Executive Summary:

Among world’s largest retail company Tesco is one of the most successful company which is operating its business in 14 nations employing more than 490000 people. Tesco has a revenue of 54bn GBP and operates 4331 stores around globe which has more than millions of customer visiting weekly (Tesco financial report, 2011). These retail giant was first started 1919 by Jack Cohen who had a stall in east London and used to sell groceries. He sold Tesco tea which was his first own branded product in 1920 and it was named with the initials of his tea supplier Mr. T E Stockwell and his own surname Cohen which together brought the famous name of retail industry now TESCO. Jack went to USA and saw the self service retail store and had a plan to start something like this, so he had lobbing with the parliament and managed to pass the retail price marketing law by which a retailer could set his own price for any product, so with the benefit of the retail price maintenance strategy he started his first self service supermarket in 1956 and from then no one could stop the growth of TESCO, now TESCO has seven categories of retail stores, bank, telecom, petrol stations and gas station, film making, record label, gold exchange ,Tesco tire, technological support etc companies running successfully all over UK and around the globe. At present in 2011 Tesco has revenue of 9192 million gbp in Europe 10278 million gbp in Asia with 2082 stores in Europe and 1419 stores in Asia; it also has a franchise agreement with the Trent (Tata group) in India for supporting their Star Bazaar format ( History, Tesco 2011 ).

Vision of TESCO PLC:

Tesco is a business which has been built with tremendous valuable assets of customers, highly motivated employees and several modes of opportunities. So the management of Tesco just continues the growth of the business along with some changes in the strategy for the business as Tesco has always believed “As customer change, So must Tesco” The CEO, Philip Clarke has proposed the vision statement of Tesco in march 2011(Chief Executive’s Review, Tesco 2011), the new CEO confirms that there will be no major change in the business and the core purpose. His visions for Tesco are:

To be the most valued business across the globe. Tesco want to be highly regarded and esteemed by the customers, the people of the community they serve, the employees who puts their loyal efforts for the company, and most importantly the shareholders.

Win locally by applying the skills globally. The CEO feels retailing is more like a local operation so the skills are to be utilized in all the business that Tesco operates so that the customers gets benefitted and Tesco also gains a competitive advantage around the world.

To be an Innovative and a Modern company. Tesco wants to be the most innovative company by adopting all the changes for the customers and give the customer a better and convenient service in all of their business. Online retailing and green retailing are one of the few movements for this initiative.

Growth Company. Tesco wants to remain as a growing company and wants to continue its growth in UK and all over the world the way it is now. As per the final annual report of 2011 it has been identified that two third of the profit comes from the market based outside UK.

Corporate objective of Tesco: To deliver customers with the most value for money and providing the cheapest

price possible for any product. Fulfilling customer demands by obtaining and acting on the suggestions for the

innovation, product trait, store facilities and customer service. Ensuring better return to the stakeholders by efficient investment on the profit

making stores and supply chain, in productivity and improvement of technological features.

Build a close relationship with the distribution channel and the suppliers so that there can be a long term business relationship with quality product and competitive pricing.

To be an integral part of the nation’s food industry policy such as health, hygiene, safety and animal welfare.

Supporting the communing by doing welfare to the community people and protecting the environment.(Corporate Information, Tesco 2011) PESTEL Analysis of Tesco Plc:The PESTEL analysis below reflects the environment in which Tesco operates it business and it establishes the factors on which they have to most effect on the performance of Tesco.Political: Tesco operates its business in the environment which has the most impact of globalization, it now operate its business in many European and Asian countries. To operate its business in such different countries it has to follow many legislative and political binding and framework which affects the performance of Tesco. The employment legislation allows the government to encourage retailer in providing jobs to mix of people with flexible hour, higher paid, centrally located

