Financial Resources of Tesco Group - Essay Example

Tesco Contents Contents 2 Question 2 3 Resources Based View of the Company 3 Key Strategic Resources 4 Financial Resources of Tesco Group 4 Competitor Analysis 4 Core Competencies 5 Summary of Value Chain Analysis 5 Leadership Decision Making Culture and Politics 6 Question 3 6 Issues Affecting Company Image 6 Ethics Theory 7 Corporate Governance 7 Stakeholder Theory 7 Question 4 7 Tesco Business Level Strategy 7 Corporate Level Strategy 8 Future Strategies 10 SAF Model 10 STRAIR Model 11 Implementation Techniques for Suggested Strategies 12 Reference List 14 Appendix 15 Question 2 Resources Based View of the Company This report is based on Tesco PLC, which is a British multinational company. In the current era, degree of competition among business firms in the retailing industry has substantially increased. At this juncture, effective allocation of productive tangible and intangible assets has become an indispensable requirement for firms. The resources used by Tesco have helped to enhance its commercial competency and sustainability in the market. The resource based approach of Tesco’s business can be examined through VRIO analysis model. VRIO This model tries to analyze various sources of capabilities and resources of a firm that are able to generate a stable competitive advantage. Valuable The company owns enough financial reserves for expanding its business in the long run. Recently, Philip Clarke, chief executive officer of the firm, has declared that they are opening new spaces of 700000 square feet in order to build new supermarkets. Additionally, Tesco is launching new restaurants for attracting more customers in the supermarkets (Wood, 2014). Rare The technological innovations made by the company are its rare resources in business. The company has developed new electronic self edge labels. Tesco has also introduced a new application for Smartphone and tablet users, named HUDL. This application would allow customers to check product availability in Tesco supermarkets (Wood, 2014). Imitable The workers are highly trained and help to enhance overall productivity of business. In addition, the company has recently introduced the new semi-automatic store picking service. Such services of the company are delivered by refrigerated delivery vans. These service resources of the firm are imitable; but, would involve high costs for its competitors (Peng, 2008). Organization The rare and valuable resources of the company can be used appropriately only with the essence of efficient organizational framework. All inbound and outbound logistics branches of the company comprise expert teams of workers who aid in enhancement of quality of services across all the marketplaces. The firm encourages participatory atmosphere in workplaces and hence, constantly implements ways by virtue of which commercial prosperity can be effectively fostered. Key Strategic Resources From the above analysis, it can be figured that Tesco possesses certain key strategic resources in business, which makes earning higher returns in business possible. These are: Sufficient financial reserves Modern technological knowhow Highly trained and experienced workforce Financial Resources of Tesco Group Initially, majority of company’s profits were generated from its U.K. marketplaces. However, over time, Tesco has expanded its scope of business internationalization and a substantial amount of the profit is yielded from other nations, apart from U.K. Figure 1 in the Appendix shows total turnovers of Tesco from international markets in 2007. Figure 2 in the Appendix shows that from 1998 to 2007, financial resources of Tesco had substantially increased. From 2011 to 2012, sales of the company have risen by 7.4% to a level of £72 billion (Tesco PLC, 2014). The pre-tax profit of the company has also augmented by 1.3% (that accounts to £3.9 billion). The group returns on capital employed by the company has also increased by 13.3% (Tesco PLC, 2014). The dividend returns of the company from equity shares had escalated to 14.76p. The company aims to achieve a 14.5% rise in its returns on capital expenditure by 2014 to 2015 (Tesco PLC, 2014). Even so, it should be noted that from 2007 to 2010, profitability of the company had slightly fallen due to recession caused by the global financial crisis (Tesco PLC, 2014). Competitor Analysis The retailing market where Tesco operates is highly competitive in nature. The potential rivals of the company in U.K. are Sainsbury Plc, Asda Stores Ltd, Marks and Spencer’s and many more. So, market structure of the retailing industry can be regarded to constitute monopolistic competitive strategies. Until 2007, Tesco was the leading retailing firm in the U.K. retailing market. Figure 4 in the Appendix empirically claims this fact. Some of the potential competitors of Tesco in the international market are WalMart, Home Depot and Carrefour. The commercial success of Tesco is still lesser than these giant retailing companies. In addition, wholesale turnovers of the retailing firm, METRO was way lower than that of Tesco’s retailing turnover. This proves that the company still holds moderate powers in the international market and should be able to carve ways in the long run for improving business. Figure 4 in the Appendix shows the degree share of market demand experienced by Tesco and its competitors in U.K (University of St, Gallen, 2008). Core Competencies The core competencies