1.0 Introduction
The case study discusses about Tesco, a retail industry established in various countries that differs in its regulatory aspects and how do they compete in terms of its competitive advantages, as well to penetrate into different markets. Therefore, Tesco's movement can be analysed through the use of Michael Porter's PESTEL analysis, its Five Forces, SWOT analysis, and Michael Porter's Diamond which also further determines the strategy, conditions and factors upon expanding into new markets.
2.0 Michael Porter's PESTEL analysis
2.1 Political Factor
In relations to the above, Michael Porter's PESTEL analysis has made effort to acknowledge analytically its political, economic, social, technological, environment, and legal factor in the retailing industry. In political factor, Tesco, as the increasingly dominant market leader, faced growing regulatory pressure relating to both market-competition conditions and land-use planning restrictions. This is because government would like to preserve and protect the land-use for local retailers in terms of price and dominance of power. Furthermore, the Chinese land ownership system may be detrimental for Tesco to venture into certain regions of countries due to the stringent regulations imposed for the use of land, for instance in Taiwan. On top of that, there is an immediate catalyst for entries were the rapid liberalisation of previous restrictions on retail FDI across East Asia.
2.2 Economic Factor
Next in economic factor, there is an economic crisis on Asian economic in the year of 1997/1998 whereby it may be an advantage for Tesco as it able to make strategic majority-share acquisitions. This is also due to the fact that Tesco's cost leadership would able to capture a larger market during the economic crisis which causes consumers to have a lower disposable income. However, by late 2009, the global economic crisis has affected Tesco's growth as the potential western US markets being targeted were decimated.
2.3 Social Factor
In relations to social factor, due to the hectic environment and time constraints people had, they may not have time to buy groceries from the market to cook for their own. Therefore, the chilled prepared foods has made great effort for food preservation which enable consumers to save time yet save costs. It's basically convenient and Tesco would have an efficient distribution system as it is served by a short lead time which also supplies higher levels of own label products than typical amongst US food retailers.
2.4 Technological Factor
In technological factor, e-commerce has become an important tool to boost sales through the use of internet. Therefore, it able to engage with the culture whereby consumers for some countries would relatively purchase goods or items online rather than going through the hassle to travel all the way to the hypermarket. Thus, this enables Tesco to capture a larger market through the use of virtual network.
2.5 Environmental Factor
Next in environment factor, for instance in the UK, the adverse media scrutiny and the orchestrated campaigns has quickly embrace agendas of community responsiveness, urban regeneration, sustainable development, and ethical sourcing which addresses the concerns of the UK Government's Department for Environment, Food and Rural Affairs described as 'rising consumer expectations regarding the social responsibilities of supermarkets'.
2.6 Legal Factor
Lastly in legal factor, for instance in Slovakia, it's aware that the existence of the Anti-Monopoly Office were to protect the community or consumers from monopolising the supermarket in Slovakia with the best interest of the people.
3.0 Michael Porter's Five Forces
3.1 Buyers
Moving on to Michael Porter's Five Forces, it comprises of its buyer, suppliers, intensity of rivalry, threats of substitutes as well as new entrants in the retailing industry. In buyer, consumers basically will have a higher bargaining power due to the fact that consumers can easily switch to other competitors such as Wal-Mart, Carrefour, Aldi, and so forth. This is because in the retailing industry, there will be a low switching cost amongst the products marketed in various hypermarkets and they are competing in terms of price and differentiation. Therefore in the management aspects, the merchandiser or commercial buyers would tend to visit competitor stores in order to update themselves with the price changes in order to sustain the competitive edge.
3.2 Suppliers
Next in suppliers, small suppliers will have a low bargaining power whereas for the bigger suppliers, they will have a high bargaining power. This is because small suppliers would be able to earn much more by supplying goods to these well-established hypermarkets and they can't afford to lose them out whereas for bigger suppliers, they supply in large quantity and they can easily switch to other hypermarkets as it gives an advantage into economies of scale for that particular hypermarket. However, smaller suppliers has an advantage for hypermarket such as Tesco due to security as big suppliers may anytime decline to supply goods and whereas by having more smaller suppliers would solve the problem and the risks may not be significant compared to relying to a mere big supplier.
3.3 Intensity of Rivalry
On the intensity of rivalry, there is a high intensity in the retailing industry as there are various competitors such as Wal-Mart, Carrefour, and even small groceries stores that can be found just about anywhere which may be a threat to Tesco. For instance, consumers can easily get medication products from the Chinese medicine shop rather than going through the hassle to travel to Tesco.
3.4 Threats of Substitutes
Next on the threats of substitutes, the threat is high due to the fact that customers have many different alternatives based on the various products available on shelves at the stores and easily find them at other hypermarkets. For instance, even the mineral water can be replaced into much different kind of drinks or liquids elsewhere. Therefore, the switching cost of products into the substitutes can easily be replaced.
3.5 Threats of New Entrants
Lastly on the threats of new entrants, the barriers of entry is high especially for being a hypermarket due to the high initial investments required for operational space and to compete with other hypermarkets that has a large market share and having the economies of scale. However for small markets, they are able to gain entry to compete in terms of price with other smaller markets to capture a larger market share before expanding.
4.0 SWOT analysis
4.1 Strengths
Moving on to SWOT analysis, it comprises of its strengths, weaknesses, opportunities, and threats of Tesco in the retailing industry. In strengths, Tesco has a strong financial position together with a wide supply chain network. This is because they have an efficient distribution system amongst the suppliers and they have made a strategic market penetration in the United States of America. Furthermore, Tesco also has a management know-how whereby they have a strategic planning, for instance to go into smaller formats in new markets with other companies in order to test the market segmentation against Tesco.
4.2 Weaknesses
Next in weaknesses, Tesco has some weaknesses in terms of geographical location such as in Taiwan compared to expansion that succeeds in Thailand and South Korea. This is because of Tesco was not the first mover over at Taiwan and this causes a high barrier of entry whereby the Tesco was unable to find a suitable local partner and furthermore the consumers in Taiwan has been loyal to Carrefour and that gives Carrefour a competitive advantage.
4.3 Opportunities
In opportunities, Tesco has gained a majority-share partnership during the Asian economic crisis whereby it has an impact to the economy whereby Tesco was able to take this opportunity to capture consumers with a lower disposable income. On top of that, Tesco also has the chilled prepared food as the food preservation in the United Kingdom due to the hectic environment and time constraints that consumers had with their lifestyles. Therefore, Tesco is able to capture a larger market share.
4.4 Threats
Next in threats, the global economic recession differs than the Asian economic crisis whereby the global economic recession may be detrimental to Tesco's growth as the potential western US markets being targeted were decimated.
5.0 Michael Porter's Diamond
5.1 Firm Strategy, Structure and Rivalry
In relations to the above, Michael Porter's Diamond has identified four broad elements of the business environment in the home base which are an essential condition for sustained international business success or in other words, to determine the reasoning and the advantages of expanding into new markets. They comprise of its firm strategy structure and rivalry, factor and demand conditions, as well of its related and supporting industries. In firm strategy, structure and rivalry, Tesco has an innovative strategic divestment solution through the problems faced in Taiwan as the competitors Carrefour were dominating the market. However, the cross-region swap has made a good strategy to swap its assets with Carrefour by giving in Tesco's assets in Taiwan in exchange of Carrefour's assets over at Czech Republic and Slovakia but unfortunately the Anti-Monopoly Office over at Slovakia has restricted this and it only gives advantage for Tesco over at Czech Republic. On top of that, the market penetration over at the US through smaller formats store operations has given Tesco a competitive edge to test the market before expanding more hypermarkets over at the US.
5.2 Demand Conditions
The demand conditions such as in the United Kingdom amongst the consumers were seen to face a hectic environment and time constraints and therefore would demand for chilled prepared foods and this would give Tesco a competitive advantage not just in terms of a larger market scale, but also it is served by a 'short lead time' that has an efficient distribution system. On top of that, due to the global economic recession and specifically in the UK now, consumers tend to have a lower disposable income and this would benefit Tesco due to the affordable price imposed on products and goods whereby consumers are able to afford them and this would also assists in their taxation level and luxurious expenditure.
5.3 Factor Conditions
The few factors for expanding into different markets, for instance in South Korea, Samsung offered Tesco the knowledge of local business, the regulatory conditions, and the understand consumers' cultures. Therefore, Tesco is able to take the advantage to meet the needs of the people based on different cultures. On top of that, in Thailand for instance, there is an unrestricted opening hours whereby Tesco would able to adjust themselves which seems appropriate to open its hypermarkets to the public where Tesco is able to capture a larger market share.
5.4 Related and Supporting Industries
The related and supporting industries such as Samsung over at South Korea, and CP Group in Thailand has given Tesco the necessary support for knowledge and to understand the culture of the people as long as they are all mutually benefited out from the shares partnerships.
6.0 Conclusion
In conclusion, it can be seen that Tesco has a different dimensions for market entry and expansion as political regulations and consumers' behaviour based on different cultures would become an issue in the retailing industry. On top of that, Tesco continues to strive to compete with the competitors as well to capture a larger market share in which the significant features such as engaging with online consumers' cultures, to establish brand visibility and maximising development, through integrated food production or distribution, an initial competitive response, and the strategic realignment of Tesco being a multinational giant and to continue to succeed.
