Case Study
Growth Strategies and PESTLE Analysis for Tesco

Introduction

Tesco is a highly successful company from UK, with branches and businesses in many other countries around the world. The company is also a respectable company by investors and analysts, as company is able to deliver consistent growth in dividend payment to shareholders for the 26th consecutive years in 2010, an unrivaled and remarkable record if that is compared to other companies in FTSE 100.

Growth Strategies and Rationale for Tesco

In this section, the various growth strategies or methods by which Tesco had employed in the past are discussed. Besides, the reasons that Tesco had choose these strategies are also outlined.

 

Tesco Loyalty Scheme. One of the key growth strategies employed by Tesco is to growth and enhances customer loyalty through its Tesco Loyalty Scheme. According to the Annual Report of Tesco in 2010, such “Clubcard” is intended to reward loyalty both at home and abroad. Under such scheme, customers enroll in the loyalty “Clubcard” scheme to enjoy further discount and promotional items provided by Tesco. On the other hand, such scheme enables Tesco to build stronger relationships with customers, while obtain valuable data on consumer behaviors and preferences. With accurate insights into the consumer behaviors, the company able to grow market share through offering of better services, right products at the right place and to implement marketing strategies that encourage existing customers to spend more in the stores (Plimmer, 2010; Ma et. al., 2010).

 

5 Years people strategy. A strong focus on the people is what makes Tesco growing fast in UK as well as in the international context. In Tesco, people strategy is regarded as an integral part of the business strategy and plans. The management is responsible to provide interesting job and promising career path, to be helpful, to respect and care for the workforce. This is not hard to understand, as people are the assets of the company that make everything else possible and profitable.

 

Growth through product diversification. According to researcher, one of the key strategies for Tesco to surpass its competitor such as Sainsbury is through selling of goods those usually not sold by supermarket. Such a strategy is successful because Tesco is able to derive more revenue from cross selling of products, while as the same time provide more convenience to the customers. Choices offered to the customers shopping in the firm had increased, and Tesco effectively becoming the one stop solution from the customer point of views (Palmer, 2005).

 

Successful internationalization process. As Tesco becoming the biggest retail chain in UK, it is no longer rationale to expect further growth to come from UK alone. Thus, to grow faster and further, Tesco had expanded globally. Secondly, by venturing into the global context, Tesco can tap into a larger market potentials and derive higher revenue from the enlarged market shares. It is reasonable to export the successful business model in UK, adapted to suit the local concepts and practices in the foreign countries, to reach another pool of consumers (Lowe et. al., 2010; Palmer, 2005). Not only that, many of the countries in which Tesco had ventured into looks promising. For examples, Tesco had ventured into many of the fast growing emerging countries, such as South Korea, Thailand, China, Malaysia, and India in Asia.

 

Establishing Tesco Bank. One of the platforms developed to ensure future growth for Tesco is the establishment of Tesco Bank. According to the corporate Annual Report in 2010, Tesco bank is working in providing a broader product range, and is in the progress of becoming a full-service retail bank. Such a strategy is reasonable, as Tesco had become so big in size and by offering financial services to the customers will likely enhance customers’ satisfaction and loyalty. Such services are complementary and value adding to the existing services offered by the bank currently. Besides, Tesco can also derive more revenue from the financial services arm in the future (Ma et. al., 2010).

PESTLE Analysis for Tesco

Political Factors

A review of Tesco’s operation found that the company has significant investments and business in three regions, namely Europe, US and Asia. Thus, the political development of countries or regions that Tesco are venturing into will affect the performance or profitability of Tesco. Luckily, it is observed that most of the countries in which Tesco has operation are stable from a political standpoint. There is no social unrest or serious political issues happening in these countries. Besides, the many governments of these countries are committed to provide excellent environment for the businesses to flourish so that the standard of living of people staying in these countries can be enhanced. For example, the government in China and some emerging countries in Asia are pro-business, giving several incentives to foreign businesses to conduct expansion to the countries. This had benefited Tesco significantly.

Economic Factors

Currently, the economic situations of the world remain volatile, although signs of recovery are observed in some of the Western world. Generally speaking, the economic situation in Europe and US remain sluggish, uncertain and turbulent, whereby unemployment rate remain high. Fortunately, the Quantitative Easing and expansionary monetary policy implemented by various governments from these countries seemingly are yield successful results, as the economy is argued to be on the path of slow recovery lately (Schmidt-Hebbel, 2010). The economic situation in Asia looks more promising, as China is leading the economic activities in the region. Nonetheless, it is found that due to the huge capital inflow from the developed countries, some analysts are arguing that that could cause economic hard landing for China in the near future (Evans et. al., 2010). Overall, inflationary pressure is slowly felt by various countries around the world. With the crises in Middle East, the oil prices have shoot up, threatening the recovery of world economy. It is reasonable to expect that the economy will be volatile and turbulent in the near term, although it looks promising in the long term.

