Strategic Analysis of Tesco's Business Expansion into Mexico

This report provides a comprehensive analysis of Tesco's potential expansion into Mexico, evaluating its feasibility and strategic planning. It begins with background information on Tesco, including its history, market share, and financial performance. The main body then delves into the business environment of Mexico, utilizing PESTLE analysis to assess political, economic, social, technological, legal, and environmental factors. These factors are analyzed to identify both opportunities and threats for Tesco. The report also examines the business scenario, considering the impact of these factors on Tesco's expansion plans. Furthermore, Porter's Five Forces model is applied to analyze the competitive landscape within the Mexican market. The report concludes with a summary of the key findings and their implications for Tesco's expansion strategy. The analysis highlights the importance of understanding the local market dynamics, addressing potential risks, and leveraging opportunities for successful business operations.

I have about Tesco and
country Mexico

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Background information of Tesco:..............................................................................................3
Discussion of business environment of Tesco in relation to Mexico:.........................................4
Analysis of business scenario:.....................................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Tesco is a public limited company that is headquartered in United Kingdom. It was
founded in 1919 by Jack Cohen and operates in retailing sector. Main products of this
organization are Supermarket, Hypermarket, Superstore, and Convenience shop (Barkin, 2019).
Tesco is planning to expand its operations in Mexico with the motive of having broader audience
and increment in customer base. The objective of this report is to evaluate the feasibility of this
expansion. Pestle and porter’s 5 forces model are analytical tools that are used in this report for
analysing the strategical planning of expansion in Mexico. Former, aims at studying macro
environment and its impact on business operations while later, evaluates competitive
environment of firm and its influence on profitability of business. This analytical tool determines
effectiveness of organization to grab available opportunities and hinder possible threat for
smooth and efficient functioning of business.
MAIN BODY
Background information of Tesco:
Tesco was established in 1919 and founder of an organization was Jack Cohen. This firm
consists its operations in retailing sector. It is headquartered in London, England, UK. The entity
is a public limited company with market share of 26.9 percent. It has diversified operations in
various areas such as, retailing of electronics, books, furniture, clothing, telecoms, software,
financial services, and toys. This firm operates internationally and key areas in which it serves
are United Kingdom, South Korea, India, Ireland, Czech Republic, Hungary and Slovakia. Major
competitors of Tesco are Asda, Sainsbury’s, Morrison’s, Walmart, Aldi, and Lidl. While
considering market structure, it can be stated that Tesco has Oligopoly market structure because
it has operations in international market and requires huge investment hence, has contains high
entry and exit barriers (Chernopyatov, and et.al., 2018). Pull strategy is adopted by this
organization and invests highly on branding and promotion to encourage customer attractiveness.
On evaluation of financial performance of Tesco, it can be analysed that its revenue is £55917
million, £57491 million, and £63911 million in 2017, 2018, and 2019. Along with, loss of £54
and profit of £992 and £1320 in 2018 and 2019. Organization is considered as ninth largest entity
in world while measuring in terms of revenue. It has earning per share of (0.49), 14.77 and 13.65

in 2017, 2018 and 2020. While projecting performance of Tesco it can be estimated that, firm is
expected to increase its sales and distribution activities in upcoming year.
Discussion of business environment of Tesco in relation to Mexico:
Business environment consists of external and internal factors that influence functioning
and performance of company. Hence, evaluation of these factors is vital for enabling effective
decision-making power of managers and owners of business so that they can formulate efficient
strategy for increment of scope and position of business (Cockayne, and et.al., 2018). Tesco
needs to evaluate and study business environment of Mexico for analysing risk factor associated
with expansion of its business operations in the country. Mexico is situated in southern portion of
North America. Macro environment of Mexico can be studied by application of Pestle analysis.
Acronym PESTLE indicates Political, Economic, Social, Technological, egal and Environmental
factors of external forces. It is an effective framework that studies external environment of
business to evaluate its growth and expansion opportunities and identify as well as reduce
chances of risk or threats.
Factors of Pestle analysis for the purpose of evaluating business environment of Mexico for
identifying opportunities and threats of business expansion by Tesco is discussed below:
 Political factors: This includes factors such as, fiscal policies, trade policies, political
stability, trade tariffs, monetary policies, taxation policies etc. analysis of political
situation of Mexico states that it has good relations of trade with most of the countries
such as USA, UK etc. which provides opportunity to Tesco for operating effectively in
Mexican market without much trade related issues. Even it has neutral international
conflicts that smoothens functioning of multinational company in the country. On the
contrary, while focusing on the threats it can be analysed that political corruption is
increasing among country. With intention of persona benefit political leaders are
preferring bribes which is affecting profitability and performance of both local and
international firms (Duarte, and et.al., 2019, August).
 Economic factors: It covers employment rate, inflation rate, deflation rate, foreign
exchange rate, labour laws, consumer disposal income, gross domestic product, foreign
direct investment etc. Mexico has high poverty rate and unemployment rate which
ultimately reduces disposal income of population and hence, serves as a threat to Tesco.
In addition to it, increasing interest rate is also a threat. While on the contrary, country

