Tesco's Strategic Capabilities: A Comprehensive Analysis

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STRATEGIC CAPABILITIES OF TESCO

Table of Contents
1. Applying the PESTLE analysis to assess potential scenarios for Tesco: 3
2. Analysing the organisation’s capabilities by using appropriate frameworks: 5
3. Applying the Five Forces model to analyse the competitive environment: 9
4. Applying a SWOT analysis to Tesco and critically evaluate the external and internal
environment: 11
5. An evaluation of the different types of strategic directions available to Tesco: 15
6. Justification and recommendation of the most appropriate growth strategies available
currently to Tesco: 15
7. Production of a strategic management plan addressing one of the growth strategies,
inclusive of SMART objectives, tactics, implementation and control considerations: 17
References: 23

1. Applying the PESTLE analysis to assess potential scenarios for Tesco:
Political Factors
From the time when the vending corporation functions universally, worldwide political
factors significantly impact the evaluation of Tesco which comprises tax charges, acts of law
making and mainly, the firmness of the nation it functions in (Cai, 2018). Owing to
continuing economic volatility worldwide, much management inspire retailers to generate
jobs for the local people. As Tesco plays its portion in generating occupation openings, in
turn, upsurges the request for its goods and spreads its employees. In the year 2009 a contract
was signed by Tesco to fix up a deliberate sequence of joint undertakings for the expansion of
supermarkets in China (www.marketingtutor.net, 2019). The dual scheme comprised three
superstores: Anshan, Qinhuangdao & Fushan. Additionally, 18 new supermarkets are
anticipated to start function in Asian country China by 2010. The development of Tesco’s
worldwide corporate sector is on the upsurge and it is expected to account for a single quarter
of the corporation’s revenue.
Economic Factors
The economic factors are the chief point of distress for Tesco, as it seems most likely to
influence prices, request, incomes and charges. Consequently, the corporation should be
conscious of any variations in strategies, such as variations in tax policy or any other features
which might disturb the availability of money. It is vital to indicate that while the trade is
increasing globally, the corporation is still quite reliant on the Britain market where the
market stock is approximately 30% (www.marketline.com, 2019). Nevertheless, the
optimistic feature of recession is that the consumers eat out fewer and consume food more at
home which delivers occasions for grocery suppliers like Tesco to upsurge their productivity.
It has been marked that eatables are the last item that consumers will expurgated back on.

Social Factors
Due to numerous public changes, graphs specify that consumers in the Britain have
progressed towards wholesale shopping & one-stop offering. Consequently, Tesco has
amplified the amount of non-food products presented for transaction (Barnes, 2015). The type
of products and amenities wanted by customers is mostly inclined by the customer’s views
and assertiveness which, in turn, are predetermined by social acclimatizing. Since consumers
are becoming additional alert of health matters, according to which their method towards
nourishments is changing regularly, Tesco is familiarizing to this type of fluctuations by
obliging the claim for organic items. Considering the words of Grundy (2016), customers’
approach towards nourishments is continually varying as they have developed more health-
consciousness. An upsurge in the request for organic diet has been lodged by Tesco to imitate
the variation in request. Tesco has initially made possible the payment by cash or cheques.
Technological Factors
The developments in expertise have fetched many new occasions for Tesco. Couple of the
utmost different ones comprise the growth and overview of online marketing with amenities
for house delivery. As stated by Azadi and Rahimzadeh (2015), coming to the second one,
own service checkout places have delivered handiness and comfort for consumers, which in
return have cheaper labor charges. Online retail marketing has gained significant reputation
due to the enlarged admission to Wi-Fi internet in the Britain. It has been stressed by Keynote
way back in 2010 that the quantity of broadband operators in Britain is 15.5 million which
represents for 70% of the total market (www.tesco.com, 2019).
Environmental Factors
With enlarged gravity on businesses to take care of environmental issues and to accept ways
of processes that would help the society, Tesco is evidently dedicated to decreasing its carbon
footprint by almost half by 2020. Likewise, Vaněk et al. (2016) addressed that Tesco is

lessening the discarded manufactured in the outlets by growing social morality in consumers.
Tesco has familiarized its Greener Living Scheme to give customers advice on ecological
issues, containing how to lessen food surplus and carbon footprint when cooking meals.
Customers recycling bags as well as mobile phones and aluminium cans are being
appreciated through Tesco’s green Clubcard membership points.
Legal Factors
Administration strategies and regulations also straight away influence the company
performance of the company. For instance, the Food Retailing Commission (FRC) way back
in 2004 proposed a Code of Practice must be familiarized which would prohibit many
existing follows, such as varying charges without proper notice or asking for payments from
dealers. Diverting our attention to the Low Pay Commission Report, the 2008 as well as 2009
mutual up-ratings have given rise to an upsurge in the lowest wage of only 15.5%
(www.tesco.com, 2019). This has resulted in an upsurge of functioning costs of superstores.
Figure 1: PESTEL Analysis
(Source: Kamran, 2015, pp. 58)

