Strategic Management

Individual Assignment

Ba (honors) in business & management

Offered by Cardiff metropolitan university

Strategic management
Assignment 06 tEsco
Word count - 1089

Submitted to: Mr. Shane De Silva

M.F.M.M Fazlan ICBT/ BABM/07/30

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Strategic Management

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1. Introduction
Tesco was founded in 1924. Today it is Britains leading food retailer. Today, the Group operates in 13 markets outside the UK, in Europe, Asia and North America. Over 180 000 employees work in Tescos international business, serving in 2026 stores and generating 700 million pounds profit. Over half of the companys selling space is now outside the UK.

2. The Development Directions Followed by Tesco from its origins as a UKbased grocery retailer.
Tesco as UK- based grocery retailer had followed the Ansoff Matrix which is developed by Michelle Porter.

Figure 1 : Ansoff Matrix Strategy

They are operated within the UK borders for decades. However, since the mid-90s, the company started investing in new markets overseas, seeking out new opportunities for growth and ways of generating long term returns for shareholders. All these facts show how successfully the

company had penetrated into foreign markets, and how massive their international invasion is. However, Tesco did not diversify only geographically, but also by product. The company started offering products and services in the areas of clothing, electronics, financial services, telecoms, home, health, beauty, car and dental insurance, retailing and renting DVDs, CDs, and music downloads internet services, software, fuel, film making and sound recording.
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Considering Tescos tremendous variety in terms of both products and markets, it is obvious that the company had followed the diversification strategic direction, and this is exactly what the Tesco Company did- from a UK-based grocery retailer the organization became a worldwide enterprise operating in various types of businesses.

3. The Development Strategies Available for Tesco

A = Most Suitable; B = Suitable; C = Unsuitable

Current strategy

Future Direction and the ways to Implement

Strengths of company

Ran king

Consolidation Continues (Market Penetration )

expansion; Nationally and internationally. Purchase large volume of product. Increase the Purchasing power of existing customers.

Different scheme such as club card and value range loyalty scheme.

Strong brand reputation. Wide range of resources.

Stable profit due to economic of scale. Increasing number of Offering product with backward integrity in order to minimize the cost. The most appropriate method to pursue the strategy of consolidation would be through organic development. customers.

Mergers and Acquisitions to expand overseas sales

They are currently operating in Ireland (91 stores), Eastern Europe (272 stores) and Asia (450 stores).

There are several other foreign markets that could be extremely lucrative for the retail giant. One of these markets is the Australian one.

They have experiences in investing in foreign markets.

They have enough Another and even more attractive destination would be the Russian market. capital to invest. The brand is famous for world wide Tesco could expand to are Central and East America Tesco is currently

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(as Tesco is operating only on the West Coast)

successful in 14 different markets, and is the worlds second largest retailer in terms of profit (after Wal-Mart).

Product Development

Developing food products

Non-

Focusing on the development of nonfood products. Introduction of new product in existing market. Focusing on product development in other countries where Tesco has established

High growth market share and revenue

Good brand reputation

Diversificatio n

Emphasis in different sector like finance, telecommunication process. The Diversification can be achieved through mergers and acquisitions. Non- food products

Tesco have been successfully using this method when penetrating foreign markets for many years

The company is currently offering products and services in numerous areas, and no further innovations are needed.

Table 1 : The Strategic Directions Available for Tesco

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4. Relative Merits of Each Development Methods (Internal, Acquisition or Strategic Alliance) 4.1 Internal growth

Market Penetration. Join and use the existing marketing strategies. Market expansion by improving the line of products.

Market development Market entry is considered as critical, based on the internal venture.

Product development Innovation is necessary. Products should be improved with the help of knowledge and skills in order to meet the customers needs and demands.

Diversification Diversification is difficult due to current knowledge and skills.

4.2 Acquisition

Market Penetration Expanding the range of products. Developing market share.

Market Development Penetration to new market. Development of new segments.

Product Development Use the competency in order to develop new products and innovations. Improving the position in the market.

Diversification Focusing on the new market. Application of horizontal integration in order to have an access immediate access to the new market.

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4.3 Strategic Alliance

Market Penetration Expand the range of products Develop market share

Market development Global expansion Focusing on new segments

Product development Application of new technologies with improved knowledge and skills Adding resources for innovation and developing market share

Diversification Substitution of vertical integration Risk of seasonal and cyclic fluctuations in product demands Focusing on the competition

The Most Suitable by Applying Criteria of Acceptability and Feasibility

In our view, there are four relevant strategic directions available to Tesco in the future. The most suitable one would be to Mergers and acquisitions to expand overseas sales. When applying the criteria of acceptability and feasibility to evaluate the possible strategic directions for Tesco in the future, it was determined that the expand overseas sales direction appears to be most suitable. In terms of feasibility, we suggest that the company will have enough capabilities (capital) to deliver that strategy, since Tesco had undertaken foreign markets entries numerous times. In terms of acceptability, it is concluded that it is very likely that the company will succeed in its foreign expansion and the outcomes of their strategy will be more than satisfactory, because Tesco had already conquered 13 foreign markets.

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Conclusion
Tesco is also strong in the area of business diversification. Business performance Tesco is market leader in UK and 3rd largest retailer in the world after wall mart of US and France Carrefour. They are quite successful in understanding and satisfying their customers demand. They have been successful in delivering right product at right price considering different technological and demographic changes. They have been following their strategy to expand globally that gives them advantage of increased sales and ultimately economies of scale that enable them to offer low prices which is one of their strength in competition. Old method for growth (diversification) is continued but a tool of joint venture and strategic alliances may use to reduce the risk of failure. The mergers and acquisitions can be listed as increased value

generation, increase in cost efficiency and increase in market share, may generate tax gains, can increase revenue and can reduce the cost of capital.

Recommendations
It is recommend for Tesco to focus more on mergers and acquisitions for foreign markets, because they are more dependent on its UK market. Therefore Tesco has to increase the sales in the countries where they already exist and they do also need to find some new country to invest to reduce dependence on the UK market. Especially considering current situation where economic status of UK people has badly affected by current economic crisis. When looking for foreign opportunities it is recommended for Tesco to focus most lucrative markets. There are several other foreign markets that could be extremely lucrative for the retail giant. One of these markets is the Australian one, another and even more attractive destination would be the Russian and other attractive foreign markets that Tesco could expand to are Central and East America (as Tesco is operating only on the West Coast) and Western Europe, which is mainly represented by the profitable retail industries of Spain and Portugal. Therefore those markets are recommended for Tesco.

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References
Nwagbara, Uzoechi , 2010. Managing Organizational Change: Leadership, Tesco and Leahy's Resignation, [Online].2 - 5 . Available at:http://academia.edu/1478810/Managing_organisational_change_TESCO_Leadership_and_Le ahys_Resignation[Accessed 03 July 2013]. Jim Riley , (2012), Ansoff Matrix [ONLINE]. Available at:http://www.tutor2u.net/business/images/Ansoff%20Matrix%20w500.gif [Accessed 03 July 13] Compare Info base Limited. 2013. Benefits of Mergers and Acquisitions. [ONLINE] Available at:http://finance.mapsofworld.com/merger-acquisition/benefits.html. [Accessed 03 July 13]

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