Challenges Faced by Tesco in International Business Operations

This paper discusses the challenges faced by Tesco in conducting international business operations and provides a PESTLE analysis of the company. It also discusses alternative strategies for People's Supermarket in the UK to expand globally.

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Introduction
Conducting business globally tend to offer business with exciting new prospects for
growth as well as profit. From the U.K’s unprecedented decision to leave the European Union to
the historic and divisive U.S presidential election, 2016 has been seen as a year of extensive
change and uncertainty (Wood, Coe and Wrigley 2016). As a result, crisis regarding conducting
international business has been observed to be highly severe for UK business than in other
countries. According to authors, political, economic, cultural and environmental issues are
rapidly becoming the remit of international business leaders such as governments. Expanding
business in foreign countries means attaining new clients or customers and further potentially
stimulating and augmenting revenues and profits. Coca-Cola shows a highly effective
multinational business structure. Reports of Burt, Johansson and Dawson (2015) have noted that
the company has been structurally organized into continental groups which have been supervised
by President. However, regardless of its diverse international presence, the Coca-Cola brand and
product has been regulated centrally and stable around the world. Further than abiding by official
rules and regulations, engaging in international business frequently require abiding other
documented cultural guidelines (Mohr and Batsakis 2014). This can determine challenging in
rising markets with imprecise rules and conventions or potential corruption. Thus, businesses in
the United Kingdom must abide by the Foreign Corrupt Practices Act that intends in removing or
decreasing unlawful acts, corruption and unethical practices in global business (Oh, Sohl and
Rugman 2015). The following paper will evaluate international company like Tesco facing
challenges that derive from conducting business on an international scale. In addition to this, the
paper will evaluate local company ‘People's supermarket” London U.K which has no intentional

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focus and alternative strategies for evaluating international markets, its purposes and methods of
internationalization.
Discussion
PESTLE Analysis
Established and thriving on the principle of economies of scale, Tesco began selling for
less in small for less in small rural towns have been ignored by other large retailers. Tesco
offered products at cheaper prices in comparison to its competition. Increasing its competitive
advantage, Tesco introduced the “supercenter strategy” in 1988 in order to generate a “one-stop
shopping” experience for wide range consumers’ needs and requirements (Tesco UK 2019).
Studies of Mohr and Batsakis (2014) have claimed that while there have been witnessed some
clear achievements and failures in Tesco’s international business operations, in other countries,
there has been an amalgamation of expansion and contraction. According to Oh, Sohl and
Rugman (2015), Tesco started its business operations into Japan in 2002. Japan comprising of
around 127 million has been recognized as one of the highest per capita income as well as largest
economies in the world with a thriving market for retailers. However, in Japan there have been
identified determinants regarding “regulatory challenges, intricate supply chain, and language
disputes in addition to strong associations and unions which have posed challenges for all
businesses such as Tesco. Furthermore in addition to these factors, the biggest challenge which
Tesco has experienced in Japan has been related to the extensively advanced and demanding
consumers. Drawing relevance to these challenges Tesco macro and micro environment analysis
have been conducted to understand factors affecting Tesco’s performance and business
operations (Burt, Johansson and Dawson 2015).

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PESTLE Analysis
Political- Reports of Osiyevskyy and Zargarzadeh (2015) have noted that although Tesco has
recently affected Brexit due the exit of UK from EU. However, the Indian government has
adapted new format of fiscal policy to recuperate the direct unfavourable impact of the Great
Recession of 2008-09. This new format has been positively influencing Tesco in many extents.
There can be observed an increase of the net profitability of Tesco as the corporate tax reduced
from 35% to 285% (Gollnhofer and Turkina 2015). Furthermore, import duty on products and
services tend to impact Tesco at it imports some inventory from outside U.K like China and East
Asia.
Economic- Labour expense is a vital factor that impact UK supermarkets. For instance, its annual
wage bill is amounting GBP around 4.5 billion. Furthermore, there have been several factors
impacting Tesco related to expense, prices and profits (Kulke and Suwala 2016). Tesco has been
focusing on the mounting borrowing expenditure in UK. These factors have been increasing the
costs as well as prices and reduce its profits. Thus has been influencing the brand reputation
along with cost leadership strategy.
Social-Recently, recently majority of people in Asia and UK are professional thus are highly
inclined towards the outside work and frequently seek the fast food to attain the daily food needs.
As a result, there is increasing number of people inclining towards Tesco consequently
increasing the net sale of the Tesco products (Mylan et al. 2015).
Technology- Gollnhofer and Turkina (2015) have noted that Tesco has developed its own digital
mobile payment system known as PayQwid. From London to Asia 524 Tesco stores are using
this digital app. According to Wood and Reynolds (2014), Tesco customers can download the

