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Tesco’s Entry into China

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Tue, 02 Jan 2018

1.0 Introduction

Tesco is the largest UK retailer and it operating their business in the Europe and Asia. In this project it also discussed about Tesco enter to the China market. This project is divided into two parts, which is task 1 and task 2. Task 1 is discussed about the internal and external influences. Internal influences involve training and development, organization structure, leadership and product and services. Moreover, external influence includes PEST analysis and Porter’s Five Forces. Follow the task 2 is discussed about global political change influences on policies and decision-making and the effectiveness of Tesco. Lastly, is discussed about the improvement of Tesco.

1.1 Background of company

Tesco is the largest retailer in the UK and is the third largest retailer in the world. Tesco operation in 14 countries and have 470,000 employees in the worlds. (Tesco corporate responsibility report, 2009) Tesco establish in 1932 by Jack Cohen in the UK. In 1974, Tesco open the first petrol station. In 2000, Tesco.com is established and Tesco sell the product through the internet. (Tesco plc, 2009) Now Tesco has become a successful online retailer. Tesco provide a lot of products and services to the customers such as food product, non-food product, finance services, insurances services, mobile services and so on. According to Gary Bowerman (2007), Tesco enter into China in 2004 by joint venture with a Chinese business partners which is called Ting Hsin. Nowadays, Tesco has 70 stores in China. (Tesco corporate responsibility report, 2009)

2.0 Internal Influences

2.1 Training and development

Training and development

* Establish Tesco Academy
* Provide training to employees and managers
* Examples: 1) Introduction training
– one day long training
– new employee must participate in this training (Laszlo Gulyas, n.d.)
2) Multi skills training
– learn different skills in the different position (Laszlo Gulyas, n.d.)
3) Technical training
– learn about technical capability in the organization (Tesco Plc, 2010)
4) Behavioral training
– learn about team work, communication and personality development
( Tesco Plc, 2010)
5) Other training
Examples: elevator-operator training, hygiene training, barrowman
training, inventory training and so on. (Laszlo Gulyas, n.d.)
* Also got provide personal development plan
* Employees will works across different areas of stores, to learn different skills and get more experiences
* Using 360-degree appraisal (The Times 100, 2010)

Table 2.1: Training and development

2.1.1Responses on the training and development

Tesco provide a good training and development to their employees. Tesco establish a Tesco Academy for their employees to training. It also provides a lot of program for employees to join such as higher education program is to help employees to get the certifications. Through the training, it improves work efficiency of each employee. Besides that, Tesco using 360-degree appraisal, to make sure the training provided to the employees is efficient. The training provide by Tesco is not only for improved the present job it also for employees to prepare for their future job. Tesco can become a largest UK retailer because they have a group of efficient employees.

2.2 Organization Structure

Organization Structure

* Decentralized structure (Hedgehog, n.d.)
* Hierarchical structure- is very easy to understand the structure
-simple structure let employee easily to see who is in charge in
each department (Hedgehog, n.d.)
* Provide six works level to the employees (The Times 100, 2010)

Table 2.2: Organization structure

2.2.1 Responses on the organization structure

Tesco is a decentralized structure company. The decentralized structure are very effective because is able for store manager to make the decision. An example, the store manager is more understand the environment working; they can make an effective decision rather than top manager. Next, provide an opportunity for store manager to make decision is also a motivation for employee to work. Decentralized structure also can decrease red tape problem in Tesco. The hierarchical structure shows a very clear and the employees are easily to see who is in charge person. Besides that, there are six work levels in the Tesco. Each level requires specific skills from the employees. The purpose of this six work levels is want the employees to understand what kinds of skills they need. Tesco provide a very clear structure for employees to know what they should do in organization. Employees more understand their roles it can help to improve their works efficiency. A good and clear organization structure can help Tesco growth rapidly.