Socio-Cultural Factors

The social-cultural factors for each of the countries around the world are different. As different people from different background or nation tend to exhibit different behaviors and culture, each of these issues should be considered in planning retailing best practices and strategies in different part of the world (Brouthers et. al., 1998). However, some general trends in the global context can be observed. The consumers are becoming more knowledgeable and demanding. Besides, people around the world seemingly are becoming more materialistic. The demand of quality products with the cheapest pricing is a common theme (Calof et. al., 2005; Doole, 2004).

Environmental Factors

People are becoming more environmental conscious. Besides, there are also NGOs and environmental activists monitoring the harm caused by businesses to the world. The public demand a cleaner, greener and more sustainable world (Albino et. al., 2009). Government and regulatory bodies are also becoming more concerned by the pollution created by firms. Not only that, as people are becoming more environmental conscious, they will purchase more of the green products, or from those socially responsible businesses (Bergmiller et. al., 2009), and this should not be ignored by retailers. By proactively implementing policies to preserve the world, a retailer can possibly affect the consumers’ perceptions on its company and brand (Doyle et. al., 2006).

Technological Factors

Technologies advances fast in the last decades, whereby the emergence of internet and information technologies is exerting significant influences towards the retailing industry. A few critical trends are worth mentioning. Firstly, internet is shaping the consumer purchasing behaviors around the world (Siddiqui et. al., 2003). Secondly, the application of information system and technology by retailers are becoming more common, as that proper and effective application of IT/ IS will enable a firm to enhance efficiencies, lower costs and to gain competitive advantages in the marketplace through better market responsiveness and low cost leadership. For example, many retailers, including Tesco, is implementing CRM and ERP to enhance the efficiencies of the operations.

Legal Factors

With different operations in different countries, retailers are required to follow the rules and regulation set by the foreign government (Calof et. al., 2005). For example, in expansion to emerging countries such as Malaysia, there are requirements to employ a certain minimum percentage of local workforces to work in the foreign business firms.

Forecast of Tesco’s Future Performance

Tesco is a company well-positioned for future growth around the globe. That view is shared and reaffirm by the Chief Executive of the company, namely Sir Terry Leahy. The first reason for expecting such an optimistic picture is that there are signs of economic recovery in the recent months. Secondly, with Tesco’s recent investment in acquisitions of new selling space and companies from other countries, the firm is well-positioned to ride with the recovery in the future. Besides, the company is also having strong presence in many of the promising emerging countries such as China, India and etc., ensuring the company to be able to ride with the growth of these nations in the future from a long term perspective. Not only that, as Tesco is gaining the dominant and cost leadership position in UK, it is expected that the revenue stream from UK will be stable, as competitors can hardly beat the economies of scale enjoyed by UK. As such, the profitability and performance of Tesco is expected to improve in the future.

References and Bibliography

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Bergmiller, G., & McCright, P. (2009). Zero Waste Operations: An Integrated Implementation of Lean and Green (Presentation). IIE Annual Conference. Proceedings,1-39.

Brouthers, K. D., Brouthers, L. E., & Nakos, G. (1998). Entering Central and Eastern Europe: Risks and Cultural Barriers. Thunderbird International Business Review (1986-1998), 40(5), 485.

Calof, J. C., & Beamish, P. W. (2005). ‘Adapting to international markets: explaining internationalization’, International Business Review, Vol. 4, No. 2, pp. 115-31.

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Doole, I., & Lowe, R. (2004). International Marketing Strategy 4th ed. Thomson Learning publisher, London.

Doyle, P., & Stern, P. (2006). Marketing Management and Strategy, 4th edition, London, Prentice Hall

Evans, M. D. D., & Hnatkovska, V. V. (2010). International Financial Integration and the Real Economy. IMF Staff Papers, 54(2), 220-269.

Lowe, M., & Wrigley, N. (2009). Innovation in retail internationalisation: Tesco in the USA. The International Review of Retail, Distribution and Consumer Research, 19(4), 331.

Ma, Y., Ding, J., & Hong, W. (2010). Delivering Customer Value Based on Service Process: The Example of Tesco.com. International Business Research, 3(2), 131-135.

Palmer, M. (2005). Retail multinational learning: a case study of Tesco. International Journal of Retail & Distribution Management, 33(1), 23-48.

Plimmer, G. (2010). Scoring points: How Tesco continues to win customer loyalty. Journal of Revenue and Pricing Management: Special Issue: AGIFORS 2009 Conference, 9(4), 377-378.

Rogers, H., Ghauri, P. N., & George, K. L. (2005). The Impact of Market Orientation on the Internationalization of Retailing Firms: Tesco in Eastern Europe. The International Review of Retail, Distribution and Consumer Research, 15(1), 53-74.

Schmidt-Hebbel, K. (2010). A gloomy outlook. Organisation for Economic Cooperation and Development. The OECD Observer, (270/271), 56-57.

Siddiqui, N., O’Malley, A., McColl, J. A., & Birtwistle, G. (2003). Retailer and consumer perceptions of online fashion retailers: Web site design issues. Journal of Fashion Marketing and Management, 7(4), 345-355.

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