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app and link it with Clubcard along with NFC technology. Thus, aiding customers to pay for
shopping and receive loyalty points.
Environmental- Reports of Kulke and Suwala (2016) have noted that Tesco encourages its
consumers to purchase at tesco.com. Tesco Van Drivers across the world have intended to not
only use fuel-saving routes but further gather unnecessary or discarded plastic bags from
customers and recycle them. Additionally, Tesco has immense commitment of using renewable
sources and produce 100% of its energy by 2030. Furthermore, the Tesco has aimed to minimize
around 50% carbon footprints by 2020 (Sparks 2014).
Legal- While, operating in diverse global environment, Tesco has been influenced by several
rules concerning employment act, minimum wage act in Asia and UK. The employment act in
UK has aligned with Tesco which has been aiding Tesco to detain more and more employees.
Tesco Strategic Fit Analysis
Reports of Fernie and Sparks (2018) have revealed that Tesco has been able to combat to
potential threats and competition effectively by attaining advantages of its strengths. The degree
of competition within the sector has been highly stringent with other established organizations
such as Asda, Morrison and Sainsbury. However, the organization has been able to pace off
competition from possible entrants by making it highly challenging for them to function within
the industry. According to authors, Tesco has adapted technology to improve its marketing
strategies and products. The company has further used its established brand recognition in
guaranteeing differentiation and innovation of new products that develops as consumers’
preferred. Tesco has been competent to effectively handle threats of potential market demands
from overseas market. Such demands can be challenging as Tesco’s operations can be terminated

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instantly. However, Tesco has been competent in dealing with this risk and intimidation by
taking benefit of its well-established brand recognition in order to expand its markets in other
parts of the world apart from UK. Reports of Haskel (2015) have revealed that Tesco has opened
over 400 stores outside UK which played a decisive role in revenue as well as market share
increase. Ancarani et al. (2015) have noted that Tesco has been able to initiate a range of
products in order to align to the demands in the market. Tesco has been able to introduce a range
of stores, such as Tesco express, Tesco metro, Tesco extra, and Tesco superstore. In additional,
Tesco has been able to operate fairly in the global market thus significantly rising its market
share. Moreover, it is important to note that Tesco has also been highly competent to recover the
global recession of 2008. Studies of Love and Roper (2015), nevertheless the purchasing power
of consumers have been extensively influenced by recession; Tesco has to some degree intended
to maintain high standards and profit levels over the years. According to reports of Aichner
(2014), Tesco took advantage of the UK’s government attempts in order to exchange the
situation. Lynch and Jin (2016) have realized that the government has decreased the interest rates
significantly as a result elevating the power of consumer expense. On the other hand, Tesco has
taken its benefits by guaranteeing that its revenues and profits are increasing every year since
2010. Love and Roper (2015) have claimed Tesco has estimated around 10% increase in annual
profit in 2013. Meanwhile, the growth has also been experienced from global stores with a rise of
around 35%. Tesco business has been continuing to expand thus attaining market capitalization
of around € 23.5 billion till 2015. Tesco has gained immense competence to deal with the risk of
consumer health principles and lifestyle development. Such a competence has been increased
through segregation of products and services and guaranteeing presence of organic food in all of
its stalls (Oh, Sohl and Rugman 2015).

