Tesco Portfolio

8/12/2019 Tesco Portfolio

1/21

Malley 1

Tesco: A Corporate Portfolio

By: Taylor Malley

Managing the Multinational Corporation

Dr. David Palmer


2/21

Malley 2

Table of Contents

I. Executive Summary ....Page 3

II. Trade BarriersPage 4

III. Technological Advances.Page 4a. Information Technology.....Page 4

b. Retailing Technology.... .Page 5

c. Operation Systems TechnologyPage 5

d. Recommendations.Page 6

IV. Adapting to Local Markets..Page 6

a. Retailing Services...Page 6

b. Marketing StrategiesPage 8

V. Mistakes of Tesco .Page 8

VI. Fixed Costs.Page 9

VII. International Trade & Comparative Advantage...Page 10

VIII. FDI ChartsPage 11

IX. FDI Evaluation.Page 13

X. Political Factors....Page 14

XI. Operation Pressures ..Page 16

XII. Local Adaptations.Page 17

XIII. Strategy.....Page 18

XIV. Business Development Strategy...Page 18

XV. Success of Strategy....Page 20

XVI. Human Resource Management....Page 20


3/21

Malley 3

Executive Summary

Over the past 20 years, Tesco has brought its corporations to new heights in the

supermarket industry by currently placing as the number 1 supermarket in the UK

and number 3 worldwide amongst competing grocery chains. Their surge of

success has much to do with advancing the corporations technology, such asCRM (Customer Relationship Management) software, this includes the highly

successful Tesco Clubcard. Allowing Tesco to build their information technology

with customer databases allowed them to develop their stores matching their

customers wants and needs, which is critical to the industry.

Factors such as declining trade barriers and adapting to local Tesco

environments by incorporating tactics such as, comparative advantage theory,

allowed Tesco to profit in their global products and establishments in the foreign

market. This also has allowed Tesco to operate with low fixed costs but as a

supermarket company, Tesco experiences high variable costs including

components such as production costs, suppliers etc

As Tescos foreign direct investment has substantially increased over the past

ten years. By 2009, Tesco invested a little over 46 million pounds combining

inward and outward investment. By 2009, Tescos outward investment totals

were 35 percent of their total investments, demonstrating Leahys clear direction

of wanting to spread the corporation further into the foreign markets.

Much of Tescos success can easily be contributed to the outstanding leadershipdirection of Sir Terry Leahy. For almost 14 years, Leahy has been the CEO of

the Tesco Corporation, launching the company into tremendous success not only

for the UK but across the globe. There has been endless discussion as to what

the future success of Tesco entails since Leahy will be retiring in Spring 2011.

There has been much debate if Tesco will be able to continue to dominate in the

foreign markets, as their ventures such as the United States Tescos Fresh and

Easy stores, are presently continuing to lose profit with little signs of

improvements. Philip Clarke will be stepping in as Tescos new CEO and his first

year decisions will be crucial as to whether Tesco should continue or pull out of

the American markets.


4/21

Malley 4

Trade Barriers

Tesco supermarket is one of the largest food retailers across the UK and

by 2010 they have expanded their stores across 14 other countries including

Asia, Europe and the United States. The decline of trade barriers across theglobe has allowed Tesco not only the ease of expanding their business

worldwide but incorporating global products. This has also allowed for the

company to establish a fair trade system of their goods while maintaining better

relations with their suppliers1

.

Technological Advances

During the 1970s and 1980s, Tesco was barely making profits on their

chain until Sir Terry Leahy stepped in as CEO. Recognizing the company

needed a complete makeover, Leahy quoted as his first step, Know you

customers, know your store. Technology has helped provide Tesco with its

global success through:

I. Information Technologya. Customer Database

i. Tesco Clubcard The Tesco Clubcard has revolutionized

Tescos customer service operations. The Clubcard

gives Tesco direct access to the customers shopping

behaviors and on how to improve the stores products to

match the customers wants and needs.

ii. By building this database, Tesco was able to recognize

their errors and fix them accordingly.

