TESCOS NEIGHBOURHOOD MARKET ENTERS UNITED STATES

TESCOS NEIGHBOURHOOD MARKET ENTERS UNITED STATESThe cosmos sparing has evolved from isolation from individually(prenominal) former(a) by barriers to cross-border activities wherein outgo is no longer an make out ascribable to advances in transportation and telecommunication technology. Moreover, it is noned that material culture is starting signal to look similar as national economies ar merging into an mutualist and integrated world(prenominal) frugal system (Friedman, 2005). all(a) these serve welles are joined and referred to internationalization.The conflict of globalisation has encouraged companies to inflate its operation across its groundwork commonwealth in order to argue in the challenging grocery investment trust environment. As one of the leader in the retail constancy, Tesco PLC (Tesco) has taken benefit of the current environment by moving into the United States (US) for refinement purposes. The breed leave behind analyse Tescos schema in th e US by analysing the impact of globalisation towards the assiduity, evaluating the reasons and schema for internationalisation, the effect and challenges faced in regards to the internalisation go. explanation of TescoTesco is a United Kingdom (UK) based international super merchandise cosmic string, which has the largest global gross revenue and internal grocery share sales. ground on its revenue, the family is the leash largest retailer in the world next to Wal-Mart and Carrefour (Data Monitor, 2010). The key to Tescos triumph is based on its execrable damages, high quality fruits and experienced guest religious service which boilers suit has lead to continuing growth of lucre to the company.In 2006, Tesco announced its plan to work out the US food market place place by col minor(ip) size grocery stores cookd heady Easy Neighbourhood securities sedulousness ( odoriferous and Easy). Tesco has selected the less aggressive market location on the west co ast, California, Nevada, and azimuth to avoid the highly war-ridden market. The store has started its operation together with the scattering centres in 2007. Based on the latest pecuniary report in 2009, it was noted that refreshing and Easy is currently trading at loss.Tescos rivalrous receiptsAccording to Teece, Pisano and Shuen (1997), the triumph of a company highly account on the uniqueness of the companys resources and capabilities in creating competitive advantages. The two main perspectives in the Resource-Based View (RBV) are the internal analysis of phenomena at bottom an organisation and outer analysis of the industry and its competitive environment (Collis and Montgomery, 1995 Eisenhardt and Martin, 2000).The resources and capabilities are evaluated in price of esteem, rarity, inimitability and organisation (Barney, 1995). Furthermore, Carpenter and Sanders (2009103) suggest that in turn for a company to gain competitive advantage, it should possess resource s and capabilities that are valuable, rare, inimitable, non-substitutable and exploitable (VRINE amaze).The value of the resources and capabilities interacts with the market sources and bequeath differ based on time and industry. The three fundamental market forces scarcity, demand and appropriability determines the value of the resources and capabilities (Collis and Montgomery, 1995). To answer the question of value, organisation could evaluate whether its for sale resources and capabilities are meeting the market demand. As for Tesco, it relies on its grease, supply image capabilities, store location and varied product fling wherein all these components score satisfied the value emergency, as it has been able to meet the demand in the grocery market. For instance, the company has a strong patsy image that is associated with dandy quality, trustworthy goods that represent excellent value (Data Monitor, 2010).Resources and capabilities haveed by Tesco are similar to other retailers but in scathe of the brand name and variety product offering differs them from the competitors. Tesco pays detailed attention in trans rebounding its brand by means of packaging and the promotion of every little worth concept. The mastery of the company in call of customer truth relies on the loyalty card system and customises undertake for each customer. In RBV concept, Tesco apprize be characterised as a competitive parity company based on its valuable but not rare resources and capabilities (Collis and Montgomery, 1995).Tescos strong position within the retail industry is collectible to its contrastive approach in the service concept and introduction of various quality products. Moreover, it has competencies in its supply chain that affected its operational level in the work routines. Competitors could imitate the tell resources and capabilities but it is rocky to do so as the tacit gist of association, time and huge investment funds is required (Hanan and Freeman, 1984) which in the meantime, Tesco will lead to gain its competitive advantages.Based on the above evaluation, it is preserved that Tesco has managed to exploits its resources and capabilities that as a result provide competitive advantages to the company. Tescos exploitation of its resources and capabilities is reflected in its market share and financial transactance. Tesco currently controls about 30% of the grocery market in the UK with a turnover of 56,910 million (Data Monitor, 2010). Moreover, with the aided competitive advantage, Tesco has managed to perform advantageously in its international operation.Theory of globalisationThe era of globalisation has started in the early 1970s repayable to the convergence of several diplomatical, technological, societal and competitive factors. According to Yip (1989), it is considered as one of the most outstanding trading strategies as it is a process which businesses manufacture value by leveraging its resources and capabilities across borders. The topic on globalisation has been widely discussed which resulted to different perspectives and arguments. there are two different theories in relation to globalisation which are hyperglobalists and trans coiffureionalist theory.Hyperglobalists theory argues that the world is moving towards a global world that is subject to massive economic and political process of change which is understandably set by the existence of a single global economy. topic culture