Category: Tesco

Overall aims and objectives

This research shall attempt to develop a clear comprehension of expansion in foreign markets by making use of the example of Tesco. The research shall specifically consider the obstructions and difficulties that an organization faces when it considers expansion.

This thorough understanding shall be developed by making use of analysis instruments such as the SWOT analysis to judge the companys internal and external standing as well as the use of Porters five forces to evaluate the standing of the company in a foreign industry as compared to the standing of the company in its native region.

The research shall also take into account the role and relevance of mergers and acquisitions as they come forth for an organization when it is considering expansion. Furthermore, marketing strategies, macroeconomic instabilities and the relevance of corporate social responsibility shall also be accounted for in the research. As a result of this analysis, the study will serve to form a clear comprehension of the intricacies of expansion. The final result shall serve as the establishment of a set of variables that should be considered by an organization when considering expansion. However, it is of the utmost importance to note that the frame of reference that the research shall make use of shall be one that shall be focused on multinational corporations and the findings therefore may not necessarily be applicable to organizations of a smaller size.

Special consideration shall be given to the areas of economies of scale, labour market trends, distribution difficulties and the presence of oligopolies in the market within which expansion is being considered. Competitors in the retail industry shall also be considered for their role in the dictation of market trends as well as their relevance when considered in light of the expansion. Also, it would be unfair to carry out a research concerning the intricacies of expansion and considering the role of the competitors without considering the role of the stakeholders as well. Similarly, the development of an expanded value chain shall also be covered in the research in order to acquire a thorough and practical understanding of the intricacies of expansion.

During the course of the research, the following questions shall be taken to be of primary relevance

• Why and when should a company consider expansion?
• What are the implications of an expansion on the mission, vision and goals of a company?
• What benefits can Tesco derive from an expansion in the US?
• How does an expansion such as Tescos into the US affect the US market?
• How shall marketing and branding strategies have to be adapted in order to suit the US market?
• What implications does the expansion have on the industry?
• How does corporate social responsibility fit into an expansion such as that of Tescos into the US?

Even though the research shall give special consideration to the questions presented above, it is important to note that neither the analysis nor the scope of the dissertation shall be limited by them, particularly in the exploratory analysis of the research.

Literature review

It was in 1919 that Tesco first came into being when Jack Cohen began his business by attempting to selling surplus groceries. The area was of East London and Jack named his business, Tesco, which back then, was known for selling Tesco Tea. As the years went by, Tesco developed to sell far more products than Tesco Tea and eventually expanded not only its portfolio but also its regional distribution (Johnson, Scholes and Whittington 2005, p. 380). The expansion allowed Tesco to enter different industries. Through the decades, Tesco has not expanded to over two thousand stores functioning in over fifteen countries across the globe. The expansion was brought about as a result of a business strategy that was based on numerous joint ventures and acquisitions (Humby, Hunt and Phillips 2007, p. 231). In the United Kingdom alone, Tesco stores count over a hundred and fifty with revenues being well over three billion pounds.

The modern day Tesco has expanded eons beyond tea and now provides consumers with financial services, car insurance services and other services (Sandler 2009). The expansion being carried out by Tesco is one that is of a global nature. Tescos first ever stepping into the US was with the Fresh and Easy that was launched in 2007 (Finch and Teather 2006). As of now, Tesco has nearly one hundred and fifty stores in the US and has based itself in California in the region.

Tescos expansion is not one that comes out of the blue or as a result of a sudden change of management. Rather, it comes forth as a result of nearly two decades of market research into the American consumer market and the American consumer. Once can surmise from this fact that there are a number of possibilities that may exist in this regard. Either Tesco has judged the US market as one where increased competition leaves no room for errors and therefore has to be fully mastered before penetration; or the US market is one into which Tesco is too hesitant from entering on account of decreased interest (Peppers and Rogers 2004, p. 464). However, from the apparent condition of competition, chances are that the former holds true and the increased competition posed by strong players in the American supermarket industry serves to make penetration in the American market a highly tedious task.

Also, considering the fact that the action under question is an expansion in a foreign market, it is important to note that there is a considerable degree of complication caused by the trends that a company follows in its native market and those that is has to follow in an external market into which it expands. It would therefore be reasonable to surmise that there is no evidence that Tescos strategy in the UK shall prove to be just as successful if it is applied in the US. Acquiring market share can come across as a far more complicated task when put into play (Duff 2006). This is because of the fact that the American market has evolved to a point where the consumer is highly educated in terms of the choices available to the consumer and companies are giving an increased degree of attention to the retention of consumers which is serving as a higher entry barrier for new entrants.

The recent economic occurrences that have occurred on a global scale have made it all the more tedious for companies to enter into markets (Miller 2007). However, it has also made it all the more difficult for them to carry out consumer retention measures and this serves to reinstate the entry barriers to the same level at which they were before the economic recession hit (Clark 2009). Nonetheless, the recession has made it all the more difficult to carry out value chain development and expansion into an economy that has been hit severely as a result of the recession can make it excessively difficult to set up distribution networks and establish favourable relationships with the suppliers. Elements such as space rent, supplier coordination, distribution networking, franchising and the like have become more complicated now than they ever were before and companies find that increased attention towards these elements has left them with little time and resources to concentrate on the countering of cultural and regional differences (France 24 2009).

It is of the utmost importance to note, that in Tescos case in particular, the expansion into the US market is one that is very different for a company such as Tesco. Tesco became acclaimed for its expansion in the last two decades but was accustomed to expansion in developing countries in Asian and European regions (Finch and Teather 2006). However, the move to expand into the US is one that is of a comparatively different nature for Tesco since the American market is one that is well developed and where it is all the more difficult to carry out market penetration operations.

Another highly important aspect that merits highlighting is the fact that an expansion in time such as these cannot be carried out without expecting any retaliation from competitors in the area into which the expansion has occurred (Duncan 2008). The implementation of a defence strategy is inevitable by key competitors in the region into which a company such as Tesco has expanded and it is for the same reason that it is highly imperative for the expanding company to anticipate such actions. In essence, defence strategies come into play when a new entrant enters the market or when an already present competitor engages aggressive activities to capture market share through expansion in product lines, ranges or by simply expanding geographically. It is evident from this brief discussion that there are countless variables that come into play when a company chooses to expand. In essence, expansion on the part of one company may very well lead to implications on not only players in the immediate market but upon the very market in a larger sense as well.

Methodology

The establishment of a methodology for a research is perhaps the most crucial element of any research (Kumar 2008, p. 20). This is because of the fact that the research methodology has direct implications on the findings of the research (Ketchen and Bergh 2006, p. 374). The research methodology serves to highlight key elements in the research approach and serves to determine the scope and the vastness of the research (Kothari 2008, p. 1). It is therefore imperative to develop the research methodology well before the implementation of the actual research and any interaction with data that could influence the findings (Goddard and Melville 2004, p. 8).

The research methodology shall incorporate perhaps the most integral part of the research (Taylor, Sinha and Ghosal 2006, p. 1). Since it shall allow the research to establish a concrete and comprehensive directive during the course of the study, there is little doubt that the research methodology shall serve as the key determinant of the authenticity of the findings upon which the research shall come to a conclusion. It is for the same reason that the research methodology shall be elaborated upon in detail in the actual research. However, for the sake of establishing a clear comprehension of the research methodology, the following paragraphs shall present a preface to the fundamental elements that the research methodology shall constitute.