For example, customers were more inclined to

purchase a more expensive version of their

normal product (ex: wine) during the holiday

season. This allowed the company to expand

1Tesco PLC - Country Highlights. Accessed on 14 September 2010

http://cr2010.tescoplc.com/country-highlights.aspx
http://cr2010.tescoplc.com/country-highlights.aspxhttp://cr2010.tescoplc.com/country-highlights.aspxhttp://cr2010.tescoplc.com/country-highlights.aspx


5/21

Malley 5

their wine selection to include a fine wine

selection2

II. Retailing Technology

.

The companys ability to adapt and integrate technology haslead to significant increase in company profits and a large

consumer base. The Tesco Corporation has tailored technology to

their needs by incorporating:

a. Tesco.com

Initiated in 2000 and obtains 1 million activeusers in the UK.

By 2009, 50 percent of Tescos customers

used online grocery shopping.b. Tesco Telecomsc. Tesco Clubcardd. Self-checkout machines

These technology services have given the company the

opportunity to branch out to their consumers shopping needs in a

faster, more efficient climate3. Recently in August 2010, Tesco

launched the first drive thru supermarket in United Kingdom.

Allowing their time-conscious consumers who cannot wait for their

delivery of goods, allows them the convenience of online grocery

shopping with the option of the stores drive-thru pick up service4

III. Operation Systems Technology

Through the use of electronic shelf labeling, Electronic Point

of Sale(EPOS) and Electronic Funds Transfer Systems(EFTPOS)

2Rigby, Elizabeth. Fresh Horizons uneasily scanned, 20 September 2010. Available at

www.ft.com/insidetesco3Tesco PLC - Retailing Services. Accessed on 15 September 2010

http://www.tescoplc.com/plc/about_us/strategy/services/4Tesco Trials Nations First Drive-Thru Supermarket Service, 23 August 2010.

Accessed on 15 September 2010http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-

23/
http://www.ft.com/insidetescohttp://www.ft.com/insidetescohttp://www.tescoplc.com/plc/about_us/strategy/services/http://www.tescoplc.com/plc/about_us/strategy/services/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/media/pr/pr2010/2010-08-23/http://www.tescoplc.com/plc/about_us/strategy/services/http://www.ft.com/insidetesco


6/21

Malley 6

allows the corporation to keep a better track of their inventory

goods. In turn, this notifies its employees the correct stocking

measurements while, also corresponding to their suppliers what

goods are in demand5

.

IV. Recommendations

Tesco.com has proven to be a success for the corporation

but currently is only operating in the United Kingdom, the Republic

of Ireland and South Korea6

. For Tesco to maintain and improve

their business it would be beneficial for all their foreign stores to

incorporate online shopping for all their customers.

Adapting to Local Markets

As Tesco stores continue into global markets, it is essential for Tesco to

alter to the specific consumer market. In order to accommodate to the customer

Tescos adjustments are made through their retailing services and marketing

strategies.

I. Retailing Services

a. Cultural TastesBy using comparative advantage theories, each Tesco branch

can adhere to each countrys specialized products. Each

countrys consumers maintain specific staple products that

Tesco must be able to adapt to their consumers preferences

when exporting their products to their global branches. Such

5Friedlos, Dave. Tesco to extend electronic labeling, 13 July 2006. Accessed on 14

September 2010http://www.computing.co.uk/computing/news/2160215/tesco-extend-electronic6Tesco PLC - Retailing Services. Accessed on 15 September 2010

http://www.tescoplc.com/plc/about_us/strategy/services/
http://www.computing.co.uk/computing/news/2160215/tesco-extend-electronichttp://www.computing.co.uk/computing/news/2160215/tesco-extend-electronichttp://www.computing.co.uk/computing/news/2160215/tesco-extend-electronichttp://www.computing.co.uk/computing/news/2160215/tesco-extend-electronichttp://www.tescoplc.com/plc/about_us/strategy/services/http://www.tescoplc.com/plc/about_us/strategy/services/http://www.tescoplc.com/plc/about_us/strategy/services/http://www.computing.co.uk/computing/news/2160215/tesco-extend-electronichttp://www.computing.co.uk/computing/news/2160215/tesco-extend-electronic


7/21

Malley 7

as, incorporating increased levels of curry products in India or

enlarged rice products in China7

.

b. Cultural Shopping

Not only does taste affect consumers choices but consumers

shopping habits.