differences are largely seen by the progressive justly multinationals as variations in consumer preference is reflected in the international marketing mix (Wall and Rees, 200414). In view of this, the theory supports the globalisation in monetary value of efficient apportionment of resources by dint of international trade.In contrast, the transformational theory argues that globalisation is a advocatorful force impacting economic, kindly and political environments which involve uneven pro cesses with unpredictable outcomes sort of than linear progression to a predictable outcome. Many have argued that globalisation tends to reinforce inequalities of power both within and across nation resulting in global hierarchies if privilege and control for some but the economic and social exclusion of others (Wall and Rees, 200415). therefore, the affect of globalisation is differently experienced across the globe.Based on the above theories, it is believed that globalisation can act as a tool that could benefit every human being across the globe. Although the prejudicious effect has been discussed and identified, the very(prenominal) should not be ignored and must be addressed for the benefit of mankind.Globalisation drivers and its impact on the retail industryYip (1992) has identified the globalisation drivers based on the industry conditions. distributively industry has its own level of globalisation that is determined by the foreign drivers which are normally uncontro llable by the business or market environment.Economic, Political and LegalFinancial Factors FactorsIn respect of the retail industry, technological factors play an important contribution to the drivers of globalisation. The technology change has impacted on the lower bell of transportation and communication as well the whole greet of production through economies of scale or the local anestheticisation of oil-bearing capacities and sourcing in low-cost economies (Lasserre, 200717). For example, the current electronic global market abode would not exist without the existence of the global communication network such as the World Wide Web. Moreover, the low cost transportation has made ecstasy products around the world more economical, thitherby helping in creating a global market. In response to the changes, Tesco has managed to apply the technology to selling through online which has is impacted on the companys sales exploit.Moreover, as a result of globalisation, there is a con vergence of consumer needs which has increased the brand awareness of consumers intercontinental (Yip, 1989). Urbanisation and industrialisation of societies are one of the reasons for convergence of customer conduct and needs. By having the same needs, consumers are bound to have the same requirement that leads to standardisation of products.Meanwhile, the liberalisation of trade and investments played an important factor in supporting the need of globalisation. It has therefore created a common market place and economic integration worldwide. Previously, there were rules and regulations that situate the Foreign Direct investing (FDI) as to protect the local players. However, the scenario has changed and with the development of the free trade among nations, legion(predicate) companies took the advantage by doing cross-border investments to expand its market existence and positiveness. In terms of Tesco, its initial out spue was significantly limited by the size of its domestic market in the UK but now, it has the chance to take advantages of economies of scale by going global.The trend in globalisation creates changes in the macro mark of the environment. The change in the economic dimension has leaded the society to enter world or global economy. Clearly, the changes could be seen in the emergence of global market, global competitor and the integration of the economic. The impact of the fundamental changes is noted through the capital movements, concern on productivity and employment as well as emergence of the world economy as a possessive economy unit (Friedman, 2005). The constant and rapid globalisation of the world economy prognosticate that globalisation of retailing activities is a major management issue for retailers nowadays and currently it is foresee to be more intensified in the near succeeding(a).Tescos Strategy for Internalisation5.1 Country and Risk Analysis exampleThe county analysis framework provides an overview of the national b usiness environment in terms of opportunities and risks which enable companies to enhance value creation and strategic fit for its business. Ghemawat (2007) examined distance as the root of most costs and risks of conducting business in freshly markets and concluded that distance is more than geography it includes dimensions of culture, administrative and political power, and economics. Therefore, in last-making, businesses must account for these dimensions of distance as its influences in different ways. chicken coop framework is used for the analysis as it provides further in-depth analysis on the country compared to PESTEL framework.The total population of 301 million in US indicate a huge market opportunities that allow Tesco to build its position as a world largest retailer. By penetrating the market, Tesco foresee a crack growth in terms of its international blowup. It is seen as a office move by Tesco to the previous expansions have proven to be a success. The operation in the US will be similar to the UK due to the same language used as medium of communication. This leads to an low-cal survival in conducting business wherein the similar concept in the UK could be exported to the US with nominal changes in obligeing to the market.US have been a dominant global power in terms of economy, political, technological and cultural affairs and has a long enjoyed its status as a superpower over nations polity making (Data Monitor, 2010). It is clearly seen from its economic point of view where the county is categorised as the largest economy in the world which is back-up with the most developed economic systems. This connect to the process of entering the US market which is supported by a comprehensive legal framework for business entities that creates a positive investment climate. US have favourable policies in promoting Foreign Direct Investment. Furthermore, in the international arena, it has secured the support of majority of nations