Executive Summary
Tesco is the leading retailer in UK. It manages over a thousand supermarkets, hypermarkets, and convenience stores in the United Kingdom, Ireland, Central Europe and Asia. This study explored the competition inside the retail industry in Malaysia. Now, that Tesco has opened 16 stores in Malaysia, the retail industry becomes very competitive. The study analyzed the profile, the company’s goals and objectives and the industry life cycle, which is very important in strategic and competitive study of an organization, especially in the retail and service industry. Since the retail industry undergoes very diverse change almost everyday, it is just right that Tesco’s strategy on change examined. In analyzing how Tesco, Malaysia is competitive, the study utilized the SWOT analysis and Porter’s five forces for the industry attractiveness. The study arrived to the conclusion that Tesco, Malaysia like its mother company in U.K. is very competitive, however, since there are some competitors in the industry, Tesco still needs the aid of Michael Porter’s five forces, generic studies and cost leadership in order to stay on the top in the retail industry
Introduction
Tesco is the world leading retailer in United Kingdom and now is currently expanding outside Europe. Currently, they are entering the retail industry in Asia. In this study, the competitive advantage and strategic management of Tesco in Malaysia will be explored utilizing some concepts in strategic management such Porter’s frameworks and SWOT and industry analysis.
An Overview of the Organization
The first Tesco Hypermarket was opened in 2002. This hypermarket is in Puchong, Malaysia. Tesco also opened two more stores in Malaysia with Sime Darby Network Corporation. Currently, Tesco, Malaysia profit is increasing and had profited more than $31 million. The suppliers of Tesco, Malaysia are mostly local suppliers, these suppliers understand the needs of the Malaysian consumers. Since the expansion is very fast in Malaysia, there will come a time that the supply chain of Tesco, Malaysia will be regional (2005)
Tesco, Malaysia manages 16 stores and provides work for 240,000 individuals worldwide. Over the precedent five years, the corporation has extended from its conventional Malaysian supermarket foundation into new nations, merchandise and services, as well as a chief non-food business, individual investment and internet shopping. The ever-increasing degree and internationalization of its sales and purchasing processes constructs a noteworthy involvement to its competence and productivity, as it make progress towards its long-standing goal of becoming a truly global retailer. In this apparently vast scope of Tesco in terms of human resource, it is important to have a strong leadership to apply an equally competent human resource scheme for its whole workforce (2005)
Tesco’s organizational structure serves to be aiming for the company’s missions and goals. Tesco has three committees, the Remuneration Committee, the Audit Committee and the Nominations Committee Below is Tesco’s organizational chart of each stores.
Mission, Vision, Objective and Industry Stage Life Cycle
The core objective of Tesco is to establish value for customers in order to gain their lifetime loyalty. Tesco’s success depends on their valued customers. These customers shop and work with the company. Tesco’s principle is, if the customer likes what they offer, surely these people will come back and purchase again. The two core value of Tesco are: No-one tries harder for customers and Treat people as we like to be treated. (2005)
Tesco’s mission and vision shows that this company is really for quality service and values their customers (
2006)
· Be the leader in Quality Service provided to everyone in the retailing industry
· Understand the needs of their client and respond with urgency.
· Meet customer’s demands and exceeds their expectations
· Maintain highly trained and motivated employees.
· Continuously improve their skills, service and achieve excellence in all of the company’s endeavors.
The stage life cycle of the retail industry is no doubt to be mature because of the profits they are gaining every year. The retail industry’s profit is increasing and profiting from their cash cows.
A Major Strategy Change
The only permanent thing is change. Everyday in the retail industry and in global grocery markets, change is very rapid. Tesco in Malaysia is beating the heat in food markets, struggling for growth, even if sometimes ageing population are declining; demographic profile is always growth-oriented and optimistic (2005)
In the case of Tesco, Malaysia, economic development condition, food supply chains are being rationalized according to more complicated major retail and food service consumers who wants to make business with fewer, larger, better-resourced manufacturers, suppliers and farmers. Therefore, power is polarizing the global retail industry. However, big retail organizations are exploiting the commercial value of the mass of information they have exclusive stores (2005)
Another issue of change Tesco is facing is the use of e-commerce. Tesco is now leading the pack in the dot-com business, the arrival of broadband internet means that more and more people will shop online - suggesting there is plenty of room in the market for Tesco and competitors. Service differences are likely to smooth out, making it more likely that people will choose on the basis of price and brand loyalty. Tesco's status as first to the market has won it a lot of customers. But if it's still going to lead the field in five years’ time, it has to work a lot harder.
