Tesco’s Background
Discuss about the Relationships And Ethics In Cross-Cultural Management.
The ways of doing business have changed considerably. Globalisation is considered to be one of the major reasons for it. There are many challenges that are present in front of the firm and so are with global managers. It has become crucial that the management of the firm understands culture of both organisation and the nation in which they are doing activities, organisational culture and structure as well as norms in the society (Kotabe and Helsen, 2014). In order to make business effective, companies needs to think about the management skills as well as about ethical implications. This report highlights the way in which misunderstanding of culture and wrong decisions that shaped the failure story of Tesco in U.S. market. It also showcases the challenges that the global managers are facing along with the environmental, organisational and cultural environment present in U.S. which needs to be understood by managers. At the ethical implication of it is also stated in the last part.
It is a British multinational grocery and retail market having it is headquartered in England. It was established by Jack Cohan. In terms of profits it is the third largest retailer in the world. It is operational in various parts of the globe with more than 6500 stores (Holden, Michailova and Tietze, 2015). Tesco has extended its business in many areas like retail of furniture, software, software, telecomm, clothing, books, electronics, internet and financial services.
The American dream of Tesco shattered when the company’s management in the year 2012 announced that its business was a failure in U.S. They considered the culture and unable to understand the dynamics of American society to be the major reason for failure of the company. They started their business in U.S. in 2006 with the name Fresh and Easy. The financial statement launched by the firm stated that they have lost around 1.5 billion pounds in their American unit and still it was in the loss from past five years (Brannen, Moore and Mughan, 2013). There were two major reasons which were considered as the factor that led to such situations.
The article in this regards suggested that Tesco only not focused on setting up the stores wherever they wanted rather than understanding other forces that may affect their activities and potential consumers. In modern day business managers had to face many kinds of challenges so as establish their business in the any part of the world. So was the case with the Tesco’s manager before entering into America. The first challenge that is confronting manager’s decision is to understand market demand. This problem was also significant in the case of Tesco as they did less research to understand the market behaviour before making an entry to the U.S. market (Brewster, Chung and Sparrow 2016). Other important challenge is maintain the supply chain management. Demand of the American market was too high and it was seen that most of the time the stocks at their stores were empty which created the negative perception of the company. It was also due to the poor management of supply chain. Their managers had a perception about the market that in the age of globalisation, opportunity, sense of energy and huge investments can help in stabilising their growth but they ignored the parameters like the performance of the retail industry, the basic requirements of the market, internal and external trade policies (Kim, Yang and Kim, 2013). Apart from this making trust worthy partnerships with suppliers and distributors is highly important but this is always a challenge when there is cultural difference between the firms from two nations.
Tesco’s Failure Story in America
Along with this there is challenge of understanding the buyer’s behaviour. American population prefers to buy items in bulk but Fresh and Easy offered packets of smaller size. In the increasing consumers demand, the complexity of business environment has increased. The increasing diversity and intensity at the workplace has changed the variables present in the business environment (Gollnhofer, Franziska and Turkina. 2015). This has made crossing of border for expanding of business a bit difficult. In the environment of unfamiliar U.S. stabilisation of business become a bit difficult. Tesco failure was also attributed to the fact that they wanted to change their operational style which back fired them and their managers were unable to control, analyse and organise as well as control the staffs present at the workplace. Manager of Tesco failed to overlap the categories in frequent flyer, virtual teams and expatriates to implement in a Fresh and Easy store in American retail market and it causes a big turn off to a consumers and poor services (Obinna, Kenneth and Farkas, 2011). In their management of diversity they failed to align operations and objectives with it.
The cited firm’s failure to understand the surprising differences between American and British shoppers led to huge losses to the company. It was the superficial understanding of their behaviour like same language, movies, music, tastes made them feel that their business will also succeed in this part of the globe. It was to be seen that habit culture of both the countries differed quite dramatically. This illustrates the fact that the global managers of Tesco need to understand the cultural environment of the nation so as to ensure that their business does not fail (Paul, et. al., 2014).
It is not easier to comprehend the culture because of the contradictions and complexity it contains. It is also to be understood that even the understanding of culture does not expresses the behaviour of humans. It would have been better that managers would have conducted cross cultural analysis between the demand of the British and American people. Since most of the stores of Tesco were present in Western America and hence a broad understanding about the way in which management of business practices in this type of cultural environment was done (Durazo, Manning, and Wright. 2015). A series of cultures must have been used so as to adopt the best culture at the workplace. It is always crucial that a company understands the cultural trends before entering into any country.
Challenges for Global Managers
In America it is seen that retailers have operated with comparatively larger stores. They must use of the pricing strategy that must be able fight with the competitors that are present in the market. The financial and management resources which Tesco had must have been used for the purpose analysing the market. For doing so they should have send executives related to various departments into US for understanding the trends in the market (Shulyn, Teoh and Rashad Yazdanifard, 2015). This would have helped them in making of the organisational structure and strategies for the USA market. Tesco kept marketing role in Los Angeles five thousand miles away from where the core domestic market of it was established. Tesco brand image at image has come down in last few years. This has forced the retail analysts to think everything is not going good at Tesco service (Butler, 2012). The leadership approach adopted by Tesco was also not good and hence the organisational environment is also not very much enthusiastic at the Fresh and Easy store. Tesco’s manager also faced conflicts at various locations with other U.S. competitors. They also choose some wrong locations for opening of a grocery store like in the areas having low incomes.