of the company are generated from its rich human, financial and capital resource base. Improving financial control and economies of scale in business are core commercial strategies of the firm. This is because the company has recently launched its re-focus strategy in U.K. and across other international markets. Through this strategy, Tesco desires to expand its scope and scale of business internationalization across different markets (Ebrahimi, 2012). By the way of increasing its commercial base, the company would be able to achieve higher demands for its goods and services and hence, experience economies of scale in production of its own manufacturing product lines. Furthermore, differentiation strategy is also implemented by the firm whereby it is able to add value to the offered products and services. The company tries to launch new types of technologies in business like, tablets and new smart software applications; such actions render customer services more effective (Ebrahimi, 2012). Summary of Value Chain Analysis The resource based operational approach aids Tesco to enhance utilities and value of customers as well as to lower the operational costs. Similar to semi-automatic store picking services of the firm, the HUDL tablets and applications, electronic self edge labels and refrigerated van delivery systems help to augment loyalty of customers. At the same time, increased financial serves and new stores facilitates improvement of sales of its products whereby Tesco can indirectly achieve economies of scale in output. This in turn lowers operating cost in business (Ebrahimi, 2012). Leadership Decision Making Culture and Politics The significant growth of the company over the last few decades is attributed to its effective leadership management. The higher officials of the company govern and manage culture of the workplaces with special entrepreneurial leadership skills. Moreover, these entrepreneurs are transformational leaders in the firm, who make employees work beyond their limits through increased motivation (Peng, 2008). Question 3 Issues Affecting Company Image The horse meat scandal had severely affected the brand image of Tesco. This scandal had taken place in Europe in 2013; it is claimed that certain food products that were advertised to contain beef, actually comprised 100% undeclared horse meat. This is because horse DNA was found in many frozen beef burgers sold by U.K. supermarket chains. Some beef burgers also continued to include pork (Neville, 2013). When this scandal had been publicised in the market, sales of supermarket companies like, Tesco, had drastically fallen by almost 29%. Moreover, this had also hampered brand image of the company. The company also faced an issue for selling strawberries at incorrect prices. It was noted in 2013 that Tesco had been selling strawberries at half prices in the market. Due to this, the company had to a pay a fine of £300,000 (Neville, 2013). In a market where the company had desired to enhance brand image by promoting its profit, such careless activities had hindered its progress. It was noted that the company coerced students from diversified nationalities into working for longer hours in the warehouses. The VISA extensions of these students were shorter than their working tenure in the company. Owing to this, the company had to pay a fine worth £200,000 (Neville, 2013). Ethics Theory The ethical theory is built on the norms of normative ethics. The theory tries to justify ethical and moral aspects of a product in the market. The theory of ethics deals with virtue and duty ethics. The issue of horse meat scandal faced by Tesco signifies that the company did not accurately follow the norms of virtue or duty ethics in business. This is because; they should have tested ethical perspectives of each product sold by them in the market. White horse meat is traditionally accepted by European individuals; but pork meat in beef burgers had severely hurt the communal and religious sentiments of Jewish and Muslim communities in the market. Corporate Governance This theory tries to study the pattern of governance in a firm. This explains rules, processes and practices by which an organization conducts organisational activities. The strawberry mislabelling case of Tesco signifies poor corporate governance. The pricing settlements were unregulated by the company under this regime. Furthermore, foreign workers were made to work illegally with inadequate pay, which added to the poor image of Tesco’s corporate governance. Stakeholder Theory This theory has gained popularity in the recent years. It claims that business activities of firms should cater to utilities all its stakeholders. The stakeholders are entities of the firm who might be affected by activities of the firm. The government, consumers, employees, business support groups and shareholders are the stakeholders. The above three issues faced by Tesco have violated utilities of its stakeholders like, consumers, government and business support groups. Question 4 Tesco Business Level Strategy The business level strategy of the firm involves coordinated and integrated actions and commitments, which provides competitive advantage in business. These strategies of the firm are often framed on the basis of its core competencies in business. As stated in the above context, two primary business level strategies of Tesco based on Porter’s generic strategic framework are: Cost leadership strategy Under this regime, Tesco desires to sell products and earn high profits with minimum costs involved. Through this, the company would be able to lower average costs of manufacturing its product lines and achieve scale economies in business. For implementing its cost leadership strategy in business, Tesco aims to attain greater labour efficiency in workplaces. New innovative technologies are introduced by virtue of which management would be able to lower implementation costs and enhance productivity. The company tries to maintain good relationship with its final product suppliers so as to acquire services at a relatively lower price range. This allows the firm to gain sufficient capital in business as well as facilitates building of new efficient distribution channels. Differentiation Strategy The differentiation strategy is also implemented in business through which the company desires to change prices of some of its products and earn high profits from the market. However, according to this strategy, the firm assures to deliver higher utility and superior quality of products and services to the customers. The differentiation stagey helps to add value to the products offered, which often allows the firm to sell products at higher prices than that of the competitors. However, the cost involved in this strategy is high (Dewett, Whittier and Williams, 2007). Thus, considering the incorporation of cost leadership as well as differentiation strategy, it can be claimed that Tesco implements hybrid strategy in business. Corporate Level Strategy Unlike the business level strategy, corporate strategies deals with various means by the way of which the firm can decide to operate in the international markets. The corporate level strategies of Tesco can be explained in detail with the help of an Ansoff matrix. Existing Products New Products Existing Markets (Market Penetration) (Product Development) New Markets (Market Development) (Diversification) Market Penetration This strategy of the firm helps to earn higher sales from the existing markets. This also assists the firm to further penetrate into existing markets. In this way, Tesco has determined to heighten sales of its grocery items in existing markets by lowering sales of its rivals like, Sainsbury and Asda. The company offers special club card points to customers that they can redeem on special occasions of repeated purchases. At the same time, Tesco also provides free petrol usage facilities to customers who purchase company’s car insurances. Such facilities facilitate rise in sales of existing product lines of the company in existing marketplaces. The refrigerated delivery vans of the company have also been introduced under the regime of its market penetration strategies (University of St, Gallen, 2008). Market Development Such a strategy enables the company to develop new products and services in its existing markets. Under this regime, Tesco has introduced new stores in the existing markets. Since 2004, the company has started to sell products like, organic food items, under its private product labelling. This enhances reliability and trustworthiness of the company that is portrayed for customers in the domestic markets (University of St, Gallen, 2008). Product Development Through implementation of these strategies, the firm launches its existing products in new marketplaces. In short, business internationalization of the firm expands via application of this strategy. The company has claimed to expand its business branches in Asian markets like, China and South Korea. It also desires to sell existing product lines such as, financial services, electronic products, clothes, insurances and food items, in these markets. The per person disposable income levels of consumers have substantially increased in these nations. So, business expansion of Tesco in such markets in forms of new stores and supermarkets would be highly profitable (University of St, Gallen, 2008). Diversification The company sells new products in its new marketplaces through execution of these strategies in business. In new markets, Tesco aims to open restaurants in the supermarket stores; this is because such services would successfully attract new customers in the new markets towards the company. The HDUL tablets of the company will also be launched in these markets whereby consumers would be able to appropriately confirm product availability in its supermarkets and stores (University of St, Gallen, 2008). Future Strategies Tesco should promptly adopt the strategy of business internationalization. Some developing nations in the world like, India, China. Brazil, South Africa and Russia, are experiencing high growth rates in the recent years. The company can launch new technologies via which inbound and outbound logistics deficiencies in business can be reduced. For instance, Lean and Six Sigma process introduced by Toyota and Motorola. Moreover, new technologies should be implemented by virtue of which the company would be able to introduce self-billing systems in its supermarkets, similar to Sainsbury Plc. Tesco can introduce loyalty services in business in the form of appointing staff who would take care of pets of buyers visiting the stores. Such services are already provided by its rival WalMart. SAF Model Suitability The discretionary spending of consumers on goods and services in nations like, Brazil, India, and China, has significantly increased. If Tesco expands its business branches in such economies, then it would be able to trap the growing market demand of these economies. The self-billing systems would help to lower labour service costs of the firm to a certain extent. The commercial prosperity of the company would increase with the essence of greater customer loyalty programs. Hence, all the above suggested strategies are highly suitable for Tesco. Acceptability The company must accept abovementioned strategies in business because these would help to earn more revenue in future. The costs of operations of the firm would be reduced through new technological innovations and its brand value and customer loyalty would improve. Feasibility At this juncture, the first and the third strategy can be feasibly applied by the company. The second strategy relating to technological development cannot be easily implemented in the near future as implementation of such strategies would require time and considerable amount of money that can be optimally accumulated over time (Hill and Jones, 2009). STRAIR Model Strategy The first strategy is business expansion strategy The second strategy will enhance efficiency of the firm’s existing cost leadership strategy The third strategy will augment competence of the differentiation strategy. Targets Through the first strategy, Tesco intends to capture the growing market demand in emerging economies. Through the second strategy, the company aims to lower costs of operations. Through the third strategy, the company would enhance its loyalty services for customers (Johnson, Scholes and Whittington, 2005). Assignment As an assignment for the first strategy, the company would need to extend its business branches in emerging economies. As an assignment for the second strategy, Tesco would need to invent new technologies in business. As an assignment for the third strategy, the company would need to introduce an additional customer loyalty service (Kapferer, 2012). Implementation For implementing assignment of the first strategy, the company should open new department stores and supermarkets in emerging economies. For implementing assignment of the second strategy, the company should introduce technologies like, self billing systems and Lean or Six Sigma software. For implementing assignment of the third strategy, the company should appoint special teams of workers in all major supermarkets who would take care of the pets of buyers. Results The aggregate revenue of the company would increase after implementing the first strategy. The cost of business operations of the company would significantly reduce after implementation of the second strategy. The brand value and customers loyalty of the company would augment after the third strategy is executed. This would remarkably help to differentiate company’s position in the market (Lin, Cook and Burt, 2001). Implementation Techniques for Suggested Strategies The first strategy of business expansion in booming economies can be implemented through modes of joint venture or direct investment. For the latter mode of implementation, Tesco would need to make a Greenfield investment in targeted economies. On the contrary, for the former mode of implementation, Tesco would need to make a strategic alliance with native business firms of the targeted economies. If the company invests new technologies in business, then it would need to legally prevent imitation of such technologies by protecting them through legal documents like, licenses and patents. The special group of workers in the firm who would take care of the pets of buyers in stores can be hired through local franchising entities (Madsen, Neergaard and Ulhøi, 2008). Reference List Dewett, T., Whittier, N. C. and Williams, S. D., 2007. Internal Diffusion: The Conceptualizing Innovation Implementation. Competitiveness Review, 17(1), pp.8 – 25. Ebrahimi, H., 2012. Investors tells Tesco to rethink strategy. The telegraph, 2 April. Hill, C. and Jones, G., 2009. Strategic Management Theory: An Integrated Approach. Connecticut: Cengage Learning. Johnson, G., Scholes, K. and Whittington, R., 2005. Exploring corporate strategy. [pdf] Pearson Education Ltd. Available at: [Accessed 2 April 2014]. Kapferer, J. N., 2012. The new strategic brand management: advanced insights and strategic thinking. Delhi: Kogan Page Publishers. Lin, N., Cook, K. S. and Burt, R. S., 2001. Social Capital: Theory and Research. New Jersey: Transaction Publishers. Madsen, H., Neergaard, H. and Ulhøi, J. P., 2008. Factors influencing the establishment of knowledge-intensive ventures. International Journal of Entrepreneurial Behaviour & Research, 14(2), pp.70 – 84. Neville, S., 2013. Tesco half-price strawberries deals prompts red faces and £ 300000 fine. The guardian, 19 August. Peng, M. W., 2008. Global strategy. Connecticut: Cengage Learning. Tesco PLC, 2014. Chief executives report. [online] Available at: [Accessed 2 April 2014]. University of St, Gallen, 2008. Tesco verses Sainsbury. [pdf] University of St. Gallen. Available at: [Accessed 2 April 2014]. Wood, Z., 2014. Tesco abandons space rare and invests resources in new price war. The Guardian, 25 February. Appendix Figure 1: Turnover of TESCO in International Market (Source: University of St, Gallen, 2008) Figure 2: Financial Performance of TESCO (Source: University of St, Gallen, 2008) Figure 3: TESCOs Domestic Competition (Source: University of St, Gallen, 2008) Figure 4: TESCO Competitor Analysis (Source: Johnson, Scholes and Whittington, 2000) Read More