has increasing GDP rate with 4.25% average annual rate of growth and along with it,
inflation rate of Mexico is low which serves as an opportunity to the company for its
expansion strategy.
 Social factors: This factor of business environment consists of population size, cultural
trends, demographics, local languages, religions, belief and views of culture, lifespan of
people, age distribution, attitude of people, etc. Major language that is used in Mexico is
Spanish. It has population size of 126 million approximately that is highest population
size of Latin America. Increasing population is an opportunity for Tesco for increment in
customer base. While differentiation in cultural beliefs and trends may hinder its
operation hence serves as a threat (Dent, Parnell, and Carraher, 2018).
 Technological factors: Innovations, automations, transformations of technology,
improvisation of digital era etc. are considered while evaluating technological factors of
business environment. Increasing use of social sites and digital platforms provides
opportunity to firm for establishment of aggressive promotional techniques with
utilization of social media platforms and implementation of higher economies of scale
and quality standards through imposing advanced equipment. On the other side, it
increasing capital requirement or investment requirement of Tesco which ultimately
improves risk factor involved in strategical expansion plan of business.
 Legal or legislative factors: Laws or legislations of country, government rules and
regulations, business laws, safety and health guidelines, local laws, regulatory
compliances etc. are covered while identifying legal external forces. According to legal
regulations of Mexico, workers are entitled to have maternity leave as well as annual
holidays. Along with it, health insurance, safety measures for workers, adequate written
contract of employment, avoidance of discrimination in terms of gender, age, religion,
nationality, marital status, sexual preference, and disability, all these factors should be
taken care of by an organization (Habib, and Hasan, 2020). High per day wage rate by
labour laws of country and necessary requirement of health insurance for workers
performs as a threat to profitability of Tesco as it hinders its profitability statement.
While, on the other hand proper fulfilment of legal requirements, such as, maintenance of
good work environment by firm in accordance to legal regulations, proper retirement
laws, mandatory insurance etc. provides government support which enhances smooth

functioning of its day to day operations hence acts as an opportunity for business. In
addition to it, fulfilment of trade union regulations enacts satisfaction among workforce
which improves their productivity hence efficiency of company also increases.
 Environmental factors: It indicates factors such as, climate changes, weather changes,
concerns of environmental protections etc. As, people of Mexico as more environmental
aware hence, Tesco has an opportunity to impose proper waste management techniques
and CSR activities to influence customer attractiveness and their loyalty. But it also
increases cost of company hence also serves as threat (Holbeche, 2018).
Analysis of business scenario:
Business scenario consists of circumstances and event related to business. It is a
framework that determines problems and requirements of business in relation to its objectives. It
includes identification of problems, evaluation of business environment, alignment of these
factors with objectives of firm and preparation of effective strategic planning for achievement of
desired targets (Kay, 2019). While considering business scenario of Tesco for its expansion plan
in Mexico, following are the impact of opportunities and threats determined while studying
macro environment with the help of pestle analysis:
 Positive trade or political relations of Mexico provide growth opportunities to Tesco as it
improves business opportunities by engaging fluent trade operations and avoiding trade
restrictions. It also allows company to import raw material from the areas it is available at
cheaper rate hence decreasing production cost of firm (Kharub, Mor, and Sharma, 2019).
Elimination of international conflicts provides effective planning and decision-making
opportunity to business which helps firm in enhancing their profitability. Along with it,
low government intervention enables stable and fluent work environment in an
organization. While focusing on threat factor, increasing corruption in country hinders
performance of business. As payment of bribes to leaders for establishment of
organization automatically increases its establishment cost and disturbs whole budget
schedule of expansion plan. High cost involvement indicates high involvement of risks
which challenges effectiveness of project.
 Economic growth indicates high profitability of business hence provides opportunity to
firm to invest more on research and development with the motive of imposing innovative
ideas in an organization for gaining customer attractiveness by fulfilling their needs and

