The following paper describes about the international market expansion of the United Kingdom based company Tesco Plc. It has been noticed that business development strategies are really effective for the companies when it needs to expand its market and consumers. This company has successfully expanded its business markets in the regions like the North America, Europe and Asia. This has helped in their financial profits because they have gained more consumers all over. The company has expanded its business markets in all over the United Kingdom. The financial growth of the company has been very strong over the past decade. The organizational structure of the company depends on many things. Tesco’s business expansion strategies and the organizational structure depend on the strategic business unit. The corporate culture is also important in determining the growth of the business. In this paper, the expansion of their business in South Africa has to be discussed. It is important to note that when a company expands its business market in other countries or continents, the corporate culture and the cross-cultural issues have to be kept in mind as well.
Tesco is a company based in United Kingdom and it is basically a company from the retail industry. This company was founded in the 1919 by Jack Cohen. Since then this company has dominated the retail sector (Tesco plc 2017). This is a multinational company and has branches all over the world. This is a grocery and a general merchandise retailer. The headquarters of this company is situated at Welwyn garden city, Hertfordshire in England. They have been expanding their business in various areas for years now. They have developed their new store formats in both the small areas and bigger areas. These are called as the Tesco Metro and Tesco Extra respectively. Apart from the grocery items within the country, they have also begun to produce various things like the electronics and home goods, food items that are environment friendly. They targeted to become as one of the biggest retailing stores in the world when they began to expand their markets in the 1995 as they opened a store in Hungary. They also opened some stores in other European countries like Poland, the Czech Republic, Slovakia, Northern Ireland and the Republic of Ireland (Tesco plc 2017). After gaining a grand success in these areas, they expanded their markets in Asian countries like Thailand, Taiwan and South Korea. They had got an amazing response in these countries so they are eyeing to expand their business in the African market. The country they have targeted this time is South Africa (Ball et al. 2012).
There are many factors that are responsible for an organization’s expansion in the other countries. These factors have to be analyzed properly so that the concerned organization can find it effective about how they can approach their market expansion strategies (Femie and Sparks 2014). In this context, some of the important market expansion strategies and factors have to be addressed. These strategies are the PESTEL analysis and Porter’s five forces analysis (Armstrong et al. 2015).
In this analyzing strategy, the different important factors of political, economic, social, technological, environmental and legal factors have to taken under focus as the target country for expansion is South Africa (Yüksel 2012).
The political factors that are persistent in the target country in South Africa have to be analyzed by Tesco so that they can be aware of the political scenarios in that country. It may be very common that the political scenario in UK and South Africa can be different. The political stability of South Africa has to be assessed by the management of Tesco.
The economic strengths of the target country South Africa has to be properly assessed by the Tesco authority. As Tesco produces things that are needed for daily use, it will be useful in context of the native South Africans. However, the economic condition of the target country must be calculated by Tesco along with the buying powers of the probable customers (Jobber and Ellis-Chadwick 2012)
The strategic business unit (SBU) that Tesco has chosen for the expansion of their business markets has to work properly in the social context of South Africa (Resumption 2016). The financial conditions and the social background of the African continent is completely different. The management has to fix their organizational structure accordingly.
The technological factors in the business expansion is indeed important because the workforce has to be efficient and the customers must get the best products in cost-effective ways by using technologies and the perhaps they have to employ the native people as the employees because it will be helpful for them in financial ways (Womer 2013). They have to be trained properly to use the technology.
Some of the most important environmental factors like the availability of the raw materials, the pollution level, the various business ethics and the sustainability of Tesco in South Africa have to be assessed by the management beforehand. Another important factor for Tesco to keep an eye is the carbon footprint targets set by the South African government.
Tesco has to maintain all the legal guidelines set by the South African government. They have to ensure the health and safety of the native people; they have to provide equal opportunities to all the employees. The consumer rights and laws have to be protected by them as per the guidelines of the target country.
The five elements in the Porter’s five forces are;-
Tesco has to evaluate on how their rivals can react in their expansion strategy. Their rivals might also try to expand their market in African continent so they must capture the customer base (Dobbs 2014).
The threat of potential new entrants in the retail sector has to be kept in mind so that they can fix some proper strategy to overpower those (Dobbs 2014).
Tesco has to assess the supplier power of their raw materials in South Africa properly. As they have to depend on local suppliers for cost-effectiveness, they have to make sure that they are supplied with best materials (Dobbs 2014).
As mentioned earlier, the economic condition of the African continent is not as strong as Europe (Dobbs 2014). So, they have to keep the price of their products judging the buyer power.
Tesco must provide products with quality and affordable price to the South African customers so that they can maintain their market position, overpowering the threat of substitutes (Dobbs 2014).
When a company wants to expand its business in some other country, it has to keep in mind some important matters internationalization of an organization has to go through several stages. In this context, the CAGE theory has to be considered (Campbell, Eden and Miller 2012).