(Balchin, 1994). Also for meeting the population need it provides jobs to the disabled, students with low wages.After WTO allowed the free flow of foreign trade in china Tesco developed their first business venture in china (Straits Times, 2010). When the free trading bloc by European government was promoted on 2003 Tesco spread their business in 10 more European countries. This decision by the government has allowed Tesco to perform and operate its business retailing network across Europe. Economic: Economic condition of the country in which Tesco operates is well connected to the way in which Tesco determines its business strategies and implements them so that the company does not face any loss for the consequences. Buying behavior of a country changes when there is any economic recession or deficiencies, like in 2008 UK’s economy was disturbed and declared officially under recession (Euromonitor 2010), so the rate of unemployment were high and people did not spend much of high valued items and food, ready meal items and eating out habits came down and people tend to cook at home more as it was much cheaper (Guardian, 2010). So in that way the sale of grocery were high on Tesco. Tesco is highly depending on the UK market so if the economic condition of UK is affected than Tesco will be badly hampered in its operation.Socio-Cultural: The social and cultural behavior of the community around which Tesco operates are also well connected with its operation, now a days the British people tends to shop on one stop bulk shopping malls where the buyer gets all the things which he/she requires. So Tesco has been concentrating more on one stop store this days and it has increased its non food items available for sale around the stores. The demographic profile of the community is also well related to the business as in UK the rate of older people are very high and they tend to eat less and visit supermarket less than the younger generation, the use of online shopping and deliveries are also not well accepted by them as they internet literacy drops after the age of 65 in UK. So such business initiative is being expensive and is considered less effectiveTechnological: One of the major macro-environmental factor with which the supply chain, operation, production etc are directly been influenced and developed is technology. The use of online retail shopping has been increased in last few years. As the percentage of people using internet has increased in very vast number e shopping, distribution system, banking and cash dealing with in the store have developed a lot. Innovative programme like loyalty has managed to keep the existing customer happy and for long term by providing them with some

extra value for everything they buy. Use of mobile technology to buy wine from Tesco has also gathered a huge response and people tend to like the programme a lot. Tesco uses technologies like wireless device, intelligent scale, self check out machines, ATM, Radio frequency identification in the store to provide customer with better shopping experience.Environmental: Tesco always promotes using reusable bag to their customer so that the environment is no affected. The number of people using reusable bag has been increased to 74% from 71 % in 2010.Tesco adds carbon footprint data in its grocery items. It has also started a programme which is called greener Living scheme in which they give advice to people about environmental issues and how to cut down food waste and carbon footprint during cooking.Legal: The VAT was increased to 20% to finance the deficit in the economy, these rise in VAT tends to hamper the sale of non food items of Tesco like clothing. The low pay commission report in 2009 resulted in the increase in the minimum wage by 15.5%, such increase in the operational cost would bring the store cost high affecting the prices of the product directly or indirectly.

Porter’s five forces analysis

Threat of Substitutes: The threat of substitute for grocery retailing is very low as Tesco offers a very high quality products in very cheap price compared to the other stores (Financial times, 2009). The major threats like corner shops, off license shops are now not seen as a threat to Tesco as it now operates express shops with in the cities and towns which are creating a huge hurdle for the other stores. However the non food items like clothing, technology etc are in big threat as there is a recession in the economy and people now tend to shop in discounted specialty shops for those items.Threat of new entrants: Tesco has build a very strong brand image in its own and companies like Sainsbury’s, Asda, Morrison and Tesco has already captured nearly more than 80% of the UK grocery shopping( Mintel,2010). So to be a threat to Tesco a new company needs a huge investment to beat the price of Tesco and become competitive. The risk of new entrants is very low for Tesco as because of the capital needed to establish such competitive price like Tesco, create e brand image and many other issues like authorization from the government and other legal issues take a lot of time to establish a new company.

