Question 1
Environmental Situation Analysis
Economic factors
The performance of a company such as Tesco depends on certain economic forces such as inflation, price, and demand of the products. Despite Tesco having worldwide stores, its success largely depends on the UK market. Hence, if the economic forces in the UK market were unfavorable, Tesco would suffer extremely. The recession, in 2008, affected Tesco expansion plans in the United States (Griffin, 2012). However, in the UK the recession resulted in Tesco enjoying the profits as it had already established successful control of its distribution channels.
Political Factors
A major factor that Tesco has had to consider when considering international markets is the political stability of the country. Most of the countries that Tesco has established its stores are politically stable. This includes US, France, Japan, Slovakia, and Czech. Foreign policy laws in many countries prohibit the use of forced labor and slavery. In 2005, Tesco came under fire owing to accusations that women casual laborers were suffering terrible work conditions, in South Africa. According to Townsend (2005), women who sold food products to Tesco received poor wages.
Social and Cultural Factors
Certain strategies used by Tesco in the past have limited its growth. For instance, in the 1970’s, the company’s driving force resulted to it developing a larger customer base which was mainly middle class. However, this resulted to customers looking for alternative areas where they could shop for expensive and luxury items (Swapna, 2012). Demographic changes also play a significant part in the Tesco’s performance. The consumers are now oriented towards consuming healthier foods, which means a retailer such as Tesco has to stock more of organic foods. According to Wright and McCrea (2008), Tesco has the largest share of organic food in the UK market. Further, the need to increase its customer base caused Tesco to adopt a more customer direct approach by introducing grocery home shopping and Tesco personal finance.
Environmental factors
Environmental issues have become a major concern in the retailing industry especially when dealing with large retailers. One of the critical issues has been reducing wastes from production and manufacturing. The strict environmental laws have made retailing companies adhere to protecting the environment. This has contributed to the development of corporate social responsibilities by a company such as Tesco.
Technological factors
Technology is crucial for a large retailer like Tesco if the services are to run efficiently. Data management is significant, and Tesco has been able to achieve this in inventory management, and distribution. Wireless technology is being used to connect and allow communication among all Tesco stores, which is essential in facilitating distribution and transportation activities (Griffin, 2012).
Implications for Retailers
Tesco also applied the use of a cost strategy. This strategy was adapted in the 1970s and 1980s when customers sort to look for expensive and luxury items. Prior to implementation of this strategy, Tesco was losing most of its affluent customers. The outcome after the application of the low cost strategy was that Tesco was able to offer more cleaner and shopping experience to the customers.
BCG Matrix
Based on the BCG matrix Tesco can be considered a cash cow since it distributes quality products and has additional customer oriented products such as grocery home shopping. In the UK market, Tesco has been able to become an industry leader. Stars are evident in areas such as technology where the organization is able to use wireless technology to promote supply chain management (Griffin, 2012). Dogs can be seen in areas such as Japan where the company has been forced to shut down. Currently, Tesco is struggling to maintain its presence in Turkey.
Conclusion
It becomes vital for a retailing firm to analyze the market conditions prior to adopting a cost leadership strategy or a differentiation strategy. As discussed above, retailers who have a large market can effectively use the differentiation strategy, which despite having higher costs implications will improve the performance of the organization. The cost of the product may be high, but the quality is the most important in this case. A low cost strategy needs to be applied when the cost will not compromise the quality of the product. This ensures that more customers are drawn owing to both the low price and the high quality.
Question 2
A localization concept, as part of the globalization strategy for an organization, is significant. According to Hill and Jones (2011), localization involves the customizing of a company’s product to the tastes and preferences of the customers of a particular market or region. This is aimed at increasing the profits. These profits are attributed to increased sales because the customizing increases the value of the product. However, the process of customization in localization introduces cost implications since the company will have to produce multiple products that have been customized differently for the different regions (Hill and Jones, 2011). Thus, localization is deemed profitable when the value of the customization results in products fetching high prices, which allows the company to recover the high cost of production. Localization may also introduce the problem of independence. Different stores in different regions may resist certain corporate changes from the top-level management (Peng, 2008).
However, it is critical for the organization to research and know the culture of their customers to be able to understand their tastes and preferences. One of the important factors in a culture that has to be taken into consideration is the language aspect. Different nations have diverse languages. If the organization is planning to establish a store in a country such as Japan, it is essential to customize its product and ensure that the language is in Japanese. This implies that the language used to advertise or name their products has to be in the common language for that region. Customers are less likely to buy products, which they cannot be able to understand. Further, religion issues and needs of a region may influence heavily on the localization. Customization strategies used should not be in contrary to the religion views of a certain region.