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Tesco, the U.S and U.K and the Flow of retail innovation
There can be observed mounting evidences which examines the flow of retail innovations
from North America to the UK. Number of studies have shed light on the import of self-service
shopping technologies along with the parallel development of the supermarket in Britain have
observed the insightful impacts of these imports on cultural patterns and traditions and the
finances of mass consumption and business in post-war Britain. Fernie and Sparks (2018) have
noted that the distribution of self-service and supermarket innovations into the UK has taken
place indirectly through the emulation of the U.S retail practices by the UK retailers or directly
through the internationalism of North American organizations, considering that as supermarket
retailing became more fully determined in North America, leading players initiated to evaluate
opportunities in Europe. According to Alexander (2015), Tesco has reasonably reserved about
the association between the joint undertaking with Safeway as well as their successive decision
to develop their individual US store network. However, CMO Tim Mason in his former role has
involved in the Safeway link-up and that undoubtedly informed Tesco executives attaining idea
regarding U.S market. Furthermore, the U.S market entry more clearly benefited from experience
gained through the Safeway online operation related to merchandising range, cost and innovation
(Sparks 2014). Further it is challenging to suppose that Tesco’s world class strengths in customer
insight and consumer loyalty card data integration have not been brought to put up with the
Safeway venture and as a result did not play a role in the subsequent physical market entry as
Fresh & Easy. The major service innovation simultaneously launched new format along with
other allied innovations. However, it has been indicated that previous to the introduction of the
Fresh & Easy stores in 2007, Tesco has made equivalent investment in self-checkout facilities at
its Bishopsgate Metro store in London. Reports of Burt, Johansson and Dawson (2015) have

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noted that the Bishopsgate from its corporate responsibility statements, which describe its core
values and core ideologies as well as some aspects of cultural artefacts, shed light on substantial
innovatory cross-fertilisation between the UK and the US operations (Gollnhofer and Turkina
2015). The rapid development of Tesco over the last decade reflects deeply rooted culture of
innovation as well as adaptability in global markets. Consequently, Tesco’s compliance in the
international markets has widely been accepted as one of its core competitive advantages.
On the other side, Tesco’s corporate culture has been identified from its corporate
responsibility reports which explain its core values as well as core ideologies along with certain
facets of cultural artefacts. According to Wood and Reynolds (2014), Tesco’s values have made
major impact on the way in which the company operates globally and its economic performance.
For instance, its business expansion into California has been designed not only to gain revenues
but also to develop social innovation. Likewise to the U.K, U.S inner cities have food supply
issue wherein there are few major supermarkets and the minor supermarkets which do not have
an insufficient supply of fresh foods that includes fruits, vegetables as well as proteins. As per
the view of Mylan et al. (2015), Tesco's corporate culture priorities facilitated the organization to
take into consideration introducing stores in regions where native supermarkets showed
reluctance to proceed and to offer services to the regions that the local providers failed to
consider.
Alternative Strategies for People’s Supermarket U.K
The People’s Supermarket has operating in the United Kingdom with its core values and
principles and by establishing close associations with producers that are geographically nearby
offer fresh, local produce whilst supporting a healthier more sustainable economic model.

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According to Wood, Coe and Wrigley (2016), it is highly imperative for People Supermarket in
the U.K to expand globally and adapt alternative strategies to operate globally.
Joint Ventures- Foreign Joint Ventures have exhibit significant universality with licensing. The
major difference is that in joint ventures, the global firm tends to have an equitable position
along with a management opinion in overseas firm. Burt, Johansson and Dawson (2015) have
noted that such a form of agreement will aid domestic firm like People’s Supermarket to attain
improved organizational control over business operations and also have access to local market
knowledge. The global firm has access to the network of associations of the franchisee and is
less exposed to the risk expropriation considering the association with the local firm. Studies of
Oh, Sohl and Rugman (2015) have noted that such a type of agreement has gained utmost
prominence in global management. Such a prominence has emerged from the fact that it aids the
avoidance of control problems of the other sorts of foreign market entry strategies. Additionally,
the existence of the domestic firm eases the assimilation of the global firm in a foreign
environment.
Domestic Sales Organisation- According to Burt, Johansson and Dawson (2015) one of the
undemanding alternatives to enter into international market is through the means of domestic
sales organisation. Osiyevskyy and Zargarzadeh (2015) have noted that if People’s
Supermarket’s attains an unsolicited order from a customer in Spain and acts responsive to the
demands on one-off foundation, thus involving into casual exporting. On the other hand, an
overseas buyer tends to approach to the firm. Such a form of agreement has the tendency to arise
if a foreign department store has a buying office in the firm’s home nation.