Shopping Formso Tescos India branches are cash and carry

stores, which sells its products by bulk to itswholesale consumers8

.

o Tescos international stores located in South

Korea and China, these branches arehypermarkets, which not only incorporate alarge variety of food products but a very largeamount of non-food products as this consumerbase prefers to do all their shopping at onestore

9

.

Interactive Shoppingo In China, fish is a staple product to the

consumer and is sold in a non-westernmanner. Where as instead of packaged fish,

live fish is placed in a tankand the customercatches their own live fish10

.

Organic Shoppingo Tesco branches in Japan must rotate stock

products constantly as these customers willbuy fresh items and produce several timesthroughout the week11

o In Thailand, Tesco branches incorporate aFresh Market Hall, where local vendors sell

.

7Corporate Watch. Tesco: A Corporate Portfolio. Accessed on 21 September 2010

http://www.corporatewatch.org.uk/?lid=2528Being Successful in International Markets-New CEO of Tesco is Model Example.

Accessed on 20 September 2010http://blog.communicaid.com/cross-cultural-

training/being-successful-in-international-markets--new-ceo-of-tesco-is-model-example/9Corporate Watch.

10Being Successful

11Corporate Watch.
http://www.corporatewatch.org.uk/?lid=252http://www.corporatewatch.org.uk/?lid=252http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://blog.communicaid.com/cross-cultural-training/being-successful-in-international-markets-%E2%80%93-new-ceo-of-tesco-is-model-example/http://www.corporatewatch.org.uk/?lid=252


8/21


9/21

Malley 9

consequence is current CEO, Sir Terry Leahy, will be retiring in 6 months,

leaving this issue unresolved and into the hands of a new CEO 15

.

Fixed Costs

Tescos 2009 Costs

Fixed Costs m Variable Costs m Total Costs m

2,514 50,109 52,623

Tescos corporation operates on a low fixed costs platform due to the high

variable costs associated with the company. These fixed costs include building

permits including rent and utilities, executive salaries and manufacturing costs

such as land maintenance and transportation device maintenance. About 95

percent of Tescos costs are variable costs due to production costs including

suppliers and hourly employees wages16

.

British Airways 2009 Costs

Fixed Costs m Variable Costs m Total Costs m

694 220 914

The supermarkets industry overhead is not as severe as the air

transportation industry. For example, British Airways must accommodate their

business strategy accordingly to high fixed costs factors, which account for 75

percent of British Airways total costs. These fixed cost factors include fueling,

aircraft maintenance, runway fees and government taxations. These fixed costs

are not only expensive but the airline industry is easily affected by the high and

15Rigby, Elizabeth. Fresh Horizons uneasily scanned, 20 September 2010. Available

atwww.ft.com/insidetesco16

Tesco plc. Annual Reports and Financial Statements 2009, 5 October 2010.

Available at:http://www.tescoplc.com/plc/ir/ar/archive/ar2009/
http://www.ft.com/insidetescohttp://www.ft.com/insidetescohttp://www.ft.com/insidetescohttp://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.ft.com/insidetesco


10/21

Malley 10

low fluctuating demand periods17

. Thus, Tescos fixed costs are low compared to

the airline industry.

International Trade

As the Tesco corporation continues to grow and expand their stores into

foreign markets has led for a necessary movement of understanding international

trading policies. To maintain low operating costs, Tesco must comprehend and

practice comparative advantage theories for their business.

Using Ricardos comparative advantage theory is beneficial for Tesco to

use in the production and exporting of goods to each country. This will

further educate the company as to which goods should be bought from

local vendors and what needs to be exported in for the specific store.

o For example, Japan has a lower cost production in producing rice

thus it would be cheaper and more efficient for Tesco to buy rice

from Japanese wholesalers than exporting it into the country.

o In China, Tesco can produce part of their clothing line fabrics

specifically for outdoor and extraneous labor cheaper than in India.In India, Tesco produces their more ornate fabrics than China

because it can be done faster and cheaper18

.

