SIM336 Strategic Analysis of Tesco PLC: Strategic Management

This report offers a strategic analysis of Tesco PLC, a multinational retailer, examining its success through the lens of strategic management. It begins with a company overview and SWOT analysis, highlighting Tesco's strengths (strong brand, innovation, online platform, economies of scale), weaknesses (limited global diversification, high prices), opportunities (internet penetration, expansion in emerging economies), and threats (competition, health-conscious consumers). The analysis delves into Tesco's current strategy, focusing on customer value, operational performance, emerging market penetration, and capital strengthening. Competitive strategies, including differentiation and cost leadership, are discussed in relation to Bowman’s Strategy Clock. The report also explores Tesco's internationalization strategies, such as forming subsidiaries, mergers and acquisitions, and strategic partnerships, referencing Hofstede’s model for multicultural diversity. Porter's Five Forces and value chain analysis are used to evaluate Tesco's competitive environment and internal capabilities. The report concludes with recommendations for maintaining leadership and enhancing customer value, emphasizing the importance of adapting to market changes and managing risks effectively. Desklib provides access to similar past papers and solved assignments to support student learning.

Running head: STRATEGIC ANALYSIS OF TESCO PLC 1
Strategic Analysis of Tesco Plc
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STRATEGIC ANALYSIS OF TESCO PLC 2
Table of Contents
Introduction......................................................................................................................................3
Brief overview of the company....................................................................................................3
Strategic analysis of Tesco plc........................................................................................................5
Current strategy............................................................................................................................5
Innovation strategy adopted by Tesco plc..................................................................................10
Risk management strategies.......................................................................................................12
Recommendation...........................................................................................................................14
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

STRATEGIC ANALYSIS OF TESCO PLC 3
Introduction
Tesco plc is a UK based retail company has been successful in the UK market and the
world in general and this can be attributed to its sound strategic management, which it has
effectively aligned with its business policies. Tesco, which is a major player in the retail industry
as stipulated in its brief overview, intends to increase its sales by over 20% through expansion of
its global business coverage and hence, the best strategies that it can adopt are increasing value
addition and loyalty programs, managing risks, and expanding further especially in risky
emerging markets.
The organization has managed to internationalize effectively and this can be attributed to
its competition strategy, risk management strategy, and innovation strategy, all of which have
been integrated in its main goal of adding value to the customers so as to gain their loyalty in
long term. Tesco has positive prospects for growth in the retail industry and thus, the paper will
analyze the strategies and their theoretic underpinning and offer recommendations in which the
organization will effectively maintain its leadership in UK and global market while at the same
time enhancing the values for customers.
Brief overview of the company
Tesco is a British multinational retailer that deals with general merchandize and grocery.
In terms of profit, it is the third largest retailer in the world. The company has stores in 12
nations across Europe and Asia. The company has a market share of 30% in the United
Kingdom. Basically, the organization that was established in 1919, the company has been
growing through mergers, formation of strategic partnership and formation of its wholly owned
subsidiary (Tesco, 2007).

STRATEGIC ANALYSIS OF TESCO PLC 4
Environmental analysis
This analysis is based on SWOT that can be used to analyze both the internal and external
factors that influence the strategic decisions made by the organization. The internal environment
is determined by the strength and weaknesses of the business while threats and opportunities
determine the external environment.
Strength
 Tesco has a strong brand name and was among the top 100 most valued brands.
 Has developed innovative business ideas that include establishing Tesco metro
and Tesco express in neighborhood to increase convenience to customers.
 Advanced online retail platform.
 The advantage of economies of scale.
 Immense product diversification.
Weaknesses
 Limited global diversification as the business is highly concentrated in the United
Kingdom despite being a multinational organization.
 High prices for products
 Lack of experience in some markets that it intends to enter
 Opportunities
 Increased internet penetration offers opportunity for increasing online business
globally.
 Expansion through mergers and acquisition especially in emerging economies.
 Expanding global economy after the devastating 2010 economic recession and
hence more consumers can afford to purchase the products.

STRATEGIC ANALYSIS OF TESCO PLC 5
Threats
 Competition from retail firms offering products at lower prices
 Increased health and dietary sensitivity of consumers that could compel
organization to significantly change the products on the shelves, which could also
be costly.
Strategic analysis of Tesco plc
Current strategy
The main strategy adopted by Tesco is to promote customer value in both United
Kingdom and global market that comprises of varied targets, points and stakeholders. The
commitment of the company is to improve the services that it offers to its customers through
value enhancement and the goal is to enter and strike the rising markets alongside its values.
There are four main business policies that Tesco focuses on and these are driving up the
operational performance, strike the emerging markets, pursue growth opportunities and
strengthen its capital (Kerin & Peterson, 2013).
In the quest of driving operational performance, Tesco strives to grant more value to the
users of its services and products and realizes this goal through Value enhancement which also
entails enhancing cost efficiency without compromising the quality of the products and services
offered (Rotharmel, 2017).
Tesco plc pursues its growth opportunity by placing more emphasis on their existing
products and tries hard to enhance its services and how they are provided to its customers. The
company has managed to capture a large market share in Europe and is making immense foray in
the global arena serving more than 12 countries (Kerin & Peterson, 2013).