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Export Management Company-On the other hand, another form of indirect exporting relies on
export Management Company located in same country as the producing firm. Authors have
claimed that domestic companies liken People Supermarket can attain certain benefits. Such
advantages tend to rise as the export corporation performs the export purpose for a number of
firms all together. Furthermore, Osiyevskyy and Zargarzadeh (2015) have noted that at this
juncture, the producer can ascertain integrated associations and increases direct foreign market
connections as well as knowledge. At this peak of discussion, the organization exhibits the
pressure of developing internal ability in executing foreign operations. Moreover, the method of
payment has been related to the assignment as well as the costs which are inconsistent.
Direct Exports- In direct exporting, domestic firms like People Supermarket can directly involve
in the marketing of its products in overseas countries. Such an involvement takes place as the
company intends to operate its export task instead of delegating it to other organizations.
Partnerships and Strategic Union
According to Cavusgil et al. (2014), another way to make new market entry relies on the
means of strategic alliance with a local partner. A strategic alliance tends to engage a contractual
conformity between two or more businesses thus specifying that the engaged associations will
collaborate in a specific way for a certain time in order to attain a universal purpose. However, in
order to decide the appropriateness of the coalition strategy, local organizations such as People
Supermarket must determine worth the associated could bring to the venture in relation to
tangible as well as intangible aspects (Wood, Coe and Wrigley 2016). Meanwhile, the
advantages of associating with a local firm have the propensity to recognize the local cultural
patterns, market in addition to the tactics of executing business better in comparison to the

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external company. At this juncture, Kulke and Suwala (2016) have noted that associates are
specifically significant if the constitute a well-established, recognized as well as highly regarded
brand name in the nation or have current associations with consumers with which company
wants to align. Wood and Reynolds (2014) have cited an example of Cisco which formed a
strategic association with Fujitsu in order to develop its market operations for Japan. Moreover,
it is imperative to note that strategic alliance tend to have significant benefits for small
entrepreneurial firms like People Supermarket who do not have any global business operations or
financial resources to enter into foreign markets. Furthermore, as per the studies of Ramanathan,
Bentley and Pang (2014), some countries call for foreign-owned corporations in order to
associate with local organizations, if they show any inclination towards penetrating into foreign
market. Sparks (2014) has cited the instances of the U.K whereby any foreign organizations
seeking to execute business operations in the U.K are required to have associations with UK
partner. Such a legal demand is common in several countries in Europe. Although regardless of
such form of regulation, a local business associate tends to help businesses reduce the gaps as
well as differences that have the tendency to show inconsistency otherwise. Lynch and Jin
(2016) have noted that Walmart leading U.S retail organizations has shown incompetence over
nearly a decade to efficiently expand its business in Mexico, till the time it established a well
established and thriving domestic associate with comparable business principles and standards.
Conclusion
Therefore from the above discussion it can be concluded that Tesco has expanded into
over 30 nations across the world, the company has been highly achievable. It has been noted that
if Tesco intends to strategize to seek continued global success, then it must acquire ideas and
knowledge in order to be culturally responsive and align to the domestic Tesco model to values

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and standards of each country. Furthermore, the increasing demands of online shopping
worldwide have been significantly shape global expansion for Tesco in addition to other
retailers. It is important to note that several consumers have been leading the development in
online shopping, as approximately 80% shoppers use internet for online shopping and show
greater propensity to purchase from off-shore online retailers and have higher propensity to use
internet services in order to draw comparison among various organizations.

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