As Tesco develops in foreign markets, it is critical for the company to

practice efficient international trading and profit from using the specialization

techniques used in comparative advantage theories. This is done control costs

to a minimum and keeping prices low for their consumers.

17British Airways. Annual Reports and Accounts, pg. 71 4 October 2010. Available at

http://media.corporate-ir.net/media_files/IROL/69/69499/BAI_AR_2010_final.pdf18

Hall, James. Tescos International Sourcing. Telegraph. 23 February 2009. 28September 2010. Available at

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-

International-Sourcing-the-machine-behind-the-machine.html
http://media.corporate-ir.net/media_files/IROL/69/69499/BAI_AR_2010_final.pdfhttp://media.corporate-ir.net/media_files/IROL/69/69499/BAI_AR_2010_final.pdfhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-International-Sourcing-the-machine-behind-the-machine.htmlhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-International-Sourcing-the-machine-behind-the-machine.htmlhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-International-Sourcing-the-machine-behind-the-machine.htmlhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-International-Sourcing-the-machine-behind-the-machine.htmlhttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/4788156/Tescos-International-Sourcing-the-machine-behind-the-machine.htmlhttp://media.corporate-ir.net/media_files/IROL/69/69499/BAI_AR_2010_final.pdf


11/21

Malley 11

Foreign Direct Investment

I. Investments 1

Tesco's Investments over 10 Years

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Total Inward Investment mTotal Outward Investment m

Total Investment m

Total InwardInvestment

m

TotalOutwardInvestment

m

TotalInvestment

m

2000 5,713 1,145 6,858

2001 6,720 1,476 8,196

2002 7,131 1,995 9,126

2003 8,445 2,851 11,296

2004 8,990 3,090 12,080

2005 9,243 3,656 12,899

2006 15,367 7,082 22,449

2007 16,630 8,177 24,807

2008 19,538 10,626 30,164

2009 29,962 16,091 46,05319

19

Tesco plc. Annual Reports and Financial Statements 2000-2009, 5 October 2010.

http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/http://www.tescoplc.com/plc/ir/ar/archive/ar2009/


12/21

Malley 12

II. Investments 2

% Values of Tesco's Investments

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

% of Inward Investment

% of Outward Investment

% of InwardInvestment

% ofOutwardInvestment

2000 83.30 16.70

2001 81.99 18.01

2002 78.14 21.86

2003 74.76 25.24

2004 74.42 25.58

2005 71.66 28.34

2006 68.45 31.55

2007 67.04 32.962008 64.77 35.23

2009 65.06 34.9420

III. Investments 3

20Tesco plc. Annual Reports and Financial Statements 200-2009, 5 October 2010.



13/21

Malley 13

% Change of Tesco's Investments over 10 years

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

% Change of Total Inward Investment

% Change of Total OutwardInvestment

% Change of Total Investment

% Change ofTotal Inward

Investment

% Changeof TotalOutward

Investment

% Changeof Total

Investment

2000

2001 17.63 28.91 19.51

2002 6.12 35.16 11.35

2003 18.43 42.91 23.78

2004 6.45 8.38 6.94

2005 2.81 18.32 6.78

2006 66.26 93.71 74.04

2007 8.22 15.46 10.50

2008 17.49 29.95 21.59

2009 53.35 51.43 52.6821

Over the past 10 years, Tescos investment strategy has been very

efficient and effective. By obtaining financial data from Tescos annual corporatereports the observer will notice by the end of the decade Tesco increased its

total investment projects by almost 40 million pounds (See Investments 1). As

the company gained profit and secured the Core UK business strategy, Leahy

21Tesco plc. Tesco Annual Reports and Financial Statements 2000-2009, 5 October

2010. Available at:http://www.tescoplc.com/plc/ir/ar/archive/ar2009/


14/21

Malley 14

acquired and expanded Tesco supermarkets across global markets. Thus,

increasing outward investment by 18 percent (See Investments 2). In 2009, as

European markets decreased due to the global economic conditions, Tescos

Asian markets elevated as Tesco acquired 36 stores in South Korea allowing for

a profit turnover of 11 percent22. In 2006, Tescos investment projects nearly

doubled and the percent change of outward investment growth advanced 93

percent (See Investments 3), due to Leahy preparing to open Tescos Fresh and

Easy in the US market acquiring almost half of outward investment funds23.