STRATEGIC ANALYSIS OF TESCO PLC 6
Tesco Plc strives to enter and hold new markets that are exhibiting significant growth
opportunities especially the emerging markets such as Thailand in the quest maximizing its
opportunities in the retail industry as much as possible (Seth & Randall, 2005).
In order to strengthen its capital, the organization adopts apt strategies and tactics that it
utilizes to ensure that shareholders get reasonable return on their investment so as to enhance its
relations with the investors. It further encourages new investors to join other group of investors
hence attracting significant capital that is vital in enhancing its growth opportunities and meet its
needs (McGee, 2014).
Competitive strategies
An organization is said to wield a competitive advantage over others if its printable level
is sustainable and exceeds the average in a specific industry. Basing on the Michael Porter
model, there are two main types of competitive advantage and these are differentiation advantage
and cost advantage. The competitive advantage occurs when a company has the capability of
delivering the same benefit that is offered by rivaling firms at a lower cost (Wood, 2007).
The differentiation advantage occurs when an organization delivers different benefits that
supersede those offered by rivaling firms. One of the competitive strategies adopted by Tesco plc
is the differentiation strategy. In this case, Tesco plc differentiation entails charging value added
or premium prices that supersede the additional production cost and are aimed at granting the
customers a vivid reason why they should consider the product over other products that are less
differentiated (Kerin & Peterson, 2013).
The cost leadership strategy is aimed at offering products and services at the lowest cost
compared to the rivals in the market. In this case, Tesco plc has launched its own discounted

STRATEGIC ANALYSIS OF TESCO PLC 7
stores in price sensitive areas and this has been imperative in attracting a large number of
customers (Tracy, 2015).
Basing on Bowman’s Strategy clock, Tesco is in the Hybrid position where it combines
both differentiation and cost leadership in its competitive strategy. This effective position
strategy ensures that there is enhanced added value that is offered consistently, which has been
instrumental in driving sales and customer loyalty to the organization (Johnon et al, 2008).
The internationalization strategy
Internationalization strategy is defined as the strategy that an organization uses when
entering the international business sphere. Basically, this is in line with the main aim of Tesco
Plc of being a leader in retail industry and enhances its presence in diversified geographic
location. Therefore, Tesco Plc decided to internationalize its services and product in other
nations other than the United Kingdom (Rotharmel, 2017).
There are a number of strategies that Tesco has used in entering the international market
sphere and these are forming its own subsidiaries, mergers and acquisitions and forming strategic
partnership. The organization has managed to form its wholly owned subsidiary in a number of
countries such as China where it has considered as a viable long term market and ones that it can
capture on its own without the input of others. This has enabled the company to maintain its
management autonomy and its production secrets. Basing on the Hofstede’s model of
multicultural diversity, before venturing in the new market, the organization has been
undertaking research in multicultural diversity and has managed to provide culturally sensitive
products in the areas that it has invested in and this has played an important role in its quest of
setting successful wholly owned subsidiaries in strategic markets (Jenkins & Williamson, 2015)

STRATEGIC ANALYSIS OF TESCO PLC 8
Tesco plc has formed strategic partnership with other Retail firms in some countries with
an aim of gaining the competency from the partnering firm while at the same time learning
about the market so that It can deliver the appropriate products in the specific market . In
addition, the strategic partnership has been vital because it has provided the company with less
risky mode of entry in specific markets that have high barriers of entry such as high licensing
fees and increased level of protectionism that could have been costly had the company formed its
wholly owned subsidiary. Tesco plc entered into a joint venture with Charoen Pokphand in
Thailand, which resulted in the formation of Tesco Lotus and this led to the hiring of a large
number of local employees to the managerial position (Kerin & Peterson, 2013).
In the internationalization process, merger and acquisition has been used by Tesco plc as
a mode of entry in some market. Tesco Ireland was formed in 1997 after Tesco PLC acquired
powers supermarket limited in Ireland. In this case, it can be noted that mergers and acquisition
are vital mode of entry and has played a key role in enhancing the growth of Tesco plc in the
international arena (Quelch & Barlett, 2005).
Basically, entering the international market has been a challenge for Tesco plc and there
are a number of factors that have led to this and these include the number of existing
opportunities, the size of the country and the geographical size of the market. To ensure solid
market entry, the company has been undertaking proper marketing research while analyzing both
the external forces such as porter 5 forces and internal competence such as value chain in order
to effectively comprehend the opportunities, the potential client and understand the competitive
environment (Meyer, 2010).
Porter 5 forces

