Strategic management MBA assignment final by bulbul

Executive summary

The assignment is prepared critical assessment of the strategic challenges facing by Tesco and recommendations for Tesco to develop an appropriate competitive advantage for it. The assignment has described the challenges of external and external environment faced by Tesco. Then resources and capabilities of Tesco have been analyzed. At last part some recommendations is give for making sustainable competitive advantage for Tesco.

Introduction

Business strategy is the integrated and coordinated set of commitments and actions designed to exploit core competencies and gain competitive advantage (Baye, 2000). Business strategy is designed by analyzing business environment and matching resource and capabilities with opportunities. Tesco is a British retail grocery and merchandise store operated in 14 countries is the world and world third largest global retail shop.

1. A critical analysis of the business (external) environment of the firm and how it impacts its strategic position

External environment refers to a set of environmental forces such as political environment, demographic characteristics, competitive environment, industry environment, economic environment, socio-cultural segment, technological segment, global segment, competitive environment, etc external to the firm (David, 1995). There are three main components of firm`s external environment. These three main components are general environment, industry environment and competitor environment. The general environment is composed of elements in the broader society that can influence an industry and the firm within it. The general environment has six sub components- demographic, economic, socio-cultural, global, political, and technological. The industry environment is a set of forces that directly influence a firm and its competitive actions and responses. The competitive environment refers to the strategies, assumptions and capabilities of the companies with which it competes (Dess and Miller, 1993). A critical environment on Tesco`s macro and micro environment is given below.

General environment of Tesco (Macro environment) – Tesco is a multinational super store is operated more than twelve countries in the world (Tesco plc, 2015). The components of Tesco’s general environment is analysed by PESTLE analysis.

Political forces– The performance of Tesco is affected by the global political factors as it operates its retail operation worldwide. Business operations of Tesco are influenced by different host country`s antitrust law, taxation law, deregulation philosophies, labour training laws, educational philosophies and polices and political action of different parts of the world. Due to financial instability in global economy, government of different countries put pressure on Tesco to create jobs for domestic population. Tesco operates business in order to expand the demand of its product through diversified operation and creating employment opportunities in host countries (Tescoplc.com, 2015).

Economic forces– As Tesco always tries to leverage its costs, demands, profits and prices; the economic environment is a major concern for this organization. Any change in inflation rates, interest rate, trade deficit and surplus, budget deficit and surplus, gross domestic product where it operates affect the operation of Tesco. Although Tesco operates globally, the organization still dependent on UK market where it holds 30% market share. Tesco adapts with global economic environment through internationalization, local responsiveness and diversification. Due to decline in household income and disposable income level in UK, this organization on creating value of this brand through massive advertisement.

Social forces– Large number of socio-cultural change has been detected both the UK market and global market such as diversified work force, increasing number of women joined in the work force, changing attitude about the work life quality, increasing awareness toward environment, change in preferences regarding product and services characteristics. These types of Changes impose pressure on Tesco PLC to move toward bulk shopping and one stop shopping. In order to cope up with social changes this organization offers a lot product such as foods, groceries, health services, Christmas product, etc.

Technological forces– Tesco Plc always tries to achieve advance in technology. It focuses continuous innovation of product. This organization uses internet and information technology in best way to exploit competitive advantages. It has recently developed and introduced online shopping with facilities for home delivery. The customers of Tesco can easily find out their nearest outlets through self service checkout points which have been recently introduced by Tesco. It also uses advance database to ensure proper knowledge management and intellectual capital. It invests a lot of its energy on research and development.

Legislative forces– being a global organization it is affected by the policy change of different host country like china, India, USA, etc. For examples, In 2004 food retailing commission introduced some new practices and banned some old practices like changing price without notices. Besides the entry and exit strategies differ from country to country which is considered by Tesco.

Environmental forces– The people become aware of environmental concerns. Customers now prefer environment pollution free product. Before planning new strategy or diversification, it usually considers the environmental responsiveness of the product. This organization make a commitment that it will reduce carbon footprint by 50% within 2020. Tesco have to prepare its new environmental policy as almost two hundreds countries along with the countries where Tesco operates set temperature goal is 1.5 degree calcius in the conference of Paris on environmental challenges (Tesco plc, 2015).

Industrial environment of Tesco PLC– The industry environment consists of firms operates within the industry (Hitt, Ireland and Hoskisson, 1999). As it is one of the largest retailers in the world, it operates within strong competitive environment . The industry environment where Tesco operates its business is analyzed through porter`s five force analysis (Businesscasestudies.co.uk, 2015).