Tesco will need to determine specific points that will set them apart from the rest of the pack of e-shopping companies. With the fast turnover of internet and communication technologies, it is just a matter of time before competitors could catch up. But even with the competitors having the same level of technology with Tesco, determined efforts in brand positioning and promotion, and enhancement of customer service for Tesco might just do the trick - in creating a perceived differentiation in consumer products and services from its competitors.
SWOT
STRENGTHS
WEAKNESSES
1. Wide knowledge of retail industry
2. Competent top management and rank & file for operation and maintenance
3. Existing customer base
4. Financial investment backing.
5. Strong IT returns through internet shopping
1. Low supervision on international market
2. Considerably late exploitation of the Internet
OPPORTUNITIES
THREATS
1. Expansion of target market
2. Healthy market environment
3. Increasing detraction of small retail businesses in Malaysia
1. Economic restructuring
2. Intensified competition
3. Government regulation
Corporate, Functional and Global Strategy
Tesco has a long term business strategy in order to increase profits, the company has three different dimensions in their strategies, and these are: corporate, functional and global or international. Tesco has 16 stores across the Malaysia 80% of their group sales and profits come from the business. According to Tesco.com, the key to their successful strategy is that they deliver first-class value, choice and convenience throughout their customer offer. To create value for customers to earn their lifetime loyalty is the Tesco core purpose.
Because of this belief, sales have grown by 7.9%. This year they celebrated the fifth anniversary of the Finest brand by expanding the range to 1,100 products. They have continued to grow the convenience business with a like-for-like growth in ready meals of 23% and lead the way in product development with their Healthy Living and Meals for One ranges. (, 2003)
Another strategic action that the Tesco have undertaken is what they labelled as Regeneration. (2000) This process is similar to instituting a store with the help of the local community and the local government in accordance to the generation of jobs and commerce in specific areas. Among the areas where Tesco have “regenerated” includes Puchung, Kuala Lumpur, and Simpang Pulai. In this strategy, the company places a store in specific areas which they consider as deprived and in dire need of employment. This way, they have instituted a store in a location where there exists little competition and in the same time increases their reputation on the area by providing jobs for people in the community. Moreover, this strategy also moves their commodities closer to the public.
Providing the needs and quality service to their customers is the functional dimension of Tesco’s business strategy. TESCO introduced over 5,000 new food lines this year. Another innovation is bringing in screw-cap wines and their own label range ‘Unwind’, which is on-track to be a $5m brand this year. Grab and Go counters have been introduced into over 500 stores, offering customers a huge choice of cheese and hot chicken without having to queue, making it simpler and cheaper to operate. (2002)
Another new introduction to their system is Primary Distribution, where they saw great progress this year. Through this approach, they are able to take control of product from the factory gates to their distribution centres, improving efficiency and delivering cost benefits that they reinvest in customer initiatives. One more strategy that TESCO emphasized is in their non-food section. They have expanded their non-food offer to gain their customer’s expectations. Because of this, they now have a 5% share of Malaysian non-food market. They have a 16% share of chart music sales, up from 4% five years ago. ()
According to Tescocorporate.com (2005) they are implementing six elements to their global strategy in order to compete internationally:
- Flexibility- making each market unique and have different approach
Acting local- local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff - less than 100 of Tesco's International team are ex-pats
Keep focus - to be the leading local brand is a long term effort and takes decades, not just a few years
Be multi-format - no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout
Develop capability - developing skill in people, processes and systems and being able to share this skill between markets will improve the chances of success in challenging markets
Build brands - brands enable the building of important lasting relationships with customers.
PESTLE Analysis
The PESTLE Analysis establishes a good analysis of the external effects on a company by breaking them into essential and obvious sorts.
Political- the Malaysian government’s polivy on the sale of alcohol to people under age of 18.
Economic- the government’s decision to put tax on food.
Sociological- Tesco’s adaptation measures to the different shopping patterns of the Malaysian consumers.
Technological-e-commerce impact on Tesco’s distribution costs.
Legal- the effect of the mad cow disease to the company.
Environmental- climate change in Malaysia to the third world suppliers.
