points in every pound customers spend at store. Now they doubled the point to attract customers and took advantage from their business rival ASDA.

ASDA and Tesco both decorate some particular shelves in some particular occasion like Christmas, Easter, New Year to attract customers. They also reduce the price of those festive items like chocolate, cake, flowers etc. to get one step ahead of their competitors.

Online: available from: [visited on 20/02/2010]

3.4 Global strategic decision model Analysis

3.4.1 Porter's Diamond model

Porter introduced a model that determines factors of national competitive advantage known as Porters Diamond. Four determinants are as below:- 

1. Factor Conditions

Factors can be grouped into human resources like -skilled and qualified labor, labor cost, commitment etc., natural resources, knowledge resources, capital resources, and infrastructure. Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions.

To established the retail industry in UK almost the same factor conditions work for ASDA and TESCO. Both have skilled workforce and sophisticated infrastructure, skilled human resources or a scientific base, speed of creation, speed of upgrade, and degree of specialisation in retail industry.

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2. Related and Supporting Industries

A set of strong related and supporting industries is important to the international competitiveness of firms. This includes supplier and related industries. If local supporting industries are competitive, firms enjoy more effective and innovative inputs. Internationally competitive home-based suppliers create advantage in downstream industries through superior inputs, co-ordination in the value chain and innovation and upgrading.

The competitiveness of retail industry is benefit from the local industries, local producers and local farmers. ASDA and TESCO are both selling almost similar items like Grocery, Fresh, Wine, Clothing, Phone accessory, Electronic goods. We can see both retail company-ASDA and TESCO has a good supply chain with their local Industries, local Producers, local Farmers and foreign suppliers.

3. Firm Strategy, Structure, and Rivalry

The context of characteristics of firm strategy, structure and rivalry in different countries also helps explain bases of advantage. The conditions in nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.

TESCO implement a clear cost leadership strategy, as market leaders they benefit heavily from economies of scale. The introduction of their own brand allowed the company to cut their costs and increase their profit margins. Tosco's current strategy is very much one of growth. Depend on the feature aimed at the high street consumer TESCO offering different categories shop and services-

In Tesco's Extra stores here are over 15,000 of their own brand products. Customer can buy any product in cheaper price. Tesco Extra stores, selling not just food, like other supermarkets.

"Tesco Metro" was introduced. This was a feature aimed at the high street consumer while offering the benefits of a large supermarket.

"Tesco Express" in essence a petrol station with a small Tesco store onsite. This offered customer convinces products i.e. bread, milk and essential grocery items.

Tesco Direct - The recent interim results show how Tesco's non-food products have made good progress. Tesco's Direct will offer the vast range to anyone with computer access.

Telecommunications - Tesco launched an ISP service back in 1998, but have invested more heavily in this field since 2003. Tesco's mobile is in an association with O2 and their ADSL package with NTL.

Personal Finance - Tesco Personal Finance displays to the extent the corporation is diversifying, now moving outside the retail sector.

Online: [Visited on: 22nd Feb. 2010]

When we look at the ASDA's main strategy is bit same as TESCO-is the ability to keep costs low and pass that on to customers in lower prices. All the ASDA stores have largely accommodated similar with TESCO EXTRA, have the ASDA Direct, George for clothing, Groceries and Financial services. But ASDA don't have the store like Tesco metro or Tesco Express where Tesco's current strategy is very much one of growth.

UK's retail industry such Sainsbury's, Marks & Spencer, Morrisons, Waitrose and so on are the good example of domestic rivalry of Tesco and Asda.

4. Demand Conditions:

The shaping of particular factor conditions is influence by demand condition. Porter state that home demand is determined by three major characteristics-the mix of customer's needs and wants, their capacity and expansion rate, and the mechanisms that send out domestic preferences to foreign markets.

He also states that if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors ,a country can achieve national advantages in an industry or market segment,

Enormous demand and high quality desires in retail industry in UK in resulted TESCO and ASDA to produce high quality products.

4 Conclusion

In our above discussion we examined two retail supermarket competitors ASDA and TESCO from strategic point of view. Our analysis recognises the similarities and differences in strategic policy and decision making of these firms. We have analysed them from different perspectives such as competitiveness, strength and weakness of firm's internal and external resources, divisional management strategy, market leadership, and international business strategic policies. Being operating in the same market and same industry, they face similar threats and challenges, enjoy same advantages and facilities yet different business strategies and organisational policies shape their corporate identity. Similarities in strategies such as cost leadership and product diversification bring them closer to competition at the same time difference in strategies such as selection of market strategies, product focusing and branding determines their individual position in the market competition.

Word Count: 3928


Gerry Johnson, Kevan Scholes and Richard Whittington (2007). Exploring Corporate Strategy, Text and cases. Financial Times/ Prentice Hall; 8 edition.

Michael Porter, 1990. The Competitive Advantage of Nations. Prentice Hall, Exploring Corporate Strategy, 7th edition.

Porter, Michael E. 1998. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press, New York.

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