2.3 Leadership

Leadership

· Sir Terry Leahy, CEO at Tesco
* He is a marketing genius, clear thinker and good listener
* Global recession, sales of Tesco still growth
* Tesco employee said that, he is a good boss to work for. He give reward to the employee who performance well.
* The Tesco employee said that, “ he never loses his temper or raises his voice”
* Sir Terry Leahy says: “I believe a lot in people. I believe a lot in the potential of people. So, I have never lost that belief that people are capable of incredible things if you give them the confidence and opportunity”.
( Paul Vallely, 2009)
* He chosen as Britain’s “Business Leader of the Year” in 2003
* He selected as most admired business leader by Management Today in 2005
* He selected as the most influential non-elected person in Britain in 2007
(Lancaster University, 2008)

Table 2.3: Leadership

2.3.1 Responses on the leadership

Sir Terry Leahy is a CEO of Tesco. The main reason Tesco can become the third largest food retailer in the whole world is because Tesco has a good leader. Sir Terry Leahy is a good business leader. Sir Terry Leahy is a good business leader, he was very power on promote potential employee. He believe that every person have their own strength, just waiting an opportunity for them to performance. Furthermore, he is a friendly person. He does not think he is a CEO; he will take lunch with colleague in the Tesco canteen. Next, when he goes to watch the football he does not sit in the director place, he will sit with the football fans. (Paul Vallely, 2009) He is a high EQ person; he does not lose his temper to their employees. According to the Douglas McGregor Theory X and Theory Y, Sir Terry Leahy is a theory Y manager. Theory Y manager believe that employee in the right conditions will be work hard and also will increase the output. (Richard M. Hodgetts, et al., 2006, p.g399) By and large, leader is an important role in the company, it can influencing a company activities and employees performance. A good leader can lead a company to achieve a goal. Tesco can become successful is because they have a smart leader.

2.4 Product and services

Product and services

· Food product: vegetables, fish, canned goods and etc.

· Non-food product: clothing, electronic product, stationery and so on.

· Electronic product produced by Tesco- Technika

* Banking services- Tesco Bank

* Insurances services, mobile services, petrol station, online sales and etc.

* Tesco Clubcard

(Wikepedia, 2010)

Table 2.4: Product and services

2.4.1 Responses on the product and services

Tesco sells a lot of food product, non-food product and services to the consumers. Tesco Clubcard is one of the services provide by Tesco to retain and attract customers. Tesco Clubcard holders can get the points when they purchase in Tesco. After collect enough points, consumers can use these points to exchange the Tesco voucher. In addition that, Tesco also sell the product through the internet, all the products are available on the internet in 24 hours. Tesco not only just focus on sells food products, it also has many other business such as banking, insurances, mobile services and so on. Although global recession but the sales of Tesco still increase because consumers are satisfied the product and services provide by Tesco.

3.0 External influences

3.1 PEST Analysis

PEST analysis are stands for political, economic, social-cultural and technology. PEST analysis is used to look at the environment before start the business. In the following part, I will use PEST analysis to analyze the China market.

3.1.1 Political

Political

* China is a totalitarian government
* In 17 September 2001, China has entered to World Trade Organization (WTO) (World Trade Organization, 2001)
* China have a serious problem on human right issues
-Death penalty, in 2008, China has the highest number of death penalty which is 1718 (Amnesty International, 2009)
-One child policy-according to BBC News (2000), China introduces one-child policy to control population.
* China has serious problem on corruption
-According to the Global Competitiveness report (2009), the corruption problem rank numbers six in the China.
-China gets 3.6 points, which 0 represent the most corrupt country. (Transparency International, 2009)

Table 3.1.1: Political

3.1.1.1. Responses on the political

China has inefficient government bureaucracy, it create red tape and corruption problem. A country has a serious corruption incident will affect poverty and income inequality by reducing economic growth and investors will lose of interest invest in the country. Red tape also effect all the process cannot run smoothly and every decision need to take a long time to getting approval. In the 21st century, government should respect the human right and must reduce the death penalty without conviction. As conclude, China government should reorganize the bureaucracy then the country will become more developed and prosperous.

3.1.2 Economic

Economic

* China economic growth rapidly
* China every year increasing in Gross Domestic Product (GDP)
* In 2007, the GDP of China was 33,535.3 billion yuan and raise 8.7 over the 2008. The GDP, 2005-2009 graphs shows it in appendix. (National Bureau of Statistics of China, 2010)
* 779.95 million people employed in China, 5.15 million more than 2008. (National Bureau of Statistics of China, 2010)
* Net income per capital of China urban raised 9.8% than 2008 and income per capital of rural raised 8.5% (National Bureau of Statistics of China, 2010)

Table: 3.1.2 Economic

3.1.2.1 Responses on the economic

China has become a populous country and it is one of the most important countries for economy power. A lot of people said that, a company does not doing business with China is not consider as the developed company. Hence, China has become receiving most foreign direct investment (FDI) in the world. This proves that, China has become a powerful country. The economy of China has growth rapidly, the residents have earned more money and it also improves their standard of living. I believed that after the ten years, China will surpass the United Stated and become the largest and powerful economy in the world.