Threats of substitute product and services- Tesco usually faces relatively low degree of threats from substitute products and services because its low cost market leadership and brand loyalty. Although lots of convenience shop, licences and organic shop provides food items to customers, they are totally unable to impose threat on superstore like Tesco (Businesscasestudies.co.uk, 2015).

Threat of new competitors- It is difficult for new competitors to enter in the food retail industry because the existing firms have already build a lot of entry barriers. New investors have to invest huge capital as existing firms have established value chain and loyal customers. A major portion of share of food market are captured by existing firms like Tesco, ASDA, Sainbury`s and Morrison. If any new entrants want to compete this industry, they have to provide customers with high quality at very low price (Special Issue of Strategic Organization: “Strategic Management Theory and Universities”, 2015).

Intensity of rivalry– The food retail market is characterized by extreme competition. Tesco competes with some global firms such as ASDA, Morrison’s, Sainsbury`s, Wait store as well as lots of local convenience store. The competitive dynamics is played over price, quality, and promotional efforts and so on (Businesscasestudies.co.uk, 2015).

Bargaining power of buyers– As the food retail market is characterized by slow cycle market and extreme competition, the buying power of buyers in always high. All the firm operates in food retail market provides relatively low diversified product so switching cost is very low. Low switch cost make customers more powerful (Retail Week, 2013).

Bargaining power of Suppliers– As it is a slow cycle market and each firm can retain their market share, the suppliers process little bargaining power. Usually the firms operating in this industry maintain long term relationship with competitors and engaged them in value chain to improve their quality of product (Businesscasestudies.co.uk, 2015).

Micro environment analysis of Tesco- The Micro environment where Tesco operates is analyzed through SWOT analysis.

Strengths- Tesco has lots of advantages to achieve leading position in market. Some advantages of Tesco mentioned below.

Weakness- Some weakness of Tesco is mentioned below-

1. It is the third largest grocery retail chain in the world and has achieved almost 30% market share in UK retail food market.
2. It has strong brand value and lots of loyal customers all over the world.
3. It has diversified resource base.
4. Advance data base to facilitate knowledge management system.
5. Computerized order processing system for just in time delivery.
6. Have the ability to track the demand of customers internationally and flexibility to adapt with change in demand both globally and locally.
7. Strong Liquidity position.

Opportunities- Tesco has lots of opportunities to attain greater market share and low cost leadership. Some opportunities for Tesco is given below

1. The brand awareness in Asian market is low because the products has not been popularized yet in Asian market.
2. As the market is characterized by high competition, low switching cost, price elasticity of demand is very high.
3. This firm is over dependent on UK market to finance its Asian and USA market.

Threats– Some threats for Tesco is mentioned below-

1. Tesco has lots of opportunities for expansion in Asian market and African market. There are lot of countries where no retail global super store are entered.
2. It can expand its business in Asian market through franchise and licensing because in developing countries numerous organization are capable of operating its business. Such types of entry strategy reduce the risk of Tesco.
3. The usage of internet has been rapidly increasing in Asian market. Tesco can take advantage from this opportunities to exploit core competencies and competitive advantages (Igd.com, 2015)

2. A critical analysis of the competences and the resources of the firm’s internal environment

1. Economic restructuring policy of different countries focus on contraction of consumer expenditure may affect the operation of Tesco.
2. Difference between cultures, life style, preferences may make business operation more complex.
3. The possibility of Strategic alliance between competitors is a big threat for Tesco in Asian market (Euromonitor.com, 2015)

The components of internal environment analysis lead to competitive advantage and strategic competitiveness. When firm`s resources and capabilities are valuable, rare, costly to imitate and non substitutable it provide firm core competencies and strategic competitiveness (Kaplan and Norton, 2001). A critical analysis on Tesco`s internal environment is given below.

Vision of Tesco- Vision is the statement that describes what an organization seek to achieve and where an organization wants to go (Sadler, 2003). The vision statement of Tesco is composed of five elements (Businessteacher.org.uk, 2015).

Objectives of Tesco- Business objectives are detailed plans and actions to attain desired aim or vision (Saloner, Shepard and Podolny, 2001). The business objectives of Tesco are given below.

1. Introduce modern, innovative products and services regularly.
2. Expand business by exploiting full of opportunities.
3. Wanted and needed around the world.
4. Winners locally whilst applying skill globally.
5. Achieve loyalty and trust of both internal and external customers.