STRATEGIC ANALYSIS OF TESCO PLC 9
When porter five forces of TESCO is taken into account, the competition rivalry for both
food and non food item is very high due to existence of many established and low priced
competitors such as Wal-Mart stores inc. The threat of substitutes for non food items is medium
to high while that for food items is low. The threat of entry of new firms is low as it is costly in
terms of capital and developing brand image for new entrants. The bargaining power of
consumers is high due to low switching cost and lastly, the bargaining power of suppliers is low
due to many suppliers and their inclination to provide supplies to large retail outlets (Seth &
Randall, 2005).
Value chain
The value chain as a strategic evaluation tool is used to analyze strengths and weaknesses
and distinguishing them in relation to value adding process. It entails operations management,
outbound logistics, inbound logistics, services and sales and marketing (Woods, 2007).
On the basis of inbound logistics, the cost leadership strategy adopted by Tesco is shown
in its agile and lean inbound logistics. The organization utilizes its large economies of scale to
attain its supplies at low prices (Woods, 2007).
In its operation management, the organization uses company-wide ERP solution to
minimize stock holding and streamline the operations that has led to increased profitability
(Woods, 2007).
Tesco holds leadership position in both offline and online retail segment, which are
attributed to its effective outbound logistics. The organization has a range of store types and
formats, which are aimed at attaining maximum exposure of the products to the target customers.
In the service aspect of value chain, the company pursues both differentiation and cost
leadership, highlighting the value it has placed on its customer service. This strategy has been

STRATEGIC ANALYSIS OF TESCO PLC 10
executed through promotions, direct marketing, self service kiosks and financial services
(Woods, 2007).
In enhancing its sales and marketing initiatives, the organization has developed loyalty
programs such as Tesco club card that dissuades customers from switching to rivaling firms
(Woods, 2007).
In this case, the mode of entry in a specific market adopted must adhere to the objectives
of the company, its budget and the timeline for the implementation of the internationalization
strategy. If the market exhibits a robust opportunity for growth, then the organization makes a
decision on the best market entry mode that it can implement in line with its main goal of being a
leader in the retail industry while ensuring that customers get value for their money (Jenkins &
Williamson, 2015).
Innovation strategy adopted by Tesco plc
The retail industry is faced with intense competition from both the established and
upcoming firms. Tesco plc is one of the companies that are faced by intense competition that has
called for increase in innovation and enhancement of the quality of the products (Quelch &
Barlett, 2005).
The innovation strategy adopted by Tesco can be based on the VRIO model which
defines the internal environment that enable it to effectively develop state of art services and
products that suit the ever-changing retail industry. The VRIO model involves the questions of
value, rarity, organization and imitability (Seth & Randall, 2005).
In the question of value, the organization has the requisite capabilities in terms of its
brand and appropriate resources to add value to its products through constant innovation and apt

STRATEGIC ANALYSIS OF TESCO PLC 11
management of its value chain, which have been instrumental in enhancing the profitability of
the organization in the long run (Rotharmel, 2017).
The organization has sound research and development strategies that have enhanced the
quality and uniqueness of the products making them rare in the market. The dynamic research
and development department undertakes constant market research to analyze the preference of
the market, to determine the trends of innovations in the market and provide the requisite
recommendations that can be utilized in developing new products or improve the existing
products in such a way that they appear are in the market and hence, customers will be in a
position of trying them out, which is advantageous to the company (Jenkins & Williamson,
2015)
The products adopted by the organization are difficult to imitate because the organization
has superior technology that make it product difficult to copy while the resources used make it
difficult for other firms in the industry to adopt the technology given its high cost (Quelch &
Barlett,2005).
When the organization aspect of the model is taken into account, the superior human
resource capability, the stable financial health and a strong brand name alongside sound
management practices that are based on transformational leadership enable the organization to
exploit any possible opportunity to its advantages (Wilkinson, 2000). Basically, these factors
have played a critical role in the success that the organization has shown in its mergers and
acquisitions, setting wholly owned subsidiaries and strategies partnership, which have enabled
the organization to grown tremendously while simultaneously fulfilling the ever-changing needs
and preferences of the customers .The effective adoption of online retail by the
organization ,which has been vital in increasing its sales and interaction with customers can be

STRATEGIC ANALYSIS OF TESCO PLC 12
attributed to the excellent innovation strategy that the organization adopts (Seth & Randall,
2005).
Risk management strategies
Any business risk is bound to face a number of risks and hence, it is imperative for firms
to have apt risk management strategies that would mitigate the occurrence of the risks, face the
risks directly and remedy for future control of risks. Tesco’s strategy to manage risks depends on
each type of risk, which has individual remedy (Jenkins & Williamson, 2015).
One of the principle risks faced by the organization is interruption or failure of the
information technology system or the network. This may be a result of weather or failure of the
internal system. In this case, the organization undertakes constant audit of its system to ensure
that they are fully operation and usually has a backup solution in case the main system fails. In
addition, the organization implements risk management strategies through review of systems
that it purchases or customizes through a number of experiment before adopting it fully to ensure
that it is effective and efficient to meet the ever increasing demand for quality services especially
online retail that require high security (Rotharmel, 2017).
There are instances that the organization has faced by legal risks as a result of failure to
protect the information of the users of its services and products. In handling this risk, which has
immense potential of reputational damage, the organization has set a set of ethics among its
employees and other related stakeholders while undertaking their activities on behalf of the
organization in matters pertaining privacy of the clients information while it has developed
temper free system to ensure that information stored is not leaked to unscrupulous parties
(McGee, 2014).