Although as Tesco continues to lose profits in the US market, reports state Tesco

is hopeful to break even by the fiscal year 2012 and plan to open almost 400

stores throughout the next two years in California24

.

Political Factors

Tescos inward investments have undergone scrutiny as the corporation

continues to expand and grow across the UK. Tescos ability to capitalize on

many of the UKs land banks to establish more stores across the area developing

into Tesco Towns25

.

I. Political Contributions

Government parties, especially the Labour Party, have come under

attack for letting superstore grocery store chains, such as Tesco,

monopolize and bully small businesses in the UK. In 2003, Tesco

22Tesco plc. 2009 Annual Report and Financial Statements, pg. 22. 5 October 2010.

Available at:http://www.investis.com/plc/storage/tesco_review_09.pdf23

Tesco plc. 2006 Annual Report Summary and Review, pg. 7. 6 October 2010.

Available at:http://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_20

06.pdf24

Felsted, Andrea. Tesco expects US arm to break even, Financial Times. 6 October2010. Available at:http://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-

00144feabdc0.html25

Howker, Ed. The Big Question: Is Tesco now to powerful in Britain, and can itsgrowth ever be checked? 5 March 2009. The Independent. 19 October 2010. Available

at:http://www.independent.co.uk/news/business/analysis-and-features/the-big-question-

is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.html
http://www.investis.com/plc/storage/tesco_review_09.pdfhttp://www.investis.com/plc/storage/tesco_review_09.pdfhttp://www.investis.com/plc/storage/tesco_review_09.pdfhttp://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_2006.pdfhttp://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_2006.pdfhttp://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_2006.pdfhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.htmlhttp://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_2006.pdfhttp://www.investis.com/plc/ir/ar/archive/ar2006/AnnSummFin06/tesco_review_SFS_2006.pdfhttp://www.investis.com/plc/storage/tesco_review_09.pdf


15/21

Malley 15

has donated a little more than 20,000 pounds between the Labour

and Liberal Democrat parties. Even Ursdaw, Tescos prominent

union for their workers, were only given 16,000. As for the rest

5,502 was allocated to the Conservative Party, 1, 300 to the

Plaid Cymru, 1,203 Fianna Fail26

Not only has Tesco made sufficient political contributions, but has

hired many prominent political advisors as key employees for the

company. For example, Philip Gould, one of Tony Blairs chief

advisors, was hired to improve Tescos lobbying practices giving an

extreme advantage to obtain government insight.

.

II. Committees

During the early 2000s, the Tesco corporation had members sittingon six different government committees. This was a significant

increase compared to their other supermarket competitors, thus

coining phrases such as Tescopoly, to develop as competitors

were becoming more jealous of the market share Tesco was

monopolizing27

Local Planning Commissions in the UK have tried to control

Tescos acquisition of numerous land banks to try and stimulate

local markets, example convenience shops. This has been

unsuccessful as these commission officers terms are very short

and the planning requests take longer than most officers can finish

a term, thus permission is usually always granted to Tesco

.

28

III. Millennium Dome

.

In 1998, The Observer,speculated Tesco donated 12 million to

the new government project, The Millennium Dome, as a quid pro

26Corporate Watch UK. Tesco: A company profile. October 2004. 19 October 2010.

Available at:http://archive.corporatewatch.org/profiles/tesco/tesco3.htm27

Howker, Ed. The Big Question: Is Tesco now to powerful in Britain, and can its

growth ever be checked? 5 March 2009. The Independent. 19 October 2010. Availableat:http://www.independent.co.uk/news/business/analysis-and-features/the-big-question-

is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.html28

Howker, Ed.
http://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://www.independent.co.uk/news/business/analysis-and-features/the-big-question-is-tesco-now-too-powerful-in-britain-and-can-its-growth-ever-be-checked-1637575.htmlhttp://archive.corporatewatch.org/profiles/tesco/tesco3.htm


16/21

Malley 16

quo situation. At the same time, legislation was undergoing for a

tax to be stipulated on car parks for shopping centers, which would

cost Tesco almost 40 million pounds. After the donation was

made, the tax fell through and was not passed 29

.

It is a question of power and how much should be allowed and what is

deemed unfair. Tescos practices are of a strong, independent company who

has developed the supermarket industry as a thriving business. Should Tesco

be punished for giving consumers the option of either buying from their store

instead of local stores, ultimately it is the consumers decision where they shop

and many consumers cannot argue with Tescos low costs and wide product

selection.

Operation Pressures

i. Tesco generally operates with low cost pressures running business

operations, but maintains high cost pressures from consumers to ensure

that product prices remain low. Currently Tesco has had some struggles

with sustaining their low prices to consumers as the recession increased

inflation amongst various countries, thus leading to a difficult trading

market30

ii. Tesco faces pressures more from their consumers and base success off

of customer retention. Hence,the initiation of Tescos loyalty program, the

Clubcard to act as a switching cost for the company. The Clubcard gains

access to important information while providing substantial incentives to

customers allows for high consumer retention in their market. By creating

incentives in this program, promotes Tescos products beyond groceries,

.

29Corporate Watch UK. Tesco: A company profile. October 2004. 19 October 2010.

Available at:http://archive.corporatewatch.org/profiles/tesco/tesco3.htm30

The Guardian. Tesco Suffers due to falling food prices. 15 June 2010. Accessed on

8 November 2010 athttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-

falling-food-prices
http://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://archive.corporatewatch.org/profiles/tesco/tesco3.htmhttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://www.guardian.co.uk/business/2010/jun/15/tesco-suffers-falling-food-priceshttp://archive.corporatewatch.org/profiles/tesco/tesco3.htm


17/21


18/21

Malley 18

research within each country deciphering if consumers are money

conscious, how often a customer will shop and which brands they prefer.

Strategy

i. Tesco maintains a transnational strategy, with an emphasis on local

markets and cost reduction pressures, especially from their consumers.

This is the optimal strategy for businesses and the right strategy for

Tesco. Therefore, it is critical for Tescos business to continue focusing

on local market needs and cost pressures specifically from their

consumers viewpoint, to provide low prices to their products, as theses

strategys help the business grow and develop while maintaining their high

position in the supermarket industry.

Business Development Strategy

i. Which Markets to Enter and When :a. Tesco examines stores underperforming in hopes to acquire them

for potential profit growth. Mainly by attaining favorable markets

where the economy is stable and the political environment is

secure.

b. Tesco will usually enter a market early but will only buy at the

markets lowest selling point, to increase their turnover34

ii. Scale of Entry

.

a. In many cases, such as China and other Asian countries, Tesco

entered on a large scale entry method to stay ahead of competition,

such as Walmart and Carrefour, and to expand international stores.

b. In 2002, 377 million pounds buying acquiring T&S stores located

in China. Also an additional140 million pounds was produced for

store expansion and redevelopment in Shanghai35

34

Corporate Watch. Tesco: A Corporate Portfolio: China. Accessed on 17 November

2010 at

.

http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#Marketshareandimportance
http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#Marketshareandimportancehttp://archive.corporatewatch.org/profiles/tesco/tesco1.htm#Marketshareandimportancehttp://archive.corporatewatch.org/profiles/tesco/tesco1.htm#Marketshareandimportance


19/21

Malley 19

c. In 2008, Tesco nearly spent 1 billion pounds in South Korea

through store acquisition purchases alone, which has led Tesco

close to succeeding their number one competitor in South Korea,

Shinsegae markets36

iii. Entry Mode

.

a. Tesco international success can be attributed to their

developmental strategy of acquiring international firms and

reconfigure these stores to the Tesco model.

While Tesco was increasing their expansion internationally,

in 2004, Tesco entered into a joint venture with Topland, a

property group, of 650 million pounds of Tescos UK

property. This was to improve Tescos credit rating and away for the company to pay off their expanding debt 37

b. When entering a new market, Tesco has always followed an

acquisition model, except in the United States. Tesco decided to

pursue an organic growth entry mode, which has proven to be so

far, unsuccessful and costly for the company. By entering in a

limited scale by opening shops across California, placed Tesco in a

high risk operation, where profit turnover would need to be quick

and incur a large revenue of profit. By expanding into the US

market would not only create profits for Tesco but there would be a

high reward of further establishing the competition between Tesco

and Walmart, in hopes for Tesco to gain profit off of Walmarts

territory. Instead of following their previous models, Tesco has

.

35Corporate Watch. Tesco: A Corporate Portfolio: China and International Expansion.

Accessed on 16 November 2010 at

http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#expansion36

Finch, Julia. Tesco spends 1 billion store acquisitions in South Korea. 15 May 2008.Accessed on 17 November 2010 at

http://www.guardian.co.uk/business/2008/may/15/tesco.mergersandacquisitions37

Corporate Watch.
http://archive.corporatewatch.org/profiles/tesco/tesco1.htm#expansionhttp://archive.corporatewatch.org/profiles/tesco/tesco1.htm#expansionhttp://www.guardian.co.uk/business/2008/may/15/tesco.mergersandacquisitionshttp://www.guardian.co.uk/business/2008/may/15/tesco.mergersandacquisitionshttp://www.guardian.co.uk/business/2008/may/15/tesco.mergersandacquisitionshttp://archive.corporatewatch.org/profiles/tesco/tesco1.htm#expansion


20/21

Malley 20

had to pay for the mistake where in the first year Tesco lost 208

million dollars in its first year of operations38

.

Success of Strategy

i. Therefore, it is easy to register the success of Tescos development

growth specifically in Asia and Europe, by following their companys

subsidiary skills. Tescos risk of enforcing a new business developmental

strategy in the US has cost Tesco significantly. Tesco may have had

better success in the US market if they acquired a US supermarket chain

and reform the business to the Tescos supermarket model.

Human Resource Managementi. Tesco employees 380,000 people worldwide, with 260,000 employed

within the UK equating Tesco as the largest private sector employee

corporation39

38

Goodwin, Christopher. Fresh & Easy: Tescos Great American disaster unfolded. 27

April 2009. Accessed on 17 November 2010 at

. Thus, Tesco places human resources management highly

and as part of their core competencies to integrate a geocentric policy for

the corporation. By attaining a large number of employees due to their

expansions across the globe, it was necessary for Tesco to retain a

significant quantity of employees, as each store requires many employees

to help run daily operations smoothly. Part of their management

technique is to ensure managers know a significant amount of detail of

their specified market, this is extremely important when they open an

international branch to ensure that the local knowledge of a new market is

implemented within the stores daily resources. For Tesco to operate at

its current pace and size, Tesco has had to hire employees in 5 key areas

of business, such as store management, site location analysts, marketing

and financial personnel, supporting and sustaining international

http://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disaster39

Tesco in Numbers. The Telegraph. 18 April 2007. Accessed on 8 December 2010 at:

http://www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.html
http://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disasterhttp://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disasterhttp://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disasterhttp://www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.htmlhttp://www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.htmlhttp://www.telegraph.co.uk/news/uknews/1548956/Tesco-in-numbers.htmlhttp://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disasterhttp://www.thefirstpost.co.uk/47157,news-comment,news-politics,fresh-and-easy-tescos-great-american-disaster


21/21

Malley 21

operations. These sectors are necessary for Tesco to establish success

in many diversified cultural markets of their business40

.

40Palmer, Mark. Retail Multinational learning: a case study of Tesco. Accessed on 8

December 2010 at:

http://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20metho

d%20studies/Tesco.pdf
http://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20method%20studies/Tesco.pdfhttp://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20method%20studies/Tesco.pdfhttp://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20method%20studies/Tesco.pdfhttp://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20method%20studies/Tesco.pdfhttp://210.212.115.113:81/Abha%20Rishi/International%20Retailing/IB/entry%20method%20studies/Tesco.pdf

Documents

Tesco Portfolio