2. Analysing the organisation’s capabilities by using appropriate frameworks:
A strong customer fixated attitude of Tesco is its key donating factors to enhance its success
index. According to Barnes (2015), due to its strong localise approach, the chosen firm has
become able to translate its all stores as per the requirements of host country’s consumers. It
is notable that the strategy of the firm always offers high quality products at low price range
to its potential customers. This method has always endured Tesco one step ahead from its
rivals. It has been viewed that increasing employee competence and promoting an effective
delivery management system by evading wastes has made the company to retain its prices
low in the operating market (Grundy, 2016). Furthermore, Tesco has introduced a universal
sourcing team to select non-food items from its global market, therefore, by acquiring items
from emerging marketplaces such as India, China, the firm has become capable to keep its
pricing policy low rather than its competitors.
On the other hand, Kamran (2015) mentioned that the official website of the firm is it’s
another strategic ability that empowers the management to provide sheer convenience and
luxury to the customers’ group. Additionally, an integrated supply chain system has been
intended to effectively connect its all active stores with its global domain Tesco.com.
Considering the view of Vaněk et al. (2016), employing a strong information technology (IT)
like RFID technology used in its supply chain is it’s another organisational competency. The
practice of this kind robust technology has also instigated lean management in its operational
process for eliminating waste, refining the quality and dipping the price margin as well.
Furthermore, Azadi and Rahimzadeh (2015) stated that the next noticeable capability of
Tesco can be its strong economic asset and resilient benevolence in the market. According to
its annual report, the market goodwill of the firm in 2017 was 3,845, which increased to
3,925 in 2018 (www.tesco.com, 2019). Similarly, in order to support its inventory

management system, Tesco has presented a cross docking operation and used collaborative
plan forecasting and replenishment (CPFR) which has enhanced its strong competitive
advantage in the global market (www.grantthornton.co.uk, 2019). This has competently
allowed the organisation to manage the necessity in the stores and also reduce the inventory
holding.
Resources Value Rare Imitation
Organizatio
n
Competitive
Advantage
Intellectual
Property
Rights (IPR)
Awfully
valuable
Yes Risk of
imitation is
low
Do not
utilized its
full extent of
properties
Providing
Strong
Competitive
Advantage
Customer
Network and
Loyalty
High Able to
form a
strong
consumer
loyalty
index
Unsuccessfu
l tries by the
opponents
As company
is improving
the customer
loyalty is
making
positive
effect
Providing
medium
term
competitive
advantage
Global and
Local
Presence
Yes, able to
manage
company's
accounting
details
Yes Can be
imitative by
the rivals
Yes Providing
Strong
Competitive
Advantage

Marketing
Expertise
within the Fdi
Tesco
Yes No Often
matching
pricing
strategy
with the
rivals
Yes Temporary
Competitive
Advantage
Product
Portfolio
Highly
valuable
Competitor
s are trying
to arrive in
the
profitable
section
Can be
copied by
the
opponents
Good use of
its market
goodwill
Providing
medium
term
competitive
advantage
Managing
sales force
Yes No Imitative Need lots of
potential to
increase
sales force
Providing
Strong
Competitive
Advantage
Brand name
extensions
opportunity
Yes No Yes,
imitated
Require
higher
marketing
budget
Temporary
Competitive
Advantage
Pricing
strategy
Yes No Yes,
regularly
imitated
Yes, firm
uses pricing
analytics
Providing
Strong
Competitive

engine Advantage
Figure 2: VRIO Framework Analysis
(Source: Created by Author)
3. Applying the Five Forces model to analyse the competitive environment:
Threat of entry of new competitors (Low)
New contestants in Sales industry brings modernization, new techniques of doing stuffs and
put gravity on Tesco company through lesser pricing policy, minimizing costs, and supplying
new worth proposals to the consumers. According to Cai (2018), the company has to achieve
all these contests and build active obstructions to defend its rivalry authority by inventing
new goods and products. New goods not only attract new consumers to the crinkle but also
give old consumer a motive to buy the goods. Acquiring preparing authorization from native
government takes a significant quantity of time and capitals to launch new superstores and
this is henceforth a significant barrier to new contestants (Grabowska, 2016). Constructing
volumes and disburse money on study and expansion. New contestants are less expected to
enter a vibrant business where the reputable companies such as Tesco keep describing the
principles frequently. So as per our analysis, it has been viewed that the threat of entry of new
competitors into the nutrition selling industry is quite low.
Bargaining power of suppliers (Low)
Most of the corporations in the Selling industry buy their fresh products from various dealers.
Commanding dealers in customer amenities segment use their discussing authority to pull out
greater prices from the companies in marketing field. They do this by investigating with
artifact varieties using diverse constituents in case the expenses go up of one fresh product