Intensity of the competitors: Tesco has a huge competitive market in retail with the other retail giants like Sainsbury’s, Asda, and Morrison. Price of products, different promotion, offers, facilities and shop location in cities and towns are the issue on which they compete with each other. It has been seen that in last one year in 2009-2010 there has been just .3% to .5% growth in all the retail giant which is not very high which means there is an intense competition going between all the retail giants, which is very dangerous for Tesco (Euromonitor, 2010). Companies like Co-op and Summerfield has located some stores in the prime locations of the small towns and medium sized localities which attracts customers who don’t prefer going far enough to Tesco. Many discount shops like Lidl, Aidi has captured a huge response of the customers in the recession period by their competitive pricing (Keynote 2010). So the intensity of competition in retail is high for Tesco. Bargaining power of buyers: It has been seen that the buyers enjoy the freedom of bargaining power in case of retail industry. Buyers tend to move to that company which provides the grocery products in cheaper price. The wave of online shopping has given the customer greater opportunities for comparing price of each of the product from different brands online which has created a greater competition within the market.Bargaining power of suppliers: In case of suppliers the bargaining power is pretty low as the entire suppliers tends to do business with the major grocery retailer, they would always like to stay with the brands by satisfying the need of the company in context to price and quality. So the position of giant retailers like Sainsbury, Tesco, and Asda are quite strong and the risk of losing suppliers are faint.

SWOT Analysis:

Strength: The biggest strength of Tesco is its huge market share in the grocery market of UK, which is now nearly 14%.It made a trading profit of 2.5bn gbp last year 2010 which was 3.8% higher than their previous year (Tesco Financial Report, 2011).The profit which are earned by Tesco n the basis of their investment are also a major factor of their strength. The brand value which they have created by providing with quality product in most valued price is a big asset for Tesco’s business operation. Tesco now has the world’s most biggest online supermarket which sales over 580 million gbp per year and it had a 15.2% growth

of sales in last year 2010.Tesco insurance has been claimed as the most fastest growing insurance company as their motor insurance, pet insurance market has shown a very positive response and has already sold over million car insurance policies (ivory research 2011). These factors are the strength and the strong points of Tesco.

Weakness: Tesco being a giant retailer does not have much of weakness in them but as being a UK market dependent retailer the company might have problems in future if there is any major change in U.K supermarket industry (Ivory Research 2011) but as the company is doing very well in UK so it is not their main weakness. Tesco has big amount of investment for their infrastructure and new stores and services they open, so the debt of the company is also pretty high. The company is always growing and due to such expenditure and debt it is always left over with very little cash for other operations.Opportunities: It has a huge opportunity for non food retail as like they have already proved for the food retailing. Non food items like clothing sector has really shown very good potential in international market. Tesco’s clothing brand FnF has become famous in many European countries they operate. Banking and insurance companies of Tesco are also doing very well and it’s been noted that the insurance company has hit the million mile stone for their motorcar insurance. Tesco telecom has also a very good popularity and can grow to be a very big telecom company in future.Threat: There has been a global financial crisis going on which also affected the UK market and the economy of the country has been hampered. As Tesco has a very big market share and depends a lot on UK market the shrink in the market will affect Tesco too, hence reducing the revenue of Tesco. Unemployment has been a major problem in UK last few years and due to that buying power of people in UK has decreased and companies like Tesco are and will be affected if it continues further more. Riots which happened last month many companies in UK had a great loss; this is also a very big threat for Tesco. The intense competition from ASDA, Sainsbury’s are also a very big threat to Tesco as those companies are also growing well and has very similar market share like Tesco.Strategy Formulation: As the strategic analysis of the company has been done, business strategy can be formulated. Some steps for strategy formulations are

Targeting the mission and vision of the company, this will depict the future pathway of the company.

