Tesco’s Current Business Model
International business strategy can be explained as plans which direct commercial transactions existing among businesses and other nations. International business strategy explains actions and plans of organizations with an objective of increasing profit (Brannen, Piekkari & Tietze, 2017). Tesco is a Britain based multinational general merchandise and groceries retailer that is third largest in the world. The company has its business segments in UK and Republic of Ireland and its brands include food brands along with a range of personal banking goods (Clarke & Liesch, 2017). The objective of this paper is to carry out an international business strategy analysis of Tesco along with analyzing the market entry strategy for ensuring leadership in its sustainability. In this analysis strengths and weaknesses of Tesco’s current business model along with strategic gap will be evaluated for gathering its strategic position and options. Moreover, the report will also consider explaining the expansion strategy of this retail organization that can further facilitate it in competitive position and market share.
Business model for an organization can be referred as a process through which a business attains sustainability in the industry through attaining high revenues. Moreover, an efficient business model proposed for Tesco can facilitate it in recognizing methods by which it can attain profit through recognizing its position in the supply chain (Ghauri, Wang, Elg & Rosendo-Ríos, 2016). Over the past years, various business models have been developed those were not considered in the past in implementation of current advanced and digital technology. The business model that is proposed for Tesco Company is “E-business” that is a technological application used in the existing business model of the organization. Moreover, it also includes ensuring innovation in the company’s e-business through better use of new technology (Hamilton & Webster, 2015). This proposed business model for Tesco provides efficient introduction of new service, information and general merchandise flow in which revenue sources are identified along with benefits to all the business participants are clarified. The new business model that is proposed for the company is deemed to support its business expansion in Vatican City through proving construction for service, product and information flow in which the sources of revenue are explained and the benefits of operating distribution and deliveries are clear. E-business model of the company will involve managing its financial value chain that can facilitate in tracking its business operations such as payment cycles, pricing and invoicing (Jenkins & Williamson, 2015). The largest strength of Tesco’s e-business model is it facilitates in efficient use and data collection. This model can also offer advantages of obtaining the transactional data of consumers through “Tesco club-card”. This can efficiently transform knowledge and data int convertible action. E-business based business model of Tesco and its implementation in its new business location “Vatican City” that can enhance the delivery service of the company. This business model can facilitate the company in attaining competitive advantages through reaching “time-poor” consumers those desire to attain grocery to their doorway (Kew & Stredwick, 2017).
Proposed E-Business Model for Tesco
There are several reasons for which Tesco has decided to expand its business operations in the international market. The company is observed to face downturn despite holding its position in Britain. Moreover, the executives within the supermarket have also taken decision to close its unproductive stores along with decreasing its product ranges (Kon?ar & Lekovi? 2016). As the company intends to enhance its profitability in the international market it plans to open more stores in global market. Moreover, it has also been gathered that Tesco desire to cut down its operational costs through increasing its sales and revenue. Business expansion can help the outsourcing functions of the company like recycling, rent website functions and energy management overheads to get decreased (Park & Harris, 2014).
Tesco intends to expand its business in Vatican City which is an independent city situated in Rome. This target location is also deemed to be the world’s smallest state in terms of population and area (Pérez Mesa & Galdeano-Gómez, 2015). In developing an efficient market entry strategy for Tesco’s international business, strategic gap related with major leadership, human resource management and marjrting issues that might be faced by the company must be identified and addressed.
- The marjrting issue or gap that can be faced by Tesco is that entering in this nation needs to focus all the advertising strategies on males as they are the primary target market. However, Tesco might face issues in marketing its products as its product variety is focused on both females and males (Sternquist & Goldsmith, 2018). Considering the same, the marketing strategies of Tesco in entering Vatican City must be based on the culture of this nation as they are very particular regarding them believes, culture and values.