The research methodology shall be established only after due consideration has been given to the research approaches available; after which the one that comes across as most adequate for the research shall be followed without compromise during the course of the study. The research methodology shall not only include the selection of the sources of the data but shall also incorporate special consideration to the nature of the sources of information, the collection of the data and the analysis techniques that the findings shall be subjected to.

Special consideration shall be given to the potential limitations and constrictions that the research can encounter and the limitations posed by each of the selected data sources shall be identified in advance in the research in order to prevent letting them have an influence on the findings of the research. The research methodology will also provide a detailed understanding of the data collection and data analysis methods along with exploratory discussions on any techniques and tools that the research intends to bring into use during the course of the study. It is extremely important to highlight at this point that the research methodology shall also incorporate an analysis of former researches performed with regard to the research methodology adopted by this specific research in order to validate and justify the approach being adopted for the study.

Data collection

The data collection shall be carried out by incorporating a combination of primary and secondary sources. The primary and secondary sources shall be brought into use only after a clear and concrete threshold has been established to ascertain that the sources used qualify for their authenticity and legitimacy.

Data from primary and secondary sources shall be collected at differing stages during the research in order to ensure that a considerable degree of differentiation between the data can be maintained. This differentiation will be brought into use in later stages of the analysis of the data.

The data collected from the primary source shall be one that shall serve to provide a clear and insight into the current and most recent trends with respect to the research questions. Furthermore, the perspectives adopted during the course of the collection of information and the selection of the information shall be developed in line with the research questions considered. It is therefore safe to assume that the research questions shall have a considerable degree of influence on the gist of the research methodology adopted.

The data collected secondary source shall provide a descriptive context to the research and shall attempt to provide a comprehensive review of the variables of the study. The secondary data shall be fundamentally meant to provide the research with a ground work to build on and shall constitute exploratory discussions. The secondary research therefore, shall serve as a foundation upon which the data from the primary research shall build inferences. The secondary research shall also be brought into use to identify key variables and key elements pertaining to the subject of the research so that the findings of the primary research can be compared and contrasted with the body of knowledge that is already available on the subject.

During data collection, special consideration shall be given to the role of the limitations that can have potential implications on the data as it is being collected. For instance, the development of a faulty question that has multiple meanings may cause different respondents to respond to the very same question in differing frames of references, which would in turn jeopardize the research findings and the conclusions.

Data collection shall be performed with complete regard to ethical principles and in the event that any respondents are brought into use, the information acquired shall be used for the singular purpose of research. Furthermore, the data collection shall be carried out in a manner so that complications in the data are reduced to a bare minimum through cross examination and analysis for verification of the authenticity of the data acquired.

Data analysis

Once a concrete research methodology has been established and the data has been collected, perhaps the most pivotal element is the analysis of the data to derive findings and inferences from the data. A data set that is incorrectly analyzed may cause the findings to be far from legitimate and authentic and may eventually compromise the entire study and its validity. A data analysis generally includes a thorough examination of the data that is not only directed towards the determination of the validity of the data but is primarily aimed at deciphering the data for underlying patterns and relationships between the variables for which the data has been collected.

The data analysis shall be carried out in accordance and adherence to standardized methods of analysis. Depending on the research methodology adopted and the research approaches that the research incorporates, the analysis technique shall be established as one that is compatible with the research variables.

In order to ensure accuracy and reduce complexity, the data analysis shall be divided into two sections. The first section shall present the findings of the implementation of the strategy. The findings shall be presented and shall be discussed upon for their trends and contrasts. The discussions on the findings shall then be brought into use to develop inferences. These inferences shall then be compared to trends and relationships between the data that is already available on the subject. In this manner, the data analysis shall be carried out as a complete and systematic process.

During the course of the presentation of the findings, the data shall be fashioned into the form of a model so that it can be analyzed coherently. The development of this model shall incorporate the development of tables and figures that reflect upon cause and effect relationships between the variables for which the data has been acquired.

It would not be unjust to expect the analysis to make use of techniques meant to bring the data into a coordinated form. In fact, the development of the data into a systematic and sensible form shall be one of the most important parts of the data analysis. The data analysis shall also serve as the point from where the exploratory elements of the research come to a halt and following which the research begins to converge towards its conclusions through inferences and deductions.

The data analysis shall serve as a platform from which the research shall draw inferences. It is important to note that the analysis shall be limited to the presentation of the intricacies of the trends and relationships of the data. These trends and relationships in the data shall then be brought into use to develop inferences that shall constitute the conclusion of the study.

Time scale and Plan

The research shall incorporate five fundamental chapters. The first chapter shall serve as the introductory chapter and shall provide an insight in to the fundamental context of the research. The chapter shall also serve to identify the research questions and shall establish the scope of the research while serving to highlight the aims and objectives of the research. The second chapter shall constitute the literature review of the research. This section can be considered to be an expansively expanded version of the brief literature analysis presented above. The literature review shall constitute and exploratory analysis of the subject in question and shall form the groundwork for further research. The third chapter shall constitute a detailed explanation of the research methodology along with a discussion of the sources to be used and a justification of the selection of the sources. Furthermore, the research methodology shall also highlight key potential limitations and the ethical considerations that the research shall be taken into regard. Further on, the research methodology shall be implemented and the key findings shall be presented and analyzed in the fourth chapter following an elaboration of the conclusion in the fifth chapter. All key peripherals shall be presented in the appendices following the bibliography.

The submission of the dissertation shall follow the following schedule:

List of References

Clark, A. (2009) Starbucks shuts 300 more stores.

Duff, M. (2006) Tesco to make U.S. debut on West Coast. Web.

Duncan, H. (2008) Tesco under fire over US expansion. Web.

Finch, J. and Teather, D. (2006) Tesco takes plunge into tough US market.

France 24. (2009) Recession hits the US harder than expected. Web.

Goddard, W. and Melville, S. (2004) Research Methodology: An Introduction. South Africa: Juta and Company Ltd.

Humby, C., Hunt, T. and Phillips, T. (2007) Scoring points: how Tesco continues to win customer loyalty. Philadelphia: Kogan Page Publishers.

Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy. New Delhi: Pearson Education India.

Ketchen, D. J. and Bergh, D. D. (2006) Research Methodology in Strategy and Management, Volume 3. Oxford: Emerald Group Publishing.

Kothari, C. R. (2008) Research Methodology: Methods and Techniques. New Delhi: New Age International.

Kumar, R. (2008) Research Methodology. New Delhi: APH Publishing Corporation.

Miller, R. (2007) Recession Hits U.S. Profits; Economy Might Be Next. Web.

Peppers, D. and Rogers, M. (2004) Managing customer relationships: a strategic framework. New York: John Wiley and Sons

Sandler, K. (2009) 2nd UPDATE: Tesco Expansion Helps Sales Grow. Web.

Taylor, B., Sinha, G. and Ghosal, T. (2006) Research Methodology: A Guide for Researchers in Management and Social Sciences. Delhi: PHI Learning Pvt. Ltd.