Tesco has adopted localization in the form of acquisitions. Each country that Tesco has established stores consisted of acquisition of local retailers. For instance, in Thailand, it acquired 75 % ownership of the Lotus Supermarkets (Swapna, 2012).
Conclusion
Localization should be adapted for organizations that seek international markets with different cultural backgrounds. An organization should develop localization in such a way that it reflects the culture of the target market consumers. If not done appropriately, localization may result to insulting a people. Comprehensive studies of the target cultures are essential to ensure that localization is a success.
Question 3
Current Position
Tesco’s performance in Turkey was not good. According to Swapna (2012), Tesco had failed to obtain enough market share, in Turkey. The market in Turkey represented a majority of unorganized retail at the time when Tesco was entering the market. However, organized retail dropped from 35% in 2005 to approximately 5 % in 2009 (Swapna, 2012). This negatively affected Tesco’s growth. Further, Tesco’s initial location targeted the Izmir province, which was not a high growth potential market. When Tesco decided to venture into the high growth market, most of the foreign retail companies had already established themselves in these regions (Swapna, 2012).
Alternative Options
Brand improvement proves to be an alternative that Tesco can implement. Since the high growth markets have the presence of established foreign players in the retail industry, Tesco needs to develop unique brands by implementing the differentiation strategy. This will require the incorporation of the issues of cultures of consumers in this high growth markets. Secondly, Tesco may decide to close stores in Turkey and target a country that may have a similar market structure as Turkey. However, based on the experience and knowledge learned from Turkey, Tesco may initially target the high growth market areas. According to Czinkota and Ronkainen (2009), accumulated knowledge of one country gives a firm the ability to target countries with similar economic and cultural markets. Another option available was to engage groups. Recognition of the employees as a union would help in improving the image of the company. Tesco has the option of using a cost leadership strategy. This is quite appropriate, as Tesco itself is a large firm hence has the necessary resources to produce standardized products at low overheard cost. According to Eldring (2009), such an approach may offer Tesco a competitive advantage over its rivals as it will enjoy more returns. However, for this to work, the product offered by Tesco has to be accepted by the buyer.
Recommendation and Implementation of Agreed Strategies
Tesco needs to locate another country with a similar economy and cultural background as Turkey and establish itself as a top player in the potential high growth markets. This implies that Tesco will be able to establish itself early and develop a niche for itself. Furthermore, any uncertainties that may emerge Tesco will be able to cope with them well as it will have developed risk mitigation strategies, which are likely to occur based on certain economic and cultural concepts of a similar market. Brand alternative will have cost implications if done in Turkey. However, applying it in a similar foreign market for the first time may be beneficial as long as proper market evaluation will be done to ensure any cost implications are recorded from sales.
Implementation of Agreed Strategies
Question 4
Any organization that ventures into foreign markets needs to have an understanding of the culture of customers in these foreign markets. These factors include values, beliefs, religion, language and symbols (Griffin, 2012). These cultural factors affect political systems, organizational forms and the society. Certain economic success may be based on certain the culture of the region. Thus, products being customized should not include symbols that may offend the indigenous people of the foreign market. Employees of the Tesco stores need to include natives who should be well compensated. Further, working conditions of the employees need not interfere with religion or contradict certain cultural values. Ideally, the assigning of roles and duties to the natives of an international market should be based on the understanding of the culture of the region or market. In case the specific global market has a different language, having native employees makes it easy to communicate with consumers and thus the company can provide customers with want they want hence ensuring customer satisfaction.
Educational levels also are critical when it applies to labeling of warnings on different products and on informing on methods of disposal. According to Doole and Lowe (2008), this has a direct effect on the interpretation made by the customers. Training of potential employees needs to be done regularly and should be aimed to increase employee awareness. This is essential if Tesco is to avoid losses that may be caused due to lack of knowledge on the employee’s part. Further, allowing employees to have a workers union may help remove negative perceptions about Tesco similar to those develop in Turkey. Further, this may help address issues that native employees may have based on the working conditions and can be able to communicate changes or issues that they have or may want to be implemented.
Implementation of Agreed Strategies
Cultural issues require the development of a climate, which allows room for communication. Global managers need to have regular meetings with the various regional managers and some of the employees. This allows them to have an understating of the various issues relating to the culture that need to be observed in the firm. In foreign markets, different individuals interpret issues differently (Mazzola and Kellermanns, 2010). Prior to implementing any strategic changes, consultations need to be done on the likely impact it may have in the foreign market.
Having a diversified culture in the organization is a common scenario. This generally creates to two separate cultures in the organization, which may cause the development of frictions in the organization. A solution to these is to develop a separate subculture of the organization, which incorporates the cultural values of foreign employees and the home country executives (Young and Nie, 1996). This helps to develop a synergy relationship where all individuals can be able to accept one another’s cultural background.
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