Enhancing Quality
Everyday, top managers of Tesco stores gather for an hour-and-a-half customer advocacy meeting to pore over that week's performance statistics. What makes this unusual is that every performance measure under scrutiny relates to customer satisfaction, and this meeting is the most important one on the corporate schedule. The vice presidents discuss several measures, including on-time delivery (OTD), product returns and their causes, and abandonment rates for calls to Tesco’s toll-free number. OTD is a true cornerstone of Tesco’s competitive strategy. The company promises product shipment within five days of order and two-day delivery. In February 1989, management decided to make Dell first in its industry in customer satisfaction. Surveys indicated that reliable delivery was the second highest concern to customers, after product attributes. But the company was already expending a disproportionate effort on getting production to match demand. Tesco responded by simplifying products and components, adapting production lines to handle just a few configurations, pushing customization to the end of production, and transmitting order information to the shop floor within 24 hours. The business was transformed into a "made-to-order" manufacturing operation with three- to four-day cycle times. The results are apparent. Tesco’s OTD records are among the best. Sales have increased by 70 percent in less than two years. Tesco ranks first in customer satisfaction (Kumar and Sharman, 1992). Today, even suppliers with flawless track records can't afford to rest on their chairs. In the past, they had to focus mainly on areas such as product reliability and defect rates. In the future, however, to make the cut as a "preferred supplier," manufacturers will have to satisfy a number of service criteria, leading off with OTD. No failure in customer service is easier to identify, measure, and compare.
Efficiency Enhancement
Tesco always put their efforts to do things “better, simpler and cheaper,” for their customers and employees. They usually enhance not by focusing on big aspects of the business, but by providing small enhancements. For example, Tesco is recycling plastic crates in order to restore cardboard boxes and other packaging. This seems to be small, but this is been implement in the supply chain management globally. In the age of innovation, Tesco improves customers’ savings through their efficiency such as wide choices of their own brand that are suitable for different customers, efficient time and motion innovations that are being distributed to different stores globally, the utilization of self-scan checkouts and bigger conveyor belts that help improves packing speed during checkout. This may not be big enhancement of efficiency but if the hundreds of Tesco stores do this that will be big savings and efficiency to both employees and customers.
Industry Attractiveness[TEO8]
In analyzing industry attractiveness, Porter’s five forces model is used. The attractiveness of the retail industry, depends on the situation of competition. The competition in the retail industry is based on its economic structure Porter’s Five Forces Model implies that business are being influenced by five forces namely supplier power, threat of substitutes, buyer power, barriers to entry and rivalry. This model also implies that business must be able to understand the industry context in which they operate. This must be done in order to better design the strategy that the business will use to be able to compete with rivals within the same industry. It is important for businesses to determine the level of competition present within the industry. This will allow them to address potential risks before they even strike.
According to (1985), a business positions itself based on its strengths and strength are categorized into two – cost advantage and differentiation. Furthermore, when these strengths are applied in either a narrow or a broad sense, it will result to three generic strategies – focus, differentiation and cost leadership strategy.
Cost leadership strategy means that the company is the low cost producer or provider of a certain quality item in a given industry. This kind of strategy is being implemented for two reasons and achieved through two ways. The first method and reason is to sale items at average industry price so that the company will be able to be more profitable compared to rivals. The second method and reason is to sale the products at below average industry price in order to gain market share. According to (1985), a company that has the ability to produce or offer less costly products will be able to remain profitable for a longer period. It is important to note that this strategy targets a broad market.
BCG Matrix
Tesco can be considered as a cash cow because it distributes quality and extra services to its consumers and equipped with new innovative products and services in Malaysia. At the same time the company can also be considered as Stars because they put a lot of efforts to increase the awareness of their consumers to the benefits of e-commerce and retailing
Conclusion
Tesco’s e-retailing arm is one of the most revered dot com shopping initiatives in the 1990s. However, with the continuing upsurge of internet technologies and the emergence of strong competitors, Tesco needed the help of Porter in improving their strategic management and corporate strategy. The company implemented Porter’s Generic Strategies which targets a broad market and aims to present customers with products at a low cost for a given level of quality. The industry sells its products at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. Although, Porter provided Tesco a comprehensive strategic management model to serve as a guide in achieving the company’s goal in being the largest retailer globally, Porter’s model can still be considered limited at some extent: (a)Consumers, competitors and suppliers are not similar therefore they should not interact and may contradict each other. (b) Barriers might be created because the source of value is structural advantage. (c) Letting participants inside the market plan for the behaviors of their consumers might result to low performance and uncertainties in the market.
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