wants. But increasing poverty reduces buying capacity of customers hence serves as a
threat to company as it hinders their customer base and profitability.
 Social factors evaluation indicates increasing population of Mexico points out to the fact
that Tesco has higher number of customers to attract with effective promotional
techniques which indicates high selling of products as market size increases hence, profit
making capacity of firm also improves. High level of output provides economies of scale
to firm as cost price per unit reduces. Generation of increased demand further increases
revenue generated by firm which enhances its reserves and surplus which can be further
utilized for investment in profit generating projects and analysis of customer feedback.
On the contrary while studying threat of social factor in Mexico, global or international
organizations such as Tesco sometimes fail to collaborate or adopt social and cultural
beliefs of people in terms of advertisements or products offered. Such misunderstanding
or lack of alignment may affect brand image of business in mind of its customers which
ultimately reduces brand value (Sahaf, 2019).
 Increasing technological transformation in Mexico enables Tesla to establish advance
and improved equipment which assures set standard quality of products hence improves
customer reliability and loyalty, hence, serves as an opportunity to firm. But establishing
highly advance equipment on one hand increases cost of company while on another hand
also generates sense of job insecurity among employees. It affects productivity of
employees as they become demotivated.
 Legal factors involve implementation and fulfilment of labour laws as required in
legislation of Mexico, improves satisfaction level of employees which further increases
their commitment level towards organization. It enables minimization of disputes
between management of Tesco and its employees (Wright, and et.al., 2019). Hence,
efficiency of company increases. On the contrary, government regulations or legislations
of country sometimes contradict with business objectives as it imposes some restrictions
on it, such as, mandatory health insurance of employees as it increases cost of an
organization.
 Opportunities of implementing corporate social responsibility and waste management
techniques while considering environmental factors enables organization to increase its

brand value among people of Mexico which assures successful expansion of Tesco. On
the other side, it imposes higher production costs which reduces profitability of business.
Porter’s 5 forces model: It refers to a tool that business can apply to identify market
attractiveness. It evaluates competitiveness of an organization and its potential to generate
profitability. This strategy is developed by M. Porter and mainly five industrial forces are
evaluated in this tool which are further discussed below:
 Industry rivalry: It consists availability of competitors of business. Competitors of
Tesco are Sainsbury’s, Lidl, Walmart, Aldi, Asda, Morrison’s etc. Many of these entities
already has its operations in Mexico. Hence Tesco has to face high level of industry
rivalry for expanding its business operations in the country. To cope up with these
powerful competitors, excessive promotion and marketing techniques are required by
firm along with some innovations and differentiation strategies so that firm can lead
market and gain competitive edge.
 Bargaining power of suppliers: As there are high number of suppliers hence bargaining
power of suppliers is low in Mexican market. Company can further improve its
productivity by implementing efficient supply chain procedure. Even third-party
manufacturers can be developed by firm like Walmart, business of this manufacturers
will entirely depend on Tesco so that bargaining power can be further reduced and entity
can gain more profit by setting high margins.
 Bargaining power of buyers: High number of customers indicate low bargaining power
of buyers while on the contrary low number of customers indicate high bargaining power
of buyers. Price wars between market leaders such as, Walmart, Tesco etc. through
discounts and offers increases power of bargaining for customers of Mexico. Company
should increase customer loyalty through effective analysis of customer experience and
feedback. Rapid innovations and inventions will further lead to differentiation of firm’s
product from competitors and encourages attractiveness of buyers. Enhancement of
product quality and effective pre, during and post-sale services will further improve
customer experience.
 Threat of new entry: It evaluates ease or difficulty in entering of new ventures in the
market. As Tesco is a global entity and has high brand image so new companies require
high capital investment to target its customer base or enter in market. Hence threat of new

entry is low for this organization in relevance to its expansion strategy in Mexico. Further
constant innovations in products and services, high economies of scale due to large
number of outputs or sales, and high capacity of firm to invest on research and
development as well as new expansion projects, reduces threats of new entry and
discourages new players.
 Threats of substitute products: Substitute products indicates similar products or other
products that is capable to satisfy needs and wants of customers (Zahari, and Romli,
2019). For example, coffee is a substitute product for tea. Hence, while evaluating threat
of substitute products for Tesco it can be stated that firm has moderate level of substitute
threat in Mexico. Small vendors, online grocery sites etc. works as a substitute for
venture. This problem can be tackled by an organization by being more service oriented
instead of just being product oriented.
CONCLUSION
By evaluating above report, it can be concluded that macro environment consists of
external forces or factors that impacts or influences performance of business and its operations
and market attractiveness. Market attractiveness refers to value of target market in terms of its
size and growth opportunities. Macro environment or business environment can be studying with
the help of strategical tool, that is, Pestle analysis. While, competitive analysis and evaluation of
market attractiveness can be done through Porter’s 5 forces model. While analysing business
environment and scenario of Mexico in relevance to expansion strategy that management of
Tesco is planning it can be stated that organization has high growth opportunities and with
effective planning and formulation firm is capable of gaining customer recognition in the country
and expand its market base which leads to expansion in its scope and profitability.

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