3.1.3 Social-cultural

Social-cultural

· China has more than 1.3 billion people
· People Daily Online (2007) mention that China has 37 million more males than females because Chinese people traditional minds to prefer a boy.
· China has various regions such as Buddhism, Confucianism, Taoism, Christian and so on.
· Most of the people speak Mandarin
· Important business culture: “guanxi”
· “guanxi” means good connection and good relationship with business partners. (Richard M. Hodgetts, et al., 2006, p.g.141)
· In a survey of 2000 people, 92% agree that “guanxi” play an important role in the daily life. (Rosalie L. Tung, 1996, p.g.239)
· Can send the gifts to business partners or government officials on festival such as Chinese New Year.

Table 3.1.3: Social-cultural

3.1.3.1 Responses on the social-cultural

China has more than 1.3 billion people and it is a very complicated country for the westerners. China has thousands years of history, it has a lot of culture and this is hard to understand by foreigners. For doing business in China, at least one of the investor must know how to speak in mandarin. Another important business culture that investors have to be aware is “guanxi”. “Guanxi” means good connection with business partners. (Richard M. Hodgetts, et al., 2006, p.g.141) In western perspective, “guanxi” means of bribery but this is very important business culture in China. Investors have a good relationship with people, the business can be more successful and it also can minimize the risks when doing business. Although we understand that “guanxi” is not a good behavior but we still need to follow their business culture because Chinese people got one famous dictum that is “ Ru Jing Sui Su”, means every person go to a new environment, must follow their culture.

3.1.4 Technology

Technology

· China has become the second largest online population after United States. (Mark Ward, 2005)
· According to Internet World Stats (2010), in 2009, internet user was increase 9.7% over previous years. The table of internet usage and population statistics in China shows it in appendix.
· Chinese people reject to use online for purchasing and payment because of worry about security.
· The China Market Research Group (CMR) has interviewed 500 young people, 80% people said that they have made online purchasing and they will purchase again in the future. (Shaun Rein, 2008)
· In 2009, China government spending US$78.3bn on improve technology to create a good technology environment. (Research and markets, 2010)

Table 3.1.4: Technology

3.1.4.1 Responses on the technology

Although the report shows that China people satisfied with online purchasing and payment but I believed that still a lot of people worry about the security on payment and purchasing. Making e-business in China seems to be challenge for the investors. China government already spends a lot of money to improve the technology, after few years, China will become a potential country for doing e-business.

3.2 Porter’s Five Forces

According to businessballs.com (2009), Porter’s five forces model provide “a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization.” Porter’s five forces include the degree of rivalry, threats of new entrants, threats of substitutes, buyer power and supplier power. In this part, I will use Porter’s five forces to analyze the China market.

3.2.1 Degree of rivalry

Degree of rivalry

Local competitors

* LianHua supermarket
* More than 3870 supermarkets, hypermarkets and convenience store
* The largest store in China
* Strong competitors of Tesco
(Yahoo Finance, 2010)

Another strong local competitors

* Hualian hypermarket
* Wumart
* Wuhan Zhunghai
(Jean Kinsey and Min Xue, 2005)

Foreign competitors

* Carrefour
-in 1995 moving to China
-Carrefour as the largest foreign retailer in China
-more than 345 stores
* Wal-Mart
-in 1996 moving to China
* Metro
-in 1996 moving to China
(Jean Kinsey and Min Xue, 2005)

Table 3.2.1: Degree of rivalry

3.2.1.1 Responses on the degree of rivalry

Tesco has a lot of strong competitors in China such as LianHua supermarket, Hualian hypermarket Carrefour, Wal-Mart and so on. Tesco is hard to compete with them. One of the reasons is LianHua and Hualian is a local supermarket, it’s have a lot of knowledge about the Chinese consumers needs and the culture in China. Secondly, Carrefour, Wal-Mart and Metro have more than 10 years experience in China market. They are more understood the culture and customer needs rather than Tesco. Thirdly, Carrefour and Wal-Mart have more than 10 years in China; consumers are ready to accept them. Tesco is a new store in China; the consumers may take some time to accept the Tesco. Furthermore, the local competitors are very smart, they are very fast to copy the successful strategies from others companies and using this strategies to run their business. As conclude, Tesco has very tough competitors in China and they still got a long way to pay the effort to understand the China market and improve their marketing strategies.