- The human resource management issue or gap can be faced by Tesco in entering Vatican City as due to diverse workforce, Tesco is constantly facing issues related to recognizing, developing and strengthening its employee capabilities (Sullivan & Gouldson, 2017). Another issue that is faced by the company in managing its human resource is associated with communication and consultation. To deal with such concerns, Tesco must focus on responding them regularly in order to maximize the returns. Annual staff survey and along with Viewpoint that must be kept anonymous as well as confidential.
- Tesco is dealing with certain challenges regarding leadership that might present a strategic gap in entering new market with its business (Swoboda, Elsner & Olejnik, 2015). The company is observed to lack proper leadership structure within the organization as it is confused regarding its identity and brand management. There is an absence of a clear management strategy that is creating issues regarding maintaining management control over the business.
In successfully entering its target market, Tesco needs to follow certain effective social and ethical considerations in order to deal with its strategic gap. In dealing with issues related to targeting consumers in Vatican City it has been gathered that the nation has majorly male consumers (Swoboda, Morbe & Hirschmann, 2018). For this reason, Tesco will require to develop its products as per the changing demands of its target consumers. In international retailing, the company needs to maintain in-store and online presence in the nation for increasing its market share. Ethical considerations must be followed by Tesco in its business expansion strategy for the reason that a strong team of ethical advisors that can facilitate in monitoring the goods along with sales within its stores (Tesco PLC., 2018).
In expanding its business within the Vatican City, Tesco must consider all the financial risks that can be faced by the company in ensuring successful business establishment within the nation. This is for the reason that when any company takes decision to get involved in business expansion of global financing activities it results in facing increased opportunities and risks (Thomas, Van Greuning, Henry & Michael 2016). The major risks those are considered to be faced by Tesco in expanding its business in the new country includes foreign exchange risk and political risk. The financial risks that might be faced by Tesco in business expansion within the Vatican City. Foreign exchange risk is a type of financial risk that can be faced by Tesco as it might take place at the time its investment value fluctuates because of exchange rate changes. Due to such type of risk it might be difficult for Tesco to deal with such risk that can affect its sales and revenue (Tse et al., 2016). In expanding business within the new nation, Tesco is recommended to attain certain political risk insurance for safeguarding the company’s loans or equity investments from particular government actions.
Expansion Strategy for Tesco
Regional integration followed by Tesco in expanding within the new country can come with several risks. Rapid deregulation along with current account liberalization in context of weak supervision along with wide government guarantee of bank liabilities. Developing foreign direct investment serves as vital localization strategy (Wood, Coe & Wrigley, 2016). For this reason, prior to making any decision by Tesco it is likely to estimate all its political risks that might take place within the host nation. Standard risks are deemed to be high in the company. It might also be difficult to safeguard and maintain asset rights in host nation. Tesco must consider the return on its business expansion investment within Vatican City based on the likely financial risks it might be facing. This might include expropriation, transfer based restrictions, convertibility of currency contract breach by the sovereign along with the terrorist attracts that is faced by Vatican City (Wood, Wrigley & Coe, 2016).
The financial risks that might be faced by Tesco in its business expansion can be mitigated through implementation of effective strategies. To deal with such risks, the company must consider banking with a financial institution which has branches along with business presence in the home country and host nation in conducting business. Through implementation of this strategy, Tesco will able capable to manage Forex conversations long with trading in making sure that the company is quite confident in its knowledge of situations in the local nation (Wood & Coe, 2016).
From the international business expansion perspective and considering the business expansion decision of Tesco Keynesian economics is deemed to be applicable. This economic theory is observed to be developed by a business economist and was introduced in realizing the great depression (Yeung, 2018). As per the Keynesian theory, if a business is dealing with poor financial situation or losses it ca reduce its capital investment. This decision can be taken by the organization rather than obtaining advantages of increased prices for investing within new plants and equipment. This can also result in reducing total expenditures and employment.