Abrams, R. and Kleiner, E. (2003) The successful business plans: secrets and strategies. Palo Alto: The Planning Shop.

Basu, R. (2004) Implementing quality: a practical guide to tools and techniques: enabling the power of operational excellence. Surrey: Cengage Learning EMEA.

Campbell, D., Stonehouse, G. and Houston, B. (2002) Business strategy: an introduction. Oxford: Butterworth-Heinemann.

Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (2008) Strategic management: competitiveness and globalization: concepts and cases. Ohio: Cengage Learning.

Kotler, P. and Armstrong, G. (1991) Principles of marketing. New Delhi: Pearson Education India.

Lewis, J. P. (2004) Project Planning, Scheduling and Control. New York: Tata McGraw-Hill.

Rabb, T. K. (1999) Enterprise and empire: merchant and gentry investment in the expansion of England, 1575-1630. New York: Taylor and Francis, 1999.

Richardson, F. L. and Walker, C. R. (1977) Human relations in an expanding company. Cleveland: Ayer Publishing.

Spiers, J. W. (2001) How small business trades worldwide: your guide to starting or expanding a small business international trade company now. London: John Spiers Company.

Stapleton, J. and Thomas, M. J. (1998) How to prepare a marketing plan: a guide to reaching the consumer market. Vermont: Gower Publishing, Ltd.

Introduction

Tesco PLC (or Tesco) is an international retailer. Based in the United Kingdom, where it is the leader in the grocery retailing, the company is considered to be worlds third largest retailer in terms of gross sales. The company was originally a UK-focused retailer that specialised n food and drink but eventually it has diversified both by products and geographically.

It is now into clothing, electronics, telecoms, financial services, health, car and dental insurance as retailing and renting DVDs, and software (Tesco, 2010a).

Geographically diversification has resulted to its retailing and associated activities outside the United Kingdom including that of China, The Czech Republic, India, Japan, Malaysia, Poland Hungary, the Republic of Ireland, Slovakia, South Korea, Thailand, Turkey, and the United States (MSN, 2010a).

This paper evaluates the companys competitive environment, financial performance using ratio analysis, the corporate strategies being pursued by the company using relevant frameworks.

Discussion and Analysis

The Competitive Environment  Industry Analysis

Macro Environmental Analysis

The significant macro trends in for the past five or more years along with the telecommunication industry, and the much felt recession in the economy, not only in UK but in many parts of the world and which came about as result of the financial crisis.

The emerging trends of Internet and telecommunication have effected many changes, which can only have produced undeniable marks in business particularly in keeping the world economies running. These developments have enabled more business entities and many people as to interact to each other. Companies found themselves expanding and diversifying in not only products and services but also geographically.

These developments, believed have in fact driven business activities globally are supported by the increasing number of world internet users as by researchers. With the global online population online will grow to about more 2 billion by 2014 , or more than 40% from 1.6 billion in 2009 (Enright, 2010).

The Global financial crisis of 2008 and onwards has affected many British and American people. The US, UK and other governments needed to have bailout plans that would have to help solve the problems caused by financial crises that produced loss of many employments.

Loss of jobs means lower power of the consumers to spend and to keep the economy running (Samuelson and Nordhaus, 1992; Dornbusch, and Fischer,1990). It could also mean less trust for the financial system to encourage investors to take risks in putting once again their investments which suffered losses because also of the crisis.

Industry Analysis  Five Forces

Using the five forces model by Porter (1980) the following are the derived results. The threat of availability of product substitutes is high because retail products generally cater to basic needs and the effects of recession would cause people to look for low price products and bringing competition to more on prices and thereby affecting attractiveness of the industry.

The bargaining power of buyers is high because of the nature of the products  food, groceries, clothing  (Tesco, 2010a) and because of the low switching cost in changing brands for some products in the industry.

The intensity of rivalry by competitors as evidence by the competition for lower prices for which Tesco is known in the industry. There is also ease of entry by new entrants at to come is not requiring much capital in the retail industry. There is also a high bargaining power of suppliers since there are numerous manufacturers of consumer products in the industry.

Internal Environment Analysis

Financial Analysis

Financial analysis is constructed by comparing the overall financial situation of Tesco using ratio analysis based on its financial statements as retrieved from their Annual Report for year 2009 (Tesco, 2010b) and prior year.

The most critical for evaluation the strength of the company it is performance on whether it is profitable. Tesco appears to more profitable compared with industry average. While Tesco had a merely 4% net profit margin for 2009 as against that of competitors at 1.97 %, as represented by the industry had for the same year.

The difference becomes clearer in terms of return on assets (ROA) where the company had 5% in 2009 as against industry average of 2.13%. The same can be said on return on equity (ROE) where the company had 17% in 2009 as against industry average of 5.27%. Also using return on capital employed (ROCE), the company showed high positive ratios of 11% and 14% for the year 2009 and 2008 respectively.

The lack of available industry data for ROCE prevented the comparison with competitors. Tesco is evidently better than average competitors are when it comes to profitability. See Table A below.

Table A- Financial Ratios: Source (Tesco 2010b; Reuters.com, 2010)

As to liquidity, Tesco can be evaluated as to its strengths. If it can pay its currently maturing obligations on time then it is liquid (Helfert, 2001). The quick ratios of Tesco are 0.61 and 0.35 for the years 2009 and 2008 respective while the current asset ratios for same years are 0.76 and 0.58 the same respectively (Meigs, Meigs and Meigs, 1995).

See Table A. As against competitors or industry averages of 0.87 and 1.02 for quick ratio and current ratio, Tesco reported lower. Thus, the company is less liquid than its competitors and is therefore a weakness.

As to its gearing ratio, Tesco also showed a less superior position with its debt to equity ratio of 2.54 and 1.53 for 2009 and 2008 respectively as against industry average of 0.45. This time, the higher the ratio, the less favourable it is for the company from the point of view of an investor since it would mean more riskier investment (Helfert, 2001).

Unique characteristics of the company

By identifying unique features of the company not possessed by ordinary competitors that provide a competitive advantage, the same may also be considered as company strength. The company claims to have a consistent strategy for growth.

Using the above approach, Tesco can be considered to have strength of having consistent strategy for growth being able to outdo competitors in terms of sales and profits despite the crisis that started at the latter part of 2007 and even at present. The company is operating in many countries, which were affected by the crisis, but it was able to increase revenues and profits (Tesco 2010).

SWOT

This part in effect summarizes the discussions made in the external environment using the five-force model (Porter, 1980) and those made from internal analysis using unique company characteristics and financial analysis.

SWOT stands for strengths, weaknesses, opportunities and threats. The first two are the results of the internal environment analysis while the last two  opportunities and threats are those from the external environment analysis.

Strengths and Weaknesses

These are conditions or characteristics of the company, which could be tapped by the company in its design of its strategies. The following are the companys strengths.

Consistent strategy for Growth  (Strength)

Tesco has a well-established and consistent strategy for growth, which has allowed the company to strengthen its core UK position and attain expansion into new markets outside UK (Tesco, 2010b).