Setting up goals for the strategy Identifying several strategic options Evaluating and confirming a new strategy for the company

Tesco has a seven part strategy which aims:

1. To grow the UK core2. To be an outstanding international retailer in stores and online3. To be as strong in everything we sell as we are in food4. To grow retail services in all our markets5. To put our responsibilities to the communities we serve at the heart of what we do6. To be a creator of highly valued brands7. To build our team so that we create more value (Tesco plc 2011)

It has been noticed that the Tesco Plc has the aim of expanding their business worldwide everywhere. So such strategic option has to be formulated to meet the company’s vision and strategy aims. Some of the factors which are to be notified while making the strategic option for Tesco Plc are

Competitive Strategy: The competitive advantage of Tesco: Tesco in comparison to its competitor holds a very good position and the SWOT analysis of Tesco depicted the clear picture of the competitive advantage that Tesco enjoys in its business operation.

Strategy Direction: Tesco has a huge market which Tesco has not yet covered. Market like Germany, France, and Switzerland has not been explored by Tesco yet. Tesco can also bring a very big change in the retail industry of Asia by making a big move in Asia and creating a very big impact.

Methods of perusing the strategy: The team which Tesco has can achieve any strategy if it wants to. So Tesco has a very well maintained business and work force which can adopt any strategic changes and implement them very fluently.

Three future strategies for Tesco Plc under one strategy AAA Triangle:The foremost aim of an international strategy is to manage the differences that arise in business operations across the borders, Mr. Pankaj Ghemawat professor

of IESE in his latest Harvard business review article has come up with an strategy which will meet the challenges of globalization ( Ghemawat 2007),. The strategy is called as AAA triangle, the AAA stands for

Adaptation: In this approach companies intend to raise the revenue and market share by increasing their local relevance.

Aggregation: Companies boost their economies by creating regional and even global operation.

Arbitrage: Companies makes the national and regional market very well distributed, sometimes companies locates there different supply chain in different regions to gain the competitive pricing strategy, like call centre in India or factories in china (T Magazine 2011)

It works as a strategy map for the managers, by investigating the sector on which the expenditure has been made most can indicate which strategy is the company ought to follow, like if a company is spending a lot in advertising then adaptation is very important for the company right at that moment, if it spends in R&D than aggregation is important to the company and if the company uses a lot of money for the labor than arbitrage is the strategy that the company would opt for.

Adaptation Aggregation ArbitrageCompetitive AdvantageWhy Tesco should to globalize their business?

To flourish local Business operation more effectively by exploiting the local market.

Global operation which will result business operation across the world boosting the company’s revenue.

To maintain international standard by delivering standardized product and service in a very economic way.

ConfigurationWhere should Tesco plc locate their business in overseas?

Company like Tesco can operate business all over the world just by acting local, which Tesco is already doing.

For Tesco it can follow just like adaptation.

Tesco already does this in small sector in few of their products. But Tesco can so a wide spread in this.

ControlsWhat types of extremes should Tesco needs to watch?

In is complex but Tesco implements this and they have got

Tesco can do excessive standardization with emphasis scale

Tesco can do narrowing spreads

significant result in UK as being the top retailer in the country.

Change BlockersThe authority that Tesco should watch out for internally?

CEO of Tesco UK and the respective country.

The top management of Tesco who are responsible for decision making and important head of the departments are required to share their data and their participation is required.

Head of the keep departments and their functions.

Corporate DiplomacyThe external issue which Tesco should keep account of

Tesco should have a very extensive info about the local people about their test preference and their buying power by doing survey and collecting primary data.

Tesco can avoid the appearance of homogenization and hegemony which happens when a company operates internationally unlike US companies.

The supply chain of Tesco can be exploited by addressing it to the suppliers and this is most prone to political disruption.

Corporate strategyWhat strategic leavers does Tesco have?

Tesco for implementing the new strategy can apply the following levers:

Scope selection, variation, flexibility, recombination and innovation

To implement the aggregation strategy Tesco can do the following things:Grouping of other countries and regions, Products or business, function, platform, competence.