The current economic event faced by Tesco includes economic downturn for over few years. The company is observed to deal with increased sales growth over the recent years as it is dealing with increased competition in consideration to wages prices within the market. This resulted in increased process of shares to 2% because of investment by Tesco (Pérez Mesa & Galdeano-Gómez, 2015). Along with that the supermarket executives also planned to shut down some of its departmental stores and decreased its product ranges for improving business sustainability of the company through enhancing price wars in the supermarket. Based on the fierce economic situations faced by the company, Tesco has deceased to close 40 stores along with imposing risks on 2000 jobs (Pérez Mesa & Galdeano-Gómez, 2015). In addition to that, it has been the supermarket executives follows the Keynesian economics theory based on which it has decreased its expenses along with employment for increasing sales.
Social and Ethical Considerations for Tesco’s Expansion in Vatican City
As the economic condition of the global retail market is sluggish, Tesco considered implementing a “Operation checkout price cut” plan in an attempt to increase sales (Pérez Mesa & Galdeano-Gómez, 2015). This resulted in price war with other retail giants. In taking decisions regarding business expansion in Vatican City, Tesco must consider that labor cost serves as an important economic factor which can impact the supermarkets within the nation. For instance, the company’s annual wage bill is amounting GBP 4.5 billion. In 2018, the maximum Wage Rate is increased by 4.4% for 25 years old and onward (Pérez Mesa & Galdeano-Gómez, 2015). This increase in the wage rate has cost Tesco millions of pounds in its host nations and can also affect its target business nation. Moreover, there has been an increase in the prices and costs which has resulted in reduction of company profits that has an impact on cost leadership strategy and brand reputation of Tesco.
To maintain leadership in sustainability of Tesco Company’s business in its target country certain effective strategies is recommended to be implemented by the company.
- Internationalization theory must be followed by Tesco in expanding its business within Vatican City that can ensure the company can attain monopolistic advantage. The company can expand to the market at the time of market imperfections and such benefit can be attained through internalizing market all through nations.
- In business expansion process, Tesco is recommended to attain outsourcing opportunities from the Vatican City in increasing their efficiency. In such situation, if Tesco can enhance its efficiency by means of its transaction internationalization implementation of the vertical integration strategy of business operations is recommended. This can facilitate in attaining economies of scale along with exploiting the tax differentials along with effective quality control. In business expansion strategy within the Vatican City, Tesco is recommended to shift from exporting to shift their departmental stores and e-commerce business within the nation in order to attain better international experience. Implementation of these strategies facilitates the companies in developing their knowledge and wider understanding of foreign markets.
- Tesco is also recommended to employ global e-business strategy as an entry mode within the Vatican City. The nation has high context cultures which need the company to develop interpersonal relationships. In such type of culture, relationship network among the business colleagues, associates as well as consumers is likely to be personal and close. This is the reason for which, Tesco is recommended to implement strategy of decentralization that can enhance its local image. This can also facilitate in making the business expansion of the company along with its products increasingly responsive to the lifestyles and tastes of its local consumers.
- In maintaining its business expansion, Tesco must consider not to implement Greenfield investment strategies as this has proved to be expensive in the past. The company must implement global expansion strategy that can fit better with the culture of the target country that is the Vatican City in the current business case. The retail industry is highly sensitive in the nation as it indicates the daily needs of consumers that needs to be responsive to the cultural habits.
Conclusion
The objective of this paper was to carry out an international business strategy analysis of Tesco along with analyzing the market entry strategy for ensuring leadership in its sustainability. It was gathered from completion of this report that the business model that is proposed for Tesco Company is “E-business” that is a technological application used in the existing business model of the organization. As the company intends to enhance its profitability in the international market it plans to open more stores in global market. The marjrting strategies of Tesco in entering Vatican City must be based on the culture of this nation as they are very particular regarding them believes, culture and values. In successfully entering its target market, Tesco needs to follow certain effective social and ethical considerations in order to deal with its strategic gap. In international retailing, the company is recommended to maintain in-store and online presence in the nation for increasing its market share.
References
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