High profitability  (Strength)

The companys higher profitability than competitors is evident based on net profit margin, ROA and ROE as against industry averages. The companys efficient is also evident in terms of ROA and ROCE at the same time

Generally less liquid than industry  (Weakness)

The company is generally less liquid with current ratios and quick below 1.0 for the last two years and even as against industry averages as found in the financial analysis.

Higher leverage position than industry (Weakness)

Its debt to equity ratio is lower than its competitors. This may explain the higher stock price of the company compared with indices despite its having lower profitability than industry as earlier explained in the financial analysis.

Although the company was found to have weakness, knowledge of the same will be considered in the strategies by turning them into strengths or avoid unnecessary acts to aggravate the same so that it could accomplish its objectives.

Industry Opportunities and Threats

These are derived from Porters five forces and the macro environmental analysis

that may be favourable (hence called opportunities) or may cause decline (hence called threats) in the profitability of the company.

High availability of product substitutes ( Threat). This could decrease the chance to earn more profit as customers or buyers could switch to other products easily.

High Bargaining power of buyers  (Threat). This could aggravate the companys low profitability, as customers would need to cut their expenditures due economic pressures caused by crisis

High intensity of rivalry by competitors  (Threat). As found earlier, this forces existing player to fight for profits in terms of lower prices.

Ease of entry by new entrants  (Threat). Not requiring much capital could actually encourage more to come in easily to the retail industry.

High bargaining power of suppliers  (Threat ). There are many suppliers of the industry and giving power over retailers thus reducing the latters profitability.

Evaluation of Existing Strategies

The corporate strategies being pursued by Tesco include that of continued organic growth and diversification. It also claimed to have long-term growth strategy, as it was able to grow despite the global recession. It strategy is staying close to customers while giving them value for their money (Tesco, 2010a).

The business of the company was originally in food retailing but it has expanded to non-food as way of showing and proving its diversification strategies. It helped the company to reduce risk as a result.

To evaluate the present strategy, there is need to know whether the company follows some of the principles that may be learn from some models for strategic management. The following questions will have to be answered in determining the strategic issues now faced by the company:

How does present strategy competes in relation to strategic management models?In using Porters Five-force-model, does it take advantage of industry opportunities, protect itself from industry threats, make uses of its strengths and correct its mistakes?

The present strategy is geared toward diversification as can be analyzed from the most expansions of Tescos business internationally and into non-food business. From the financial reports, the profitability performance of the company in relation to the industry is evidently better.

This is despite the industry threats and company weakness. Tesco was found to have protected itself from threats by offering value to mores customer via diversification and having efficient operations, it was able to sell at lower prices, which caused the company to have increasing revenues over the years (Churchill, Jr. and Peter, 1995, Kotler,1994).

The company has the policy of growth in annual dividends. Even during recession, the company was able also to provide dividends because of its profitable operation. The strategy would seem not to avoid its weakness of generally less liquid position in the industry. While maintaining giving its dividends, it also borrowed more than its expansion needs and thus further causing its gearing ratio or financial leverage to become higher.

Such acts also may further put the company to more risk. Since higher profitability and increasing stock price (See graph below) sustains such acts of management, it can only be inferred that company was still maximizing the returns from the increased risk and may be attaining optimization targets (Brigham and Houston, 2002; Bernstein, 1993; Byars,1991).

Proposed Strategy

The company can invest on Research and Development activities to some differentiation on its as a way of building switching costs. One basis for this is the industry threat of strong rivalry among existing players in the industry. The company could strengthen its branding strategy and at the same further develop new as products needed by the market to create an advantage over competitors.

Another basis is the industry threat of high bargaining power of buyers. By focusing R&D on what will make its product unique and different other buyers may be neutralized or at least be warned of the high risks of spending resources that will not produce the expected rewards for more profitability. Still another basis is the industry threat of high availability of product substitutes.

By differentiating its brands, it could build brand loyalty and without the need to compete basically on price. Another basis is the company strengths of high profitability. The company can make use effectively of its resources being generated from operations.

Conclusion and Recommendation

This paper has found profit maximization strategies employed by Tesco for the past year. It was has increased its gearing ratio in 2009 compared to 2008. However, it had higher profitability as against competitors in the industry. It had also increased it liquidity but still the company has below 1.0 current ratio, which may cause a problem in paying currently maturing obligations.

The financial crisis tested the prowess of the company as it adopted further diversification as way to reduce risk and increase profitability. The company has been wonderfully responding to the changing needs of its markets by lowering prices, introducing more affordable products and offering sharper promotions.

By lowering its prices, the same has the effect of protecting itself from industry threat of strong rivalry in the industry and ease of entry by new players because of nature of the industry that being not capital-intensive. Its core strengths had indeed protected the company from the economic downturn.

As the crisis appears not to have gone away completely, it would do well for the company to continue diversification. It should also invest in research and development cost to protect the company from industry threats and make use of its strengths.

References

Brigham, E. and Houston, J. (2002). Fundamentals of Financial Management, Thomson South-Western, US.

Meigs, R,. Meigs, W., & Meigs, M. (1995). Financial Accounting. McGraw-Hill, New York, USA.

Porter (1980). Competitive Strategy, Free Press , London, UK.

Samuelson, P. and Nordhaus, W. (1992). Economics. McGraw-Hill, Inc, London, UK.

Dornbusch, R. and Fischer, S. (1990). Macroeconomics. New York: McGraw-Hill Publishing Co.

Bernstein, J. (1993). Financial Statement Analysis. Sydney: IRWIN.

Byars, L. (1991). Strategic Management. Formulation and Implementation  Concepts and Cases. New York: HarperCollins.

Helfert, E. (2001). Financial Analysis: Tools and techniques: a guide for managers. McGraw-Hill Professional.

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MSN (2010a). Company Report. Web.

MSN (2010b). Stock Price Graph. Web.

Tesco (2010b). Annual Report in 2009. Web.

Tesco (2010a). Company Website. Web.

Reuters.com (2010). Industry Ratio. Web.

The past few decades have witnessed cut-throat competition among business entities in nearly all industries, trying to cut a niche for themselves and net some profits for their shareholders. Firms have conglomerated into distinctive industries for the purposes of marketing their products and services. Today, we have the travel industry, car industry, manufacturing industry, supermarket chains, and many more industries that compete for consumers in the marketplace. In this trade, some industries are more profitable than others owing to the dynamics of the competitive structure used by stakeholders. The supermarket chain industry is one such entity that has benefited immensely from utilizing the dynamics of competitive structure and various analytical models to gain a foothold in the increasingly competitive business market (Yu 2008). This paper aims at analyzing the business environment of Tesco supermarket in relation to various business analytical models used in the assessment of the nature of competition in the supermarket chain industry. The paper also aims at analyzing Tescos strategic capability.

Based in Britain and with subsidiaries in many other countries, TESCO is an international general merchandising and grocery retail chain (Tesco 2008). It is accredited for being the largest British supermarket retailer by both domestic market share and global sales, with profits rising to 2 billion sterling pounds by the close of the 2007 financial year. It has risen in rank and file to become the fourth-largest retailer in the world. Though it originally specialized in the eating business, Tesco has managed to use sharp business acumen to diversify into areas of consumer electronics, consumer health insurance, clothing, consumer financial services, renting and retailing music downloads, DVDs, CDs, and internet service, software, and consumer health insurance.