Cultural distance is very important in the expansion of Tesco in South Africa. It is an obvious fact that there are many differences between Europe and Africa (Campbell, Eden and Miller 2012). There are differences in culture between the native people of these countries as well as the context of individualism and collectivism is an important aspect (Gorodnichenko and Roland 2012). Thus, these differences have to be managed in order to make a profitable expansion.
It is very important to adjudge the whether there are any political or legal associations between United Kingdom and South Africa in the past or in present. The kind of relationships between these countries may work as catalysts in the expansion of Tesco (Campbell, Eden and Miller 2012). If there has been hostile connections, the business expansion might be impeded but it will be developed if there have been friendly relations.
The various aspects like the size of the host and target country, transportation between the two and climate difference between England and South Africa may work as a factor behind successful expansion (Campbell, Eden and Miller 2012).
The economic market of the target country i.e. South Africa has to be assessed by Tesco before opening a new store there. The economic stability, wealth distribution, buying power of the customers has to be kept in mind so that the possibilities of a successful expansion can be rationalized. Thus, the internationalization will take a better shape (Campbell, Eden and Miller 2012).
SWOT analysis is the best process to analyze the possible ways which have to be kept in mind for expanding the business in South Africa (Hollensen 2015).
Tesco is a powerful and successful retail brand and belongs to the top 100 most valued brands having 6,784 stores with an increased 433 stores all over the world. They value the customers’ money, provides a variety of products with convenience. This factor will work as strength for their opening a new customer base in South Africa.
Though, Tesco sells a wide range of products like the food, books, clothing, furniture, insurance, petrol and many things, it has big debts from credit cards and household insurance claims in high level. They also do not have the sufficient experience about the market they want to enter. This factor may work as a negative factor in their expansion (Hollensen 2015).
The opportunities Tesco can offer to the South African market for expansion is through digital methods. They can provide digital entertainment to their customers by investing 80% in Blinkbox. They can offer better flexibility to customers by online shopping (Luo, Ba and Zhang 2012). They have to offer cost-sensitive ways to their customers (Hollensen 2015).
Tesco is the number one brand in the retail sector but they are facing constant competitions from other brands like Salnsbury’s, Asda, Lidi and Aldi and others (Leat and Revoredo-Giha 2013). As Walmart has taken over Asda, the competition level has grown higher though. Walmart is a difficult brand to compete with and Tesco has to keep this in mind when they will expand their business market in South Africa (Armstrong et al. 2015).
Though , Tesco has been extremely successful in UK because of their home territory advantage and a brilliant supply chain control, there are many things in the current market that they have to think about when they will move to South Africa for expansion (Fernie and Sparks 2014). Certain market entry modes or strategies must be discussed in this context (Gubik and Karajz 2014).
Finest: top quality food for high price ranges.
Mid-range Tesco brand: medium quality product and price range will be average.
Low-price value brand: low quality products with low price ranges.
All types of products are available at Tesco Extra, Tesco Superstores, Tesco Metro, Tesco Express and Tesco Direct.
The different objectives for Tesco’s market entry are:-
After going through the four generic strategies for international business management, one has to find out the best strategy that is best applicable for Tesco to expand their business in South Africa. It has been noticed after five forces analysis and SWOT analysis, that South Africa is not so much economically developed though it has diamond mines in the country. The people are poor and their buying power is not so much strong. In this context, it is better for Tesco to follow the Cost-leadership strategy (Valipour, Birjandi and Honarbakhsh 2012). This will lead to gain more profits for the organization by cutting down costs of their products. They also can increase their market share by charging lower prices from the people. Thus, both the South African customers and Tesco will be benefitted.
Section 5: Conclusion and recommendations
This paper can be concluded in the way that a great deal has been discussed about Tesco. Tesco has emerged to be the best retail company in the industry in UK. It has expanded its market in both Europe and Asia. In order to further expand its market in South Africa it needs to follow some strategies. These strategies have been discussed by judging the external environments of the company. The various expansion strategies have been discussed. The market entry strategies and the generic strategy planning for expanding its market also have been discussed. It is very important to note that South Africa is not so much economically affluent. So, it is recommended that they should follow the cost leadership strategy to succeed in the African market. It is also recommended that Tesco should provide best quality products at low prices so that they can overpower the threats of their business rivals. Tesco can really be successful in Africa if they follow these ways.
References
Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Pearson Education.
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Campbell, J.T., Eden, L. and Miller, S.R., 2012. Multinationals and corporate social responsibility in host countries: Does distance matter?. Journal of International Business Studies, 43(1), pp.84-106.
Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates.Competitiveness Review,24(1), pp.32-45.
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Gorodnichenko, Y. and Roland, G., 2012. Understanding the individualism-collectivism cleavage and its effects: Lessons from cultural psychology. In Institutions and comparative economic development (pp. 213-236). Palgrave Macmillan UK.
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