In the current business scenario, more organizations are opting for foreign market entry to enhance their business and revenue. Moreover, with the increase in competition in the domestic market, it is becoming for important for the business organizations to go beyond their national boundaries. However, there are number of factors that should be looked after before making entry in a foreign market. This is due to the reason that countries are having different negative and positive factors that will have impact on the business operations of the organizations (Gambacorta, Hofmann and Peersman 2014). The more effective will be the determination of the business environment of the target market, the more will be the probability of attaining the business objective for the organization. Among all the important factors to be determined, the most important factors to be considered are political, technological, social and economical factors. These factors will determine the business effectiveness of the organizations in operating in the foreign country.
This report will discuss about the external business factors prevailing in Canada from the perspective of Tesco. They are having their operations in United Kingdom and a few Asian countries but not in the United States and Canada. Thus, Canada is being chosen as the host country for foreign operation of Tesco. In this report, the external business environmental factors of Canada will be discussed with the help of PESTLE analysis. In addition, Porter five forces will also be done in determining the industry competitiveness of the country. Accordingly, a few strategic steps will be recommended for Tesco in doing business in Canada.
Tesco is one of the leading retailers in the world with having their base in the United Kingdom. They were founded in 1919 as a group of small stores and currently they are having more than 6000 stores across different countries around the world. It is reported that Tesco is the third largest retailer in the world in terms of revenue. This denotes their favorable market presence in different countries across the world. In some of the countries such as Thailand and Hungary, they are also enjoying the status of market leader. However, even though they are having favorable market presence in different countries, but they give a miss in the major economies such as Canada and United States (Tesco.com 2018). It should also be noted that Tesco was first initiated as a grocery store and in the following stage; they have diversified in to banking, clothing and mobile retailing. In the recent time, United Kingdom along with the other existing countries is witnessing steady increase in competition without having much increase in the market opportunity. This is due to the reason that market in these countries is already saturated. Hence, it is of utmost importance for Tesco to search for new and potential countries for their further expansion and Canada will be one of them.
Political environment
Canada is a democratic republic country with having the election process for formation of government. It is reported according to the global economy that Canada is having lower political risk and it is a politically stable country. This will be an advantage for Tesco in doing business there due to the fact that political stability will help Tesco to have less risk in their long term investment in the country (Berliner 2014). According to the Global economy, stable ranking of Canada denotes that Tesco will not face any political turbulence in near future. However, on the other hand, it is also reported that corruption is growing in Canada (Brink 2017). It is reported that till 2010, Canada was having ranking above 85 and that came down to 83 in 2015. This denotes that Canada is witnessing growth of corruption (Boddewyn 2015). In the case of business operation of Tesco in Canada, they will find it difficult to get the required permission from the authority due to corruption and it will affect their business. Corruption will also affect the effectiveness of the government policies.
Figure: 1
Corruption perception index
Source: (TheGlobalEconomy.com 2018)
It is also reported that Canada is also witnessing decline in the effectiveness of the government. This is due to the reason that according to the global economy, Canada was having score of 1.99 in 2003 and that came down to 1.76 in 2015 (TheGlobalEconomy.com 2018). This decline denotes that effectiveness of the government is reducing and this will affect Tesco in attaining the cooperation required from the government.
Figure: 2
Government effectiveness index
Source: (TheGlobalEconomy.com 2018)
It is reported by the World Economic Forum that inefficient government bureaucracy is the most problematic factor for doing business in Canada. This refers to the fact that Tesco will find it hard in dealing with governmental issues in doing business in Canada (weforum.org 2018). Effectiveness of the government due to the fact that Tesco will have long term business plan in Canada and stability of the regulatory policies of the government is required to have business stability and this will influence the pricing strategy and employee management strategy for Tesco (Purce 2014).
Figure: 3
Problematic factors for doing business in Canada
Source: (weforum.org 2018)
Economical factors of the target country should be also being analyzed due to the reason that economical factors will have direct financial implications on the business of Tesco. According to the report of the global economy, Canada is facing fluctuating trend of economic growth. It is reported that Canada was having over 5 percent of economic growth at the start of this century and it went down -2.95 in 2009 again regained to 1 percent as of 2015 (TheGlobalEconomy.com 2018). This denotes the economy of Canada is not stable. This will pose challenge for Tesco due to the reason that they are catering to the end customers change in economy growth have direct impact on the purchasing power of the customers. Thus, in the coming years if the economy of Canada fluctuates in similar trend then the sales revenue for Tesco will also fluctuate and it is not a sustainable process.
Figure: 4
Economic growth trend of Canada
Source: (TheGlobalEconomy.com 2018)
However, on the other hand, World Economic Forum reported that Canada is ranked at 16 in terms of domestic market size and this denotes that Tesco will have huge and favorable market opportunities for their operation. The more will be the market size, the more will be the potential customers for Tesco. It is reported that Canada is having the ranking of 34 in terms of intensity of local competition (weforum.org 2018). This refers to the fact that Tesco will find moderate rate of competition in Canadian market compared to the higher level of competition in the United Kingdom.
Figure: 5
Trend of household consumption of Canada
Source: (TheGlobalEconomy.com 2018)
Trend of household consumption should also be determined and is mainly important for Tesco due to the reason that they are in to consumer goods business and household products. It is identified from the above graph that till 2013, household consumption got increased and after that it is witnessing decline and continuously falling as of 2015 (Crossley, Low and O’Dea 2013). This will pose challenge for Tesco because the less will be the household consumption; the less will be market revenue for them. Moreover, the tax rate may be a concern for Tesco due to the reason that tax rate is also identified as a major problematic factor in doing business in Canada (weforum.org 2018). More will be tax rate, the more will be the price of the products for Tesco or their profitability will get affected.