In U.S. market most of the retailers struggled to get their business outlets at the right places. Tesco opened numerous little stores in a very small span of time without actually analysing the feasibility of it in the U.S. markets. For justifying the amount of investments it made in the USA market, they need to have opened 500 stores at different locations. The situation in American market pushed it to invest money in higher profits existing stores rather than opening the new ones. Their selection of some low income areas further degraded their position in the market (Wood, Wrigley and Coe, 2016). They also struggled to find the new stores near to distribution centres. Managers of Tesco often ignored their situational environment as it was seen that the time when the Tesco entered into the US market, there was global downturn in the economies. For example cities like Las Vegas, Phoenix, Arizona was their dream cities but they were converted into repossession capital (Lowe, Michelle and Wrigley, 2010). At the time when the Inflation was highest in the market, they entered into the market; this made the company to do financial suicide. It troubled the business of Tesco and hence led to failure in the market. At last the Tesco managers failed to analyse the early sign of their business downfall and hence they kept reinvesting in their American dream rather than making business more realistic and fact based.
Cultural Environment factor
As per the views put in the article, it seemed that a whole lot of global management skills were required by managers of Tesco so as to bring fluency in their work process. Some of the common skills that were required by the global managers of Tesco are:
- Communication skills: It is to be understood that just by speaking the same language it does not mean that communication skills of both the places would be same (Mohr and Batsakis, 2018). Tesco’s managers need to develop a cross cultural communication skills which would help them in expanding their knowledge regarding both American culture and Britain cultural dynamics.
- Recalibrating critical analysis skills: It is also necessary that managers at global level recalibrate their critical analysis capabilities. This will help them in having the proper understanding regarding the factors that are present in any country. The use of IT technologies can help in this regards as the information systems can help in analysing things based on the facts.
- Sensitive towards cultural diversity: It is crucial that global managers must have the skills related to the management of cultural diversity. This is because any type of mismanagement in cultural diversity can lead to serious conflicts that disrupt business at the workplace (Mason, Robert and Barry Evans, 2015). This was seen at Fresh and Easy stores in U.S.
- Research skills: It is essential for the managers of Tesco to make sure that they have the research skills. The global managers having such skills helps the company to find out best ways in which business can be conducted so as to gain maximum profits from their operations in any country. This would also help the managers to understand the culture that is prevalent in any country and also the fact that how much the culture at the firm can affect their business.
- Leadership quality: It is also essential that leadership qualities are adopted by global managers. It would help them in effectively managing their operations at the workplace. This will help them in aligning all their strategies and resources in one line so that they could effectively achieve all their objectives (Streed, Odile and Gérard Cliquet, 2013). Since the psychological actions are bit different in two countries hence they must understand the organisational behaviour of the employees.
There are series of ethical implications that are present between the financial success and the organisational effectiveness. As the Tesco mission was to provide products at unbeatable price. This mission has made their relationship with their suppliers and farmers poor. This has weakened their supply chain management as their only focused remained towards providing products to their customers at reduced cost. Their created an unethical environment between their stakeholders especially in relation to their suppliers where they generally made change of contracts whenever they found it comfortable. They also had many unethical practices like taking unjustified prices from their customers when they made complaints about their products. There was also lack of compensation and rewards at the workplace.
In the process of expanding their business, there are mainly three crucial factors that must properly be examined. They are global culture, Internationalisation approach and the purchasing behaviour of the people. The retailers must spend time on research so as to ensure that all the factors that may provide success and failures are understood beforehand. The Tesco must adapt the local culture so that they may not have to face the problems related to cross cultural differences. Managers must also focus on communication which will help them in understanding the behaviour of the local retail industry. It is also recommended that managers develop the skills related to management of business at global level. This can only be possible when the managers of the firm spend some time in the nation. Apart from this it is also recommended that they must plan out the things that will give them competitive advantage over the others. Company must choose their suppliers very critically so that no conflict gets created between the company and the suppliers (Peters, 2016). This will help them in maintaining a good supply chain management.
Conclusion
From the above based report it can be concluded that Tesco is a British supermarket chain which entered into U.S. with the name of Fresh and Easy. Its Business failed in U.S. just a few years after it started. There are multiple reasons for it but as its leaders stated, the major reason for it was the cross cultural difference between the two nations. The managers of the Tesco were unable to understand the cultural difference that was existed between the environment of Britain and U.S. It was the lack of research before entering into the U.S. market which made their business to fell down. There are series of challenges that are being faced by the managers at Tesco in managing their business at the global level. It has become essential that he managers must adopt certain kind of management skills that would help them in bringing success to their firm. There are many ethical implications that arise due to environmental condition present in any country.
References
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