that allows it to direct global policies. With the stabilised politic environment, there is absence of violence that ensures a safety business environment. All this factors have encouraged Tesco to pursue its goal in penetrating the US market.Cross-Cultural RiskRISKBased on the risk analysis, it is identified that the main related risk to Tesco in the US are financial, economic and operational risk. In terms of financial risk, the fluctuation of the currency transform rate and inflation will definitely have an impact on Tescos ability to operate at an efficient capacity. As to reduce the risk, Tesco has discrete to enter single markets at a time and evaluate the success before considering for further expansion. For the US expansion, stores are opened based on geographic region rather than entering different states, which allow Tesco to limit its exposure to a loss if the expansion is unsuccessful. Meanwhile, for the operational risk, problems related to logistic and stock will lead to ineffici ency of production and performance.5.2 US Retail effort AnalysisThe competitive environment involves factors that are pertinent to an organisations system. The industry-based view can be analyse using Porters five forces as include it includes the overall structure rather than focusing on one element (Peng, 200935). The disceptation in the US grocery market is intense as they compete in terms of price, product and promotion. Some of Tescos major competitors in the US are Trader Joes, 7-Eleven, Safeway, and Wal-Mart.Tescos Fresh and Easy operates within the retail industry that forces are driven in the industry would identify the strength and weaknesses of the organisation. There has been a significant growth in the grocery environment in terms of size and market dominance of large players. Competitive opposition is considered a high threat as other retailers are applying the same operation concept wherein power has been built through operating efficiency. As a result, retailer s have to be innovative to maintain and build its market share. Hence, Fresh and Easy has refocused its strategy based on price and value with added value elements of good customer service (Times online, 2007).High competition is a powerful force and stands as a strong barrier for spic-and-span entrants who desire to enter the industry. For example, it will be difficult for tender entrants to have words sufficient fund due to large fixed costs and highly developed supply chains. This is in line with Tescos huge investment for Fresh and Easy in terms of advanced technology for stock controls systems (Euromonitor supranational, 2009). However, a high level of product preeminence together with low cost and dynamic market revenue growth has elevated the rivalry to an extent. Retailers in this sector are highly fragmented and therefore retailers will put considerable barriers to entry to ensure less competition in the market (Alexander and Korine, 2008).The more standardised or und ifferentiated the product, the lower the duty period cost and hence there is a high threat of the bargaining power of buyer. Buyer power acts to force the price down but due to the various choice of substitute products, retailers have the power for the price setting. Therefore, in meeting customers needs, customising service combine with low prices, constant promotion and damp choices have enabled Fresh and Easy to control and retain its customer base.There is a low threat to the bargaining power of suppliers as oftentimes retailer such as Fresh and Easy dictate the price to be paid to the supplier as if the suppliers does not agree on the price, they will be leftfield with no retailer. The relationship with the suppliers has impacted the demarcation of the strategic freedom for the company which influences its margin. As a result, the forces of the competitive rivalry will reduce the profit margins for retailers and suppliers.There is a threat of consumers switching to substit utes due to the variety of choices of products in the market. The industry has change overtime wherein small chains of convenience stores are emerging which provides more alternative choices to the consumers. In response to this trend, Tesco has started to open Fresh and Easy based on humble operations in local town and city centres.The biggest threats for Tesco in regards to its Fresh and Easy stores are the rivalry and bargaining power of buyers. The retail industry in the US is viable which results to healthy profitability provided the company forever improves itself and is flexible in the challenging market.5.2 Tescos expansion to US overdue to competition and the impact of globalisation, companies are expanding its operation to other countries outside the home country which indeed require that application of the global strategy. According to Peng (200918), global strategy is defined as strategy of firms around the globe which particular form of international strategy which is characterised by the production and distribution of standardised products and serve on a worldwide basis. Tescos motivation for expansion to the US with its Fresh and Easy stores are merely based on market and establishment seeking as its main goal is to carry through higher profit margins as well as future organisational conditioning and growth.Ghemawat (2007) suggest that in order to boost sales and market share, companies have to maximise its local relevance. Therefore, by entering the US retail market organically has provided advantage to Tesco to start fresh by creating a highly distinctive new store concept. This route allows the company to manage its capital expenditure and learn from experience for its future expansion. Fresh and Easy is a small format convenience grocery stores focusing on fresh foods and ready meals at low price. The strategy to break into the US market is based on three key areas affordability, freshness and convenience (Data Monitor, 2010). By focus ing on convenience store, Fresh and Easy will not be in a flash competing with retailers like Wal-Mart and meanwhile will differentiate itself from the larger format tralatitious retailers.In accession, Ghemawat (2007) suggest that strategic choice requires some degree of prioritisation of which the abdominal aortic aneurysm Triangle Model can assist the company in doing so. It is suggested that it is unimaginable to employ three strategies but