3.2.2 Threat of new entrants

Thereat of new entrants

· China is an attractive market for investors to enter
· Low barriers to enter.
· China government should set the block, control the foreign competitors enter.

Table 3.2.2: Threat of new entrants

3.2.2.1 Responses on threat of new entrants

After China join the WTO, the China become open market for foreign company. The foreign companies are very easier entering to China market. China government encourage foreign supermarket enter to China because it can provide a lot of job opportunities to the people. More people get the job it can improve the standard living and economic in China. China is look like gold-mine for investors, so it keep more foreign supermarket enter and it create a price war problem. Hence, the China government should set the block to control the foreign competitors enter.

3.2.3 Threats of substitute concepts

Threats of substitute concepts

* E-shopping
-convenience, efficient, faster and available in 24 hours
* Roadside market
-consumer can bargaining the price of product
* 7-eleven
-convenience and available in 24 hours
* Wet market
-consumers can bargaining the price
-consumers enjoy in the bargaining process especially old people
-human contact

Table 3.2.3: Threats of substitute concepts

3.2.3.1 Responses on threats of substitute concepts

E-shopping, roadside market, 7-eleven and wet market is the substitute of Tesco. Now are more people prefer e-shopping because it save time, convenience and flexible. It just simply click the mouse, the product will delivered to our house. For the old people, they more prefer go to roadside and wet market. They like have a human contact with the owner of the stores. They also can bargain the price of product in the roadside and wet market and they enjoy the bargaining process. Moreover, 7-eleven also can consider as the substitute of Tesco. 7-eleven operate 24 hours, consumers can purchase the product in anytime they like. Even though roadside and wet market is the substitute of Tesco but I believe that in the future Tesco will replace the roadside and wet market.

3.2.4 Buyer power

Buyer power

· Improve on standard living, increase in purchasing power and more people prefer go to supermarket.
· China ranks number two in buying power. (Tim Ahmann, 2008)
· More people prefer quality product
· China people prefer to buy a foreign product rather than local product. (K M Rehan Salahuddin, 2009)

Table 3.2.4: Buyer power

3.2.4.1 Responses on buyer power

China has huge populations that are over 1.3 billion people. Just imagine that, if every family go to Tesco purchase the product, Tesco can earn a lot of profits. Furthermore, the economics of China growth rapidly it has lead to increase the standard of living for the Chinese people and also affect them prefer go to supermarket rather than roadside and wet market. In the present time, Chinese people have more demanding on foreign and quality product. It is because they started aware on the quality of product, the customer services, the warranty and after sales services. Thus, the buyer power in China is very high.

3.2.5 Supplier power

Supplier power

* Difficult for small farmers to produce a large quantities and high quality crops.
* Supplier powers are very low.
(Jean Kinsey and Min Xue, 2005)

Table 3.2.5: Supplier power

3.2.5.1 Responses on supplier power

In China, the small farmers are difficult supply a large quantities crops to the market. Besides that, government prevents farmer over produce and the farmer’s just can cultivates about one hectare. (Jean Kinsey and Min Xue, 2005) Although the bargaining suppliers are low in China but Tesco has a good supply chain and they still can get the crops they want.

Appendix

YEAR

Users

Population

% Pen.

Usage Source

2000

22,500,000

1,288,307,100

1.7 %

ITU

2001

33,700,000

1,288,307,100

2.6 %

ITU

2002

59,100,000

1,288,307,100

4.6 %

ITU

2003

69,000,000

1,288,307,100

5.4 %

CNNIC

2004

94,000,000

1,288,307,100

7.3 %

CNNIC

2005

103,000,000

1,289,664,808

7.9 %

CNNIC

2006

137,000,000

1,317,431,495

10.4 %

CNNIC

2007

162,000,000

1,317,431,495

12.3 %

CNNIC

2008

253,000,000

1,330,044,605

19.0 %

CNNIC

2009

384,000,000

1,338,612,968

28.7 %

CNNIC


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