Tesco has utilized various business models to sustain itself in the market as one of the market leaders in the supermarket industry. From its humble organic growth of the 1950s, Tesco has mastered the game of acquisitions to own more than 800 supermarket stores to date (Tesco 2008). How Tescos management has been able to beat other leading supermarkets in their own game remains a matter of debate among industry analysts. Using various analytical models such as Porters Five Forces model and PESTLES, this part aims at analyzing Tescos key business structure, strategy, and operations that have enabled it to be one of the kingpins in the supermarket industry.

Porters Five forces Model

The Five Forces Model invented by Michael Porter remains one of the Competitive Position models that are greatly used by industry analysts to analyze and assess the competitive position and strength of a business organization or corporation. According to Porter, long-run industry profitability and attractiveness is determined by five forces namely: entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the degree or intensity of the rivalry between competitors (Jackson 2007). Being in the competitive supermarket industry, Tesco has been influenced by all the five forces mentioned in Porters model.

The Five Forces Model can be used to analyze the business environment of Tescos supermarket chain. According to porter, the level of competition can be raised by new entrants to the industry thereby influencing its attractiveness (Jackson 2007). In the supermarket industry, new entrants largely depend on the barriers to entry to be able to effectively penetrate the market. Key entry barriers faced by any industry include economies of scale, investment or capital requirements, admission to industry distribution networks, customer switching costs, and the probability of retaliation from existing industry players. Through its sheer appetite to acquire other superstores, Tesco has particularly been effective in putting up considerable barriers to entry for other supermarkets aiming to enter the market. From the 1950s up until the 60s when the supermarket chain was shaping up, it was able to acquire 200 Harrow Supermarkets, 70 Williamson Stores, 97 Charles Phillips supermarkets, and 212 Irwins Supermarkets. Plainly put, the supermarket chain has effectively curtailed the threat of new entrants through acquisitions.

In the admission to industry distribution channels, Tesco has successfully reigned over the market for specific products especially in areas of consumer electronics and grocery, thereby shielding new supermarkets from accessing low-priced, consistent suppliers. It has a distinct advantage over new entrants when it comes to the economies of scale basically because it pays a lot less per item supplied than new entrants would pay through purchasing large consignments of goods at low prices (Mindtools 2008). Economies of scale demand new entrants to purchase small quantities of goods at a much higher cost. The supermarket chain has been in operation since 1929 and therefore enjoys a good capital or investment portfolio that new entrants would almost find challenging. All these have contributed to the competitive advantage of Tesco over other new entrants.

Porter argues that industry profitability and attractiveness are also influenced by the threat of substitutes. Substitute products have been known to influence the prices of various commodities depending on the costs of switching to the substitutes, the willingness of the buyers to buy the substitutes, and the relative performance and price of the substitutes (Jackson, 2007). The threat of substitutes has been credited with driving profits to zero in classical economics. In Tescos case, stiff competition from other supermarket chain stores with the capability of offering substitute goods like Sainsbury has driven their prices downwards thereby affecting profit margins. In fact, prices of various commodities have been revised downwards owing to the power bestowed on the buyers. It is common sense that buyers will exercise their authority and shop in other supermarkets if the price of groceries becomes unbearable in Tesco. It is also clear that the profit margins of the supermarket chain have been affected by the cheap prices of substitutes found in other supermarkets across the world. But Tesco has been able to maintain its dominance owing to its organizational nature.

The power of suppliers is an integral part of Porters Five Forces model. The profitability of an organization is overly influenced by the cost of products that are bought from suppliers in form of components or raw materials (Jackson 2007). Suppliers are engaged in the business of supplying products and materials to the industry. The industry is thought to be less effective in theory if the suppliers have high bargaining power over the business entity. Accordingly, suppliers bargaining power is high when: there are a few dominant suppliers and numerous buyers; there are highly valued and undifferentiated products on offer; when product manufacturers strive to set up their own retail distribution outlets; when buyers are not keen on integrating back into the supply chain; and when the business entity is not a vital customer group to the supplier chain (Mind tools 2008). In the supermarket industry, retailers are often demanded by suppliers of goods and commodities to pay a particular price for the goods offered. Supermarket retailers dont get the goods if they dont pay the price. But Tesco has had a distinct advantage as far as influencing suppliers owing to its huge portfolio. Due to its huge capital returns and wide network, the supermarket chain has ably managed to dictate the price it pays the suppliers thereby gaining a distinct competitive advantage over other supermarkets. Suppliers are often left with a much smaller market for their products if they do not reduce their prices to the satisfaction of Tesco.

In the center of all this, the profitability of the industry is determined by the intensity of the rivalry between various players. Rivalry depends on the structure of the competition and is less intense when there exists a clear market leader in the industry and more intense when there are many equally sized or small competitors (Jackson 2007). Tesco is a sure market leader in the supermarket industry and hence rivalry between it and other small establishments has been minimal. According to the model, the rivalry is also less pronounced when the buyers have higher switching costs or when the buyers are required to pay more for buying an alternative product. To this extent, the rivalry between Tesco and other supermarkets is minimal based on the fact that supermarket commodities are generally priced around the same price tag. The degree of rivalry is also informed by strategic objectives. In the 1980s and 90s when Tesco was pursuing aggressive growth tactics, the rivalry between it and other supermarkets was at its fever pitch as witnessed in its hostile takeover bid of Hillards chain of supermarkets in 1987. Rivalry is also influenced by the degree of differentiation of the industry, with Porter arguing that less rivalry exists in industries where competitors can differentiate their products. In the supermarket industry, Tesco has not only differentiated the range of products on offer but has effectively differentiated its network into six formats namely Tesco Express, Extra, Metro, Superstores, Home plus, and One stop (Tesco 2008). This has given it a competitive advantage over the other supermarket chains.

PESTLE Analysis

The PESTLE tool can be used to evaluate the position and current status of an individual or organization in relation to their current roles and external environment to form the basis for strategic management and future planning (Allan 2007). It entails evaluating the political, Economic, Social, Technological, Legal, and Environmental influences on the industry. These external conditions are beyond the influence or control of the industry as they arise from the external macro-environment. However, external factors are crucially important for the survival of any business. In the political scenario, Tesco has been motivated by good British government policies and regulations, tax policies, and directives to be able to blossom from a single supermarket store into one of the largest supermarket chains worldwide. In the social arena, it has been positively driven by efficient consumer culture, increase in population, and general lifestyle changes to effectively establish a ready market for its products.

The appealing enterprise and business economic directives coming from the British government and other governments where Tesco has a stake coupled with good income generation targets has enabled the supermarket to be favored by external economic factors. In its home country of Britain, stringent fiscal policies effected by the government have been critical in curtailing high-interest rates and inflation while at the same time ensuring that distribution of disposable income among the citizens can efficiently maintain a working consumer culture (Mind tools 2008). External economic factors have also brought about rapid globalization which has been central to the growth of Tesco. Whats more, Tesco has invested heavily in technology to become the largest grocery home shopping service in the whole world. Due to huge investments in technology, the supermarket is able to provide a large variety of consumer goods, financial services, and telecommunications online. In 1996, Tesco was the first supermarket chain to offer a vigorous online home shopping facility that has enabled the chain stores to expand rapidly using minimum investments (Tesco 2008). In essence, it has been able to utilize relevant emerging technologies to reach end consumers of its products from the comfort of their homes. For the supermarket chain, online business transactions have enabled it to increase remote working while at the same time reducing costs of communication.