companies normally should focus on own or two in trying to build competitive advantages. Due to the matured and intense competition in the US retail industry, it was difficult for Fresh and Easy in terms of arbitrage. Therefore based on the said model, Tesco global strategy was based on a minimal edition of which Fresh and Easy stores are designed, by adapting to the local responsiveness and aggregation on standardisation of product to take advantages of economy of scale.International strategy adopted by Tesco for Fresh and Easy is simila r to its Tesco utter approach in the UK, featuring fresh produce, alcohol and an in-store bakery with minimal adaptation to the US consumers requirement (Times online, 2007). This is line with the integration-responsiveness framework which indicates the replication of the strategy by using its core competency and specific advantage wherein pressure of local responsiveness and pressure for global efficiency are both low (Peng, 2009353). By using this strategy, expansion process will be at a slower compared to the global retailers but the advantage of this strategy is it provides a greater learning effect and broader knowledge-based to the company (Palmer, 2005).The minimal adaptation integrated is related to the store format wherein larger pack sizes and more musculus quadriceps femoris allocation on frozen food to cater for various types of product assortment which is based on the US consumers preference (Euromonitor International, 2009). Meanwhile, the chain uses a straightforwa rd everyday low prices strategy which is 15% cheaper compared to other competitors (Finch, 2009). The existence of Fresh and Easy has created awareness by the competitors wherein competitors have improved its products offering and seeking for a suitable location in order to compete.In terms of aggregation, it uses one brand name fit all strategy which was argued by consumers as there are no differentiation among the store brand products on value price product, natural and organic and premium products. In lieu of this, Fresh and Easy did not manage to create consumer lores on the brand name and subsequently affected its sales performance.6.0 Tescos future in USIn terms of profitability, Fresh and Easy has to that degree to make profit from its operation. There is uncertainty for the company to achieve profitability in the near future as its expansion process has slow up as compared to its initial plans due to economic crisis which particularly affected the consumers in some of it s first few store opened in 2007. Therefore, it will definitely take longer period for Fresh and Easy to achieve its target goals.It was observed that Tescos Fresh and Easy stores use one brand name fits all strategy for its products and marketing strategies (Times online, 2007). This approach is not relevant to the US market as consumers have a strong perception of brands (Euromonitor International, 2009). This has to lead to confusion to consumers as there is no product differentiation between discounts or value priced, natural and organic and premium products in the stores. Fresh and Easy should separate its brand names similar to its UK approach i.e. finest for premium products and value for discounted products that will lead to a better merchandising, determine and marketing strategies. This assist consumer to have different brand names for each category than price focused items.Further analysis is required in analysing the progress of Fresh and Easy in the US. By doing so, a decision can be made either to leave the market and expand to other potential markets. Based on Tescos track record on its international operation, the company has successfully penetrated the market well which is reflected in the financial performance. Strategy formulation is an important element as it is a continuous learning process which enables Tesco in planning for its future expansion. Tescos strategy for expansion to the US seems flawed as a different global strategy was applied although in-depth research was made before the expansion.Tesco should maintain its existing strategy to enter a market through joint venture or acquisition with an existing player in the market as it is observe as an effective manner for expansion (Palmer, 2005). Moreover, Tesco should take note that other companies which have attempted to enter US highly competitive market have failed due to the reason of not understanding the psyche of the American consumer. Tescos bold move to the US without a part ner seems unreasonable as the existence of a partner will provide essential knowledge for local business environment and consumer cultures. This indeed observed when Tesco overlook on the interpretation of a convenience store in US which differs from the UK. In the US, convenience store is associated with petrol stations wherein the UK, is it a store. In addition to this, Kay (2009) indicates that findings from the US consumers suggest that consumers are less loyal to the US as purchase are made based on the cheapest price at any stores. Based on this differences, Tesco did not managed to introduce the British model in the US market although is foresee as a competitive advantage in the retail industry.ConclusionDuring the past years, there has been a growth in the scale of international investment and as the process continues, it is important to understand the learning and experience gained from the expansion exercise. It is undeniable that by entering new markets like US, it acts a s one of the main drivers for the companys revenues and expansion strategy. However, Tesco needs to evaluate its strategy in order to sustain its performance in the US. One of the mistakes made by Tescos US expansion is accept that exporting successful business model to foreign country is an easy process. Although Tesco has its own competition advantages, the aspect of culture should not be left out as it plays an important role in ensuring the success of the business (Ghemawat, 2007).The success of a strategy depends on the strength in terms of learning, knowledge and suitability.Tesco would need to apply the entire lesson learned from the expansion exercise as future expansion is dependent on the companys capacity to credit the sources for international learning of the knowledge gained. This will definitely allow Tesco to move, adapt and learn fast for better performance in the US market.