To implement this strategy Tesco should to do the following things very carefully :Country of origin effects, Administrative(taxes, rules, security), Geographic (distance, climate), Economic(prices, resources, knowledge)

Source: Ghemawat, (2007), p.61, Managing Differences the Central Challenge of Global

Strategy, Harvard Business Review, March Issue.

The best and the most suitable strategy for Tesco Plc now is AAA triangle Arbitrage strategy.

The reason behind choosing this strategy is Tesco Plc has already made a great impact on the

native country U.K and is now the most successful retail company in the country; it also operates

its business in 14 markets across Europe, Asia and North America. So Tesco is growing well and

expanding their business very efficiently. As Tesco is growing heavily the cost of its expansion

and its operating cost is going high every year on regards to which the level of profit goes down.

So to keep the operating cost and the cost of good lower Tesco should adopt the strategy

Arbitrage by which Tesco can spread their supply chain worldwide to minimize their cost. Many

goods that Tesco sells in its stores can be produced in countries where the labor cost is low and

Tesco can also get the raw material for making these goods from those countries where the cost

of the raw material is cheap with regards to the quality required. Tesco has used this strategy in

their clothing sector where they mostly get their goods produced from countries like Bangladesh,

India, Pakistan, china etc where the cost of labor is cheap and popular for making garments.

Tesco should use this strategy as much as they can to cut down their prices and get more market

competitive and increase their profit share.

To Implement AAA triangle Arbitrage strategy, Tesco needs some major resources and

information’s some of it are:

Finance and monetary resources: For implementing any strategy it needs a big amount of

money, which in the beginning of the investment is always a big issue. In this situation the

company has to budget a fund for implementing the strategy. The budget for this can be done by

various ways and by the financial experts present in Tesco. There has been a profit of 3.7 billion

pounds as per the annual report and financial statement 2011, so Tesco has enough funds to

invest for the implementation of strategy (Tesco financial report, 2011).

Physical resources: Physical resources are assets which the company bears like for e.g.

Building, land, plant, car, machinery, etc. To implement the strategy Tesco needs to utilize these

resources. As Tesco already operate their business in many countries internationally in Europe,

Asia Tesco already has a huge physical resource and can easily use them for implementing this

strategy.

Human Resources: the most important resource which is required to make this strategy

implemented is people. It needs creative, fearless and hard working executives. The company has

492714 employees working world wide. So the human resource team should train and improve

the performance and create a sense of willingness to the ability of change among the employees.

Technological Resource and Geographical information of different countries: Tesco uses

the most advanced technology for retailing industry to make the work easier and efficient. Better

connectivity with different countries regarding supply chain and to keep a track of the

positioning of the supply chain technological advancement can be used. So that the goods are

reached in the correct places at the correct time. Geographical information of different countries

and their natural resources and their economic strength are to be analyzed so that the resources

can be exploited and the strategy can be implemented successfully.

Outline time table:

The strategy of implementing the outline time table is knows as grant chart .By the help of this

chart we can identify the amount of time spent and required for implementing the strategy.

Tesco’s grant chart for implementing the new strategy is given as below:

Task Duration Jan Feb Mar Apr May Jun Jul Au Sep Oct Nov Dec

To set g

Financial 2 month

Physical 3 months

Human 4 months

Technolo

gical

3 months

The duration which will be required to implementing this strategy for Tesco will be one year.

The four specific tasks are distributed along with definite time frame in the grant chart which

will help the Tesco personnel to implement the strategy.

Conclusion

Tesco is operating its business in UK and around the world over the years now. It has been

successful in its expansion and growth all this years. The growing nature of the company intends

to build up debt of the company so which might be responsible for its rise in price of the

products if there is any economic deficiencies in the country. So to control the price of the

products and for much economic operation of the business Tesco must follow the AAA triangle

arbitrage strategy. This strategy is suitable for companies which want to gain competitive

advantage by utilizing the economic labor market around the world and building an economic

and efficient supply chain. Therefore the company can take attempt to implement arbitrage

strategy.