then corporation can swing to an alternative. Manufacturing devoted dealers whose
profession rest upon the company. Considering the words of Grundy (2016), it should be
eminent that the providers are persuaded towards chief food and grocery item retailers and
fear losing their business agreements with large superstores. The major instruction Tesco can
study from the competitor brand Wal-Mart is how the corporations established third party
creators whose occupation merely rest on them. Thus, generating a situation where the third
party creators have suggestively less negotiating authority in equation to Wal-Mart
(www.marketline.com, 2019). So, the current analysis shows the bargaining power of
suppliers is comparatively low.
Bargaining power of buyers (High)
Purchasers are mostly a demanding percentage. They want to purchase the finest products
obtainable by giving the lowest price possible. This in turn put burden on Tesco’s success in
the extensive run by constructing a huge base of consumers. This in future seems to be useful
in couple of ways. It will lessen the negotiating authority of the purchasers as well as it will
offer an occasion to the business to modernize its transactions and manufacturing procedure
by quickly inventing new goods (Azadi and Rahimzadeh, 2015). In circumstances where
goods have a little diversity and are more consistent, the swapping cost is very little and the
purchasers can effortlessly move from one brand to an alternative brand. Consumers often
ask for concessions and assistances on established goods so if the company keep on bringing
up with new yields then it can suppress the negotiating power of purchasers. Thus, it can be
stated that the bargaining power of buyers is quite high.
Threat of substitute products and services (Low)
When a new good or provision meets an alike consumer requirement in diverse ways,
business lucrativeness writhes. For instance, facilities like Dropbox & Google Drive are
alternative to storage hardware disks. The danger of an alternative goods or service is great if

it proposes a value proposal that is exclusively diverse from current assistances of the
industry by becoming service focused rather than just goods preoccupied with. Also, Fung
(2015) mentioned that by knowing the fundamental need of the consumer rather than what
the purchaser is purchasing. The management can remove the threat by growing the swapping
cost for the consumers. Furthermore, the company is additionally getting hold of the outlets
by inaugurating Express stores in native towns and city centres generating a difficulty for
these alternatives to arrive at the market (www.tesco.com, 2019). The threat of substitutes in
the grocery selling market is significantly small for food items and ranges from medium to
high for beverage or non-food items.
Threat of entry of new competitors (Low)
If the competition among the prevailing companies in an organization is powerful then it will
drop down costs and lessen the total success of the business. The company functions in a very
tight Merchandizing business by constructing a supportable distinction and also by
constructing scale so that it can contest healthier (Vaněk et al., 2016). The threat of entry of
new competitor’s business is low.
Figure 3: Porter’s Five Forces Model
(Source: Fung, 2015, pp. 22)

4. Applying a SWOT analysis to Tesco and critically evaluate the external and internal
environment:
In order to critically evaluate the external and internal environment of Tesco, SWOT analysis
tool is going to help with its four different types of approaches. The 2*2 matric intends to
analyse the firm’s external and internal strategies while competing in the global marketplace.
Strengths:
● Top level of consumer gratification – the corporation with its enthusiastic client
relationship administration division has been greatly able to accomplish a greater
level of client gratification among present consumers and worthy brand fairness
among the possible consumers.
● Sturdy circulation system – From a long Tesco has constructed a dependable
circulation system that can spread widely to its probable marketplace (Grundy, 2016)
● Efficacious trail best of evolving new goods – product invention.
● Worthy Returns on Principal Spending – The chosen firm is relatively popular at
implementation of new schemes and produced good revenues on principal spending
by constructing new profit streams.
Weaknesses:
● Not vastly efficacious at assimilating organizations with diverse work values. As
stated by Kamran (2015), nevertheless Tesco is efficacious at assimilating minor
corporations it has its portion of disappointment to unite organizations that have
diverse work philosophy.
● The promotion of the goods left a mark for customers to desire more. Nonetheless the
creation is a triumph in terms of transaction but its placing and exclusive selling