Social factors are also important for the consumer goods sector due to the reason that it influences the taste and preference pattern of the customers. Canada is heavily globalized country with having higher degree of acceptance for foreign brands. This will be beneficial for Tesco in pushing their business in the Canadian market. It is reported in the Global competitiveness index that Canada is having the ranking of 20 in terms of degree of customer orientation (TheGlobalEconomy.com 2018). This refers to the fact that market trend and requirement of the customers are being given the major focus and it will also be important for Tesco to be more customers oriented in doing business in Canada (Choi et al. 2014). In addition, it is also important for Tesco to understand the diversity of the market as Canada is highly diversified country with the inflow of immigrants from different countries. Tesco should have more diverse product portfolio in their Canadian business. It is identified that Canada is having the ranking of 20 in terms of GDP per capita that further denotes the higher per capita income of the average population of Canada (weforum.org 2018). This is a positive factor for the business of Tesco due to the reason that higher per capita income will lead to higher purchasing power of the customers along with their higher level of consumption.
Canada is one of the most technologically advanced countries in the world. It is reported that according to innovation index, Canada is having score of 55.7 that is moderate. In addition, in the last few years Canada is maintaining stable ranking in innovation index.
Figure: 6
Innovation index
Source:
Canada is having the ranking of 14 in terms of availability of latest technologies and this will help Tesco to have the effective access to latest technologies. Service delivery of Tesco will get further enhanced with the availability of latest technologies. Canada is ranked at 13 in terms of internet users and this defines the fact that online shopping should be given a major focus by Tesco in doing business in Canada (weforum.org 2018). The more will be the internet users in the country, the more will be the preferences for online shopping among the customer and this should be considered by Tesco in doing business in Canada. However, the cost of developing the new technologies should also be considered by Tesco due to the reason that competitors operating in the Canadian are investing in offering latest technologies and this prove challenging for Tesco to develop their existing technologies periodically along with offering products at a competitive price.
Canada is having favorable legal environment in the country with having stable legal systems in place. The Global Economy reported that as of 2015, Canada is ranked at 1.84 in terms of rule of law and this is depicting the efficiency of the legal systems in the country (TheGlobalEconomy.com 2018). Thus, the probability of legal constraints for Tesco will be less.
Figure: 7
Rule of law index
Source:
In the global competitiveness index, Canada is having the ranking of 9 in judicial independence that denotes that judiciary system of Canada is free of any influence and fair and transparent process is being maintained. In terms of protection of intellectual property rights, Canada is ranked at 16 in the global competitiveness index (weforum.org 2018). This denotes that Tesco will have favorable business environment in protecting their intellectual property in doing business in Canada.
Canada is having fluctuating growth of carbon dioxide emission with emitted 537,193.5 thousand tonnes as of 2015. Increasing in the emission of carbon dioxide is leading to initiation of newer regulations and legislations for protecting the environment and Tesco should adhere to all these regulations in doing business in Canada (TheGlobalEconomy.com 2018). However, clean and alternative sources of energy are being extensively used in Canada and this will reduce the emission for Tesco along with reducing their energy cost.
Figure: 8
Share of alternative and nuclear energy
Source: (TheGlobalEconomy.com 2018)
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Bargaining power of the buyers |
Bargaining power of the buyers is high due to the presence of number of retailers in the market. Customer orientation is more in the Canadian retail market (Moatti et al. 2015). End customers are the major buyers for the FMCG goods and thus their bargaining power is more. Product strategy gets determined by taste and preference pattern of the customers (Fabbri and Klapper 2016). |
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Bargaining power of the suppliers |
Bargaining power of the suppliers is low due to the reason that there are number of suppliers present in the market (Sheu and Gao 2014). Global brands and retailers are major source of revenue for the lesser known suppliers (Porter and Heppelmann 2014). Suppliers are not having forward integration to pose threat to the retailers (Glock and Kim 2015). |
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Threat of new entrants |
Threat of new entrants is moderate. Huge investments are important to create business in the competitive retail market (E. Dobbs 2014). It is difficult to match the global identity and brand value of Tesco by the new entrants. |
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Threat of substitutes |
Threat of substitute is huge due to the fact that good number of competitors is present in the market (Schwenger, Straub and Borzillo 2014). Almost all the retailers are offering similar sets of product. Switching cost for the customers is low (Suwardy and Ratnatunga 2014). |
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Competitive rivalry |
Competitive rivalry is high with the presence of number of competitors (Ellram, Tate and Feitzinger 2013). Almost all the players are offering discounts and offers to attract more customers. Cost leadership is important to gain competitive advantages over the competitors (Teeratansirikool et al. 2013). |
Conclusion
This report concludes that Canada is having number of both positive and negative factors to be faced Tesco in doing business there. In this report, number of external business factors is being discussed based on parameters and it is identified that Canada is having market opportunities to be gained by Tesco. In addition, this report also discussed about the industry competitiveness to be faced by Tesco in doing business there. It is identified that Tesco will face high degree of competitive rivalry and threat of substitutes in doing business in Canada. According to the situation to be faced in Canada, this report also recommended a few steps that can further help Tesco to enhance their future strategic intent in Canada.
References
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