Environmental and legal factors have minimally affected the growth chances of the supermarket chain. In fact, EU legislation requiring nations from the European Union to do away with trade barriers has served to make the supermarket chain more effective in reaching out to its most loyal customers in countries affected by the legislation (Mind tools 2008).

Critical success factors

According to analysts, both analytical models are used by industry stakeholders to understand the dynamics of the business environment in which an entity is operating, thereby determining the success, opportunities, and threats of an enterprise. A businessman can minimize threats and take advantage of the opportunities that the above two analytical models present through merely understanding the environment in which the business operates (Anna 2003). In this perspective, Tesco has been effective in reigning over the market for specific products and services. Through acquisitions, Tesco has been successful in putting up a strong resistance to supermarkets aiming at entering the industry. Being a market leader in the supermarket industry, Tesco has also successfully fed off rivalry among key players in the industry. It has been successful in winning over the power of the buyers owing to its long history of operation, and at the same time winning over the power of suppliers owing to its favorable economies of scale and strong financial backing. These are strong success factors for Tesco

Summary of opportunities and threats

Due to its competitive advantage, Tescos future is bright. It has numerous opportunities for growth owing to the fact that it has been able to acquire more than 1800 supermarkets in acquisitions and takeover bids; it has an adequate investment or capital requirements; and is overly favored by the economies of scale. More opportunities are guaranteed by the stability of the government in Tescos parent country, freedom of press, proper tax policy and tariff controls, low-interest rates, low inflation, healthy consumer culture, positive lifestyles and attitudes, and job market freedom. It has also been impacted positively by emerging technological trends. However, it has weaknesses in form of the threat of substitutes brought in by competing supermarkets chains and rivalry.

Analysis of Tescos Strategic Capability

In the analysis of the two models, we have seen how Tesco has been influenced by the external environment to bring about opportunities and threats. But a critic would want to ask why Tesco is a superior performer to Asda and Sainsbury super stores yet the supermarkets compete for business in the same environment. To answer such a critic, the difference in performance is brought about by strategic capabilities discussed below.

Value chain and Network

Developed by Michael Porter, value chain describes all the categories of actions within and around a business entity which together produce a commodity or service for uptake by the end consumers (McKissick 2004). The value network is the set of inter-organizational relationships and networks that are essential in the creation of a commodity or service. Broadly put, a value network is a connected series of knowledge streams, resources, and organizations involved in the development and delivery of a value product to end customers. A single business entity does not undertake all the value activities that are involved in the production of a commodity from the design to the delivery of the commodity but rather position itself to take on a specialized role as part of a wider value network.

To this effect, Tesco utilizes both the value chain and the value network to come up with products for their consumers. In the value chain, Tesco has developed unique products such as consumer health insurance and consumer financial services. In value systems, Tesco has been overly concerned with inbound logistics involving all the activities it goes through in receiving the materials for the commodities, storage, and the distribution of the inputs to the services or commodities offered, including transportation of the materials, materials handling, and stock control. It also involves outbound logistics through the process of storing and distributing various commodities to consumers through its supply network (Strategy 2008). It also involves itself with marketing and sales, whereby the organization provides consumers with knowledge about its various products and services and where the consumers can get them. This is often done through the process of selling, sales administration, and advertising. Through using such systems, Tesco has effectively been able to position itself superbly in the supply chain to attain the maximum heights of value and customer satisfaction while effectively taking advantage of all the competencies of all business entities in the supply chain.

Competitive advantage: Threshold vs. Unique competencies

For a company to achieve a competitive advantage over its competitors, it must utilize its threshold capabilities and unique competencies. The capabilities needed for any organization to effectively compete and survive in a specific environment or market are the threshold capabilities. Though important, the threshold capabilities by themselves do not create a superior performance or competitive advantage like is the case with Tesco. The competitive advantage of Tesco is actually based on its ability to come up with products and services that other supermarket chains have found hard to imitate. This is the unique competency of Tesco. It has been credited with designing unique financial services and consumer healthcare insurance that is unique to itself thereby giving the supermarket a strong financial footing over its competitors. Therefore, unique competencies are basically the abilities and skills through which resources are positioned through an entitys processes and activities so as to accomplish competitive advantage in ways that other business entities cannot easily obtain or imitate. From its online grocery stores and DVDs and CD rental to offering products in insurance, Tesco has effectively positioned itself to offer core or unique competencies that other supermarket stores such as Sainsbury find hard to copy or imitate. This has given the supermarket chain a distinct competitive advantage over other supermarkets (Strategy 2008).

Sustainable competitive advantage

In a laymans language, sustainable competitive advantage enables industry players to survive cutthroat competition over longer periods of time. At Tesco, this prerogative has been credited with allowing the improvement and maintenance of the supermarket chains competitive position in the global market. Tescos sustainable competitive advantage can be attributed to its favorable economies of scale, increased diversification of products and services, as well as its long history. It started operations in 1929 and therefore enjoys superior resources as well as superior skills (Strategy 2008).

Strategic choice

Tesco has overly utilized the strategic choice approach to maintain its competitive advantage over its competitors. The approach utilizes four basic principles namely shaping, designing, comparing, and choosing. In the first principle, Tesco supermarkets have effectively been able to identify the problem areas in the supermarket industry. In designing, the supermarket chain has sat down to design what could be done to the problem areas and has henceforth compared various principles and ideas to choose the best methodologies to solve the problem areas (Chapman 2005). For example, Tesco made a strategic choice in coming up with online stores to sell its grocery and food when it was faced with a problem of shortage of consumers. Managers decided to use the internet and other emerging technologies to ensure that they remained ahead of the pack. The introduction of online grocery stores made the supermarket chain command a substantial proportion of consumers thereby helping it to regain its competitive environment. That is the power of strategic choice.

Strategic fit

Strategic fit or strategic realignment is basically the extent to which various activities of a sole business entity work in partnership to balance out and complement one another so as to contribute to the competitive advantage of the organization (McKissick 2004). Tesco supermarkets have been a master in strategic fit in that it has come up with diverse activities that work to complement one another thereby making the supermarket chain enjoy a distinct competitive advantage over its competitors. While average superstores deal with the sale of commodities, Tescos chain of supermarkets has increasingly diversified its activities to include offering services such as internet service, consumer financial services, and consumer health insurance. These services have complemented the traditional supermarket role of offering commodities for sale to consumers thereby increasing its competitive advantage. Its internet-based grocery stores were well received in the market thereby increasing its competitive advantage. Overall, Tesco has benefited a great deal due to the transfer of skills and knowledge, and also through the economies of scale as its various activities complement each other in the market. In the same vein, it has been negatively affected by strategic fit when it comes to acquiring other supermarket stores as some of the activities of the supermarket to be acquired conflict rather than complement Tesco known roles and activities (Anna 2003)

The Ansoff Growth Matrix

This is another analytical model that could be used effectively to analyze Tescos products and its market growth strategy. For organizations, any attempt to grow to depend on whether the business entity focuses on if it is trying to introduce new products to new markets or if it is selling existing products into existing markets (Wright 2006). The Ansoff Matrix utilizes market penetration, market development, product development, and diversification to evaluate an organizations market development strategy. In market penetration, Tesco has been involved in selling existing commodities to existing markets. It has been able to increase its market share substantially through advertising its products, competitive pricing, and sales promotions. It has been engaged in efforts of restructuring mature markets through acquisitions and hostile take-over bids thereby effectively driving out its competitors. Through its introduction of loyalty schemes such as the Clubcard, Tesco has been able to increase the capacity of existing customers to buy its commodities and services thereby dominating the supermarket industry (Tesco 2008).