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1. To delight customers with high quality products and services at a reasonable prices.
2. Deliver products and services in such way that Customer`s expectation not only fulfil but also exceeded.
3. Delivered products to the customers on specified time through installing JIT.
4. To earn customer loyalty.
5. Satisfy customers better way than that of competitors.
6. Increasing brand awareness in newly entered market through excessive advertisement.
7. Employ better technology to serve customers better than that of competitors (Tesco plc, 2015)

Resources of Tesco– Resources are inputs into a firm`s production process. Business resources includes human, financial, physical, knowledge factors that provide a firm the means to perform its business process. Resources cover a spectrum of individual, social and organizational phenomena (Tracy, n.d.). Tesco is the leading retain chain that operates globally. Tesco has more than 470000 human resources globally. The human resources of Tesco are sufficiently trained and competent enough to perform their jobs. Tesco follow resource based approach and it has enough financial resources. In 2014-15 the total profit of Tesco in UK market is £2,980 million. Tesco has a strong knowledge management system. It stores all types of intellectual property and necessary information in organizational data base that help managers to take right decisions. Besides Tesco has lots of tangible assets such as machinery, furniture, vehicles, equipment, inventory, stock and intangible assets such as patents, trade mark, goodwill, brand image, etc (Tesco plc, 2015).

Capabilities of Tesco- Capabilities refers to the capacity to perform a particular task, function or activity (Williams, 2009). Capabilities refer to the power to integrate individual firm resources to achieve desired objectives (Worthington and Britton, 2000). Tesco implies two types of capabilities. These are dynamic and strategic capabilities. Organizational processes and procedures, factors of production and core competencies are dynamic capabilities of tesco. Tesco have different strategic capabilities such as capabilities of differentiation, good relation with suppliers, and control over different parts of value chain (Dudovskiy, 2014).

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3. An evaluation on the outcomes that show the sources of the firm’s current competitive advantage.

Competitive advantage refers to the capabilities that allow the firm to provide same value to the customers at a lower price than that of competitors or set higher price through differentiation to earn more profit. An organization can gain competitive advantage over its competitors by matching its core competencies with opportunities (Eshun, 2009). Tesco gains competitive advantage over its competitors several ways as its resources and capabilities are rare and non imitable and non-substitutable .

Price and promotion– Tesco provides its products at a low price because of its low cost leadership. Tesco build a long term and partnering relationship with its suppliers that helps Tesco to achieve low cost leadership and gain competitive advantage over its firm (Interactive, 2015).

Use of sophisticated technology – The online order processing system use sophisticated technology such as intelligent scale, radio frequency identification, electronic shelf labeling, self check-out machine, wireless devices. The usage of such technologies give competitive advantages (Makos et al., 2014).

Economics of scales- Tesco produces a large quantity of product that reduces cost per unit and help firm to achieve competitive advantage over its competitors.

Non-imitable value chain- Tesco builds a value chain through the combination of partnering relationship of more than 4000 suppliers, 3500 stores in Eupore and 48000 supporting people. Such type of value chain is almost impossible to imitate. This value chain is a major source of competitive advantage for Tesco (MBA Skool-Study.Learn.Share., 2015).

4. Strategic recommendations that allow the organisation to adjust/ re- invent or develop a new competitive position that takes advantage of current/potential opportunities and shield it against current/potential threats.

Competitive advantage cannot be sustained over a long period of time. Competitive advantage can be eliminated by dramatic technological changes, imitation by competitors and other reasons (Baye, 2000). Here we provide some strategic recommendation for Tesco to sustain their competitive advantage.

Conclusions

1. Tesco should focus on differentiation strategy. It should continuously differentiate its product to retain its customers. Differentiated product provides value with unique features and value characteristics.
2. It should increase its product line. When it increases it product lines and business units, its business will be more diversified. This initiative reduces the dependency on food items and grocery items for revenue.
3. Tesco should expand its business in Asian market and African market because these markets are characterized by low competition. Few local super stores are operates their business in Asian and African market and no Global super store has not yet enter these markets. So, Tesco can enjoy the first comer advantage.
4. For European market Tesco should form strategic alliance with ASDA to compete with other competitors and achieve greater market share.
5. Merger is a potential opportunities for tesco in developing world with local super store.

The assignment adds a lot of value to me. I have understood how to analyze external environment and internal environment, how to analyze resource and capabilities of firms, how a firm uses resources and capabilities to exploit core competencies and competitive advantage in real business world.

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