Tesco has also been able to utilize market development to sell its existing products and services into new markets through acquisitions of foreign supermarkets. It has effectively entered into new markets in countries such as China, Czech Republic, Japan, Hungary, France, and others. With its introduction of new products into new markets, Tesco has effectively entered into product development. It has also effectively utilized diversification strategies to market new products into new market environments such as its internet shopping service (Wright 2006).

Summary of strengths and weaknesses

Due to Tescos integration in value and network chain, it has effectively positioned itself in the supply chain to attain the maximum heights of value and customer satisfaction while effectively taking advantage of all the competencies of all business entities in the supply chain. Tescos unique competencies have given it a distinct strength in coming up with products and services that other supermarket chains have found hard to imitate such as the Clubcard and the internet service. Tesco has also gained from utilizing strategic choice to come up with online stores to sell its grocery and food when it was faced with a problem of shortage of consumers. It has effectively used strategic fit to come up with activities that complement each other thereby maintaining its competitive advantage.

Tesco chain of supermarkets have increasing diversified its activities to include offering services such as internet service, consumer financial services, and consumer health insurance. It has also found strength in restructuring mature markets through acquisitions and take over bids thereby effectively driving out its competitors. It has benefited from Ansofs matrix through increasing the capacity of existing customers to buy its commodities and services thereby dominating the supermarket industry. Above all, Tesco has also been able to utilize market development to sell its existing products and services into new markets through acquisitions of foreign supermarkets.

The weaknesses of Tesco cut across the supermarket industry. First is the increased competition coming from other industry players, coupled with an ever soaring economic environment occasioned by global recession. This can aptly be explained using PESTLES analysis. Consumer power is decreasing owing to external factors. Tesco is also faced with the challenge of venturing into new markets especially in countries where it is rarely known. But overall, Tescos business environment and strategic capability is healthy when analyzed using the various analytical models described in this paper.

References

1. Allan, A.W 2007. PESTLE and SWOT Analysis.
2. Anna, B.C 2008. Business Definition for Strategic fit. BNET.
3. Jackson, F.W 2007. Porters Five Forces: A model for Industry Analysis. Web.
4. Mind tools 2008. PEST Analysis: Understanding Big Picture Forces of Change. Web.
5. McKissick, F.W 2004. Strategic capability: Ensuring the growth of your Business. Prentice Hall.
6. Strategy  Analysing Competitive Industry Structure2008. Tutor2U. Web.
7. Shaw, B.A 2003. Business environment: Strategic capability. Oxford University Press
8. Tesco 2008. Tesco: Our structure. Web.
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10. Yu, C.H 2008. Competitive Advantage. Web.

Financial reporting has seen great advancements since its very conception as societies trusted form of corporate communication. Disclosures required within sets of financial accounts is an area which has attracted many different viewpoints for a number of years. Some argue that sets of accounts provide all the essential information in one central place, allowing comparisons to be made and vigorous calculations to be carried out. On the other hand the vast majority are of the mindset that all information provided is historical and certain bits of material are missed out which inevitably influences decision making. This essay will ascertain the extent to which shareholders can make reliable and informed decisions from the information laid out in sets of financial accounts containing examples that arise in Tesco’s published annual accounts of 2018. When evaluating future movements of a company it is crucial that shareholders have a full understanding of the published sets of accounts.

Sets of financial accounts are the means in which the business world communicate their performance over the past financial year. This is seen to be a 12 month period in which you acquire varied information on the operations of the entity (GOV, 2018). These accounts subsequently can be broken down into particular categories amongst which include the statement of financial position, profit and loss accounts, statement of changes in equity and cash flow statements (IAS,2018). The set of financial accounts will amalgamate all of the essential components seen within the accounting profession into one statement which is easily accessible. Financial statements, although initially independent of one another, all contain interrelated information which is then used to contribute to the finalisation of other statements. An example of this is evident when the profit calculated within the Profit & Loss account is easily transferrable into the equity section of the Statement of Financial Position, also known as the Balance Sheet. Complete sets of financial accounts are based upon the accounting equation and primarily within the market, specifically for the purposes of the shareholders, as well as external stakeholders (Weetman, 2016). All companies, whether trading or not, are obliged to retain their accounting records (GOV, 2018), including all of the business’ income and expenditure as well as detailing the value of their assets and liabilities. Throughout the UK there are two types of accounting systems, being the International Accounting Standards Board (IASB) and a similar system run by the Government , based on UK law as well as the accounting standards of the UK FRC (Weetman, 2016). Entities are required to adhere to such financial reporting standard frameworks which primarily detail accounting policies, within one single document, upon which firms should apply in the preparation of financial accounts (Weetman, 2016). Both organisations similarly allow accountants to adhere to the current standards consequently signifying that accounts are relevant, reliable and can be efficiently compared with numerous corporations in the market.

Shareholders worldwide focus their attention on financial accounts when important investment decisions regarding equity arise. The financial condition of an entity is one which sparks a great deal of interest from both creditors and investors. Sets of financial accounts permit users to review the current condition of a business without having to access various individual financial statements. The review section of financial accounts details specifically how the business has performed over the latest financial year. When evaluating sets of accounts, shareholders can adopt a wide range of ratio techniques which subsequently allows them to further analyse the entity’s advancements and progress (Bragg and Bragg, 2018). Profitability ratios are obtained with the objective of identifying an entity’s ability to generate a profit from their ongoing activities (Nissim D, 2003). From a shareholders perspective the return on equity ratio is the most influential ratio as this allows them to gather data on whether or not there is a substantial amount of return being produced from investments being made within the company. Return on equity (ROE) is calculated by taking the amount of net income within an entity and dividing it by shareholder’s equity (Weetman, 2016). With regards to Tesco’s financial accounts all of the required information in order to obtain this ratio is shown within the statement of profit and loss along with the balance sheet with the company having a net income of over £51 Billion in 2018 (Tesco Plc, 2018). This will allow Tesco’s shareholder’s to evaluate exactly how much return is being contrived giving them the knowledge and power needed in order to drive themselves forward in what is seen to be an extremely saturated market. Liquidity ratios enable the investigating of how well entities manage their cash flow and within every organisation, the liquidity management is an immense matter of interest for shareholders (Saleem Q, 2011). By shareholders having the ability to deepen their insight regarding how an entity can pay debtors, then this may allow them to make effective decisions regarding how flexible the company can be in meeting its outstanding financial obligations. The liquidity ratio used most frequently by entities is the current ratio whereby companies collect data on their current assets and divide this by the liabilities, indicating certain obstacles that specific entity may face (Gombola, 1983). With sets of financial accounts apparently holding all information needed to precisely determine how strong an entity is, it can be argued that financial accounts are needed to ensure successful decision making amongst shareholders within a firm.

Although being able to calculate ratios from sets of published financial accounts is an invaluable task, shareholders look to accounts for additional reasons. Shareholders acknowledge the fact that financial accounts are issued on a systematic basis. This enables a full understanding of when the business is excelling and when there are apparent financial burdens. With the accounting standards apparent throughout the country, it consequently means that no company can hide. Shareholders are able to identify comparisons between their own business and different ones in the market. After Tesco’s shareholders have analysed their own performance over the past financial year and gathered various bits of information, such as their £1.208 billion profit ,they then have the chance to review their competitors such as Asda, Sainsbury’s and Morrisons. This in essence, gives shareholders a perception of the market as a whole and knowledge of where they need to improve. The IASB system is more flexible regarding layout of accounts within the UK however they set out specific essential items that have to be included (Weetman,2016).

With there being such differing opinions regarding this issue as a whole, many perceive sets of financial accounts to be a non-useful source of information. This stems from all sets of accounts being historic forms of documentation and based solely around a specific time period. Triggered by fluctuations in sales or seasonality of certain products, it is apparent that two separate periods of accounts will never be identical (Bragg and Bragg, 2018).This resultantly provides users with information that may not portray the real picture of an entity due to possible significant changes within these time periods. When analysing the historical aspect of financial accounts, it is evident that there is no proper indication of how the business will perform in the future (Bragg and Bragg, 2018). The financial position of a company varies day to day and can change with every transaction being made (efinance, 2018). This in turn creates a more difficult job for shareholders regarding the decision making process as they may not possess all of the knowledge required to make tactical and powerful decisions. Although Tesco’s annual report gives a wide range of data from 2017-2018, there is no indication of how this entity was performing before this time period, so it can be argued that shareholders may receive a capped view which will cloud their judgement if solely evaluating one annual report.

With sets of financial accounts there is a chance that senior management of an entity will falsify or deliberately adjust results included within them to not reflect true value (Cheshire Police, 2018). It is of common opinion that no business likes to prepare accounts which makes their organisation be seen in a bad light (Hines RD, 2018).By offering management attractive incentives should company performance improve, as is common within the market, managers may be encouraged to deliberately falsify financial statements in order for the entity to be perceived successful. This initiates a fraudulent process which is most evident when there is a concentration of power inside a company (Dunn P, 2004). This again provides shareholders with information that will impact on their future decisions which could be of destructive nature to the entity. Additionally, the fact that sets of published accounts do not contain any management accounting can be off putting for shareholders. Published accounts are focused around financial accounting and by doing so it foregoes vital information such as actions taken surrounding future sales, production and capital expenditure (Weetman, 2016). Management accounting is focused on reporting a business’ accounts for internal managers only (Weetman, 2016). This type of accounting enables management to make strategic decisions and by sets of published financial accounts overlooking the external potential usefulness, shareholders are arguably disadvantaged.

To argue that the statement “published sets of financial accounts provide shareholders with all the information they require to make informed decisions” is a true reflection of today’s society is naïve. Whilst some may argue that they allow accurate comparisons and calculations to be made, it is fundamental to remember that all accounts are produced in the past. Over and above this there is absolutely no way of knowing if consequential information has been purposely omitted. Shareholders have the responsibility of enhancing businesses into the future and in order to do so, sets of accounts require further rectification before decision making exhibits remarkable improvement.

References

1. Bragg, S. and Bragg, S. (2018). Limitations of financial statements. [online] AccountingTools. Available at: https://www.accountingtools.com/articles/limitations-of-financial-statements.html [Accessed 21 Jan. 2019].
2. Cheshire Police. (2018). False accounting fraud – Cheshire Police. [online] Available at: https://www.cheshire.police.uk/advice-and-support/fraud-and-scams/false-accounting-fraud/ [Accessed 19 Jan. 2019].
3. Dunn, P., 2004. The impact of insider power on fraudulent financial reporting. Journal of management, 30(3), pp.397-412.
4. efinance. (2018). Limitations of Financial Statements | Investor’s Caution Area. [online] Available at: https://efinancemanagement.com/financial-accounting/limitations-of-financial-statements [Accessed 21 Jan. 2019].
5. Gombola, M.J. and Ketz, J.E., 1983. A note on cash flow and classification patterns of financial ratios. Accounting Review, pp.105-114.
6. GOV(2018). Company accounts guidance. [online] Available at: https://www.gov.uk/government/publications/life-of-a-company-annual-requirements/life-of-a-company-part-1-accounts [Accessed 16 Jan. 2019].
7. Hines, R.D., 1988. Financial accounting: in communicating reality, we construct reality. Accounting, organizations and society, 13(3), pp.251-261.
8. IAS. (2018). IAS 1 — Presentation of Financial Statements. [online] Available at: https://www.iasplus.com/en/standards/ias/ias1 [Accessed 18 Jan. 2019].
9. IFRS(2018). IFRS. [online] Available at: https://www.ifrs.org/groups/international-accounting-standards-board/ [Accessed 18 Jan. 2019].
10. Nissim, D. and Penman, S.H., 2003. Financial statement analysis of leverage and how it informs about profitability and price-to-book ratios. Review of Accounting Studies, 8(4), pp.531-560.
11. Saleem, Q. and Rehman, R.U., 2011. Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), pp.95-98.
12. Tesco Plc. (2018).- Annual Report and Financial Statements 2018 [online] Available at: https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf [Accessed 16 Jan. 2019].
13. Weetman, P. (2016). Financial and management accounting. 7th ed.

“British Chambers of Commerce Get Gloomier about Growth” by Phillip Inman and Michael Carolan

The main focus of this article is the eurozone debt crisis and how it affects Tesco, the UK largest supermarket chain. The problems in Europe connected with the mentioned problem managed to influence the company activities in the following way, the sales of the company are on the low level. Moreover, the same problem has affected the BCC Company, which has to cut forecast from 2.2% to 1.9% in 2011. The British Chambers of Commerce warnings “of fragility in household finances and tepid consumer spending as the coalition’s austerity measures begin to bite” (Inman & Carolan 2010, par. 1).

The employment is also predicted to be affected by the eurozone debt crisis, increasing on 8%. Fletcher (2010) writes in his report that “FTSE 100 ended 117.75 points lower at 5550.95, with Wall Street down 135 points by the time London closed” (par. 2). Thus, the UK economy is not subjected to the failures like Portugal and other countries of eurozone, still, the impact is great and Tesco is one of the companies which feet it.

The main hazard is that the negative impact is so great, due to the fact that such big company appeared under stress, without mentioning what may happen with smaller companies. Oil and energy companies are affected at great extend. Thus, Cairn Energy and Petrofac appeared under the influence of the eurozone debt crisis (Fletcher 2010).

Thus, it may be concluded that having appeared on the threshold of the recovery from crisis, the UK companies may again stuck because of the complicated situation which is happening in the eurozone. The whole situation seems natural as being a part of the Euro Union the UK should be connected with the processes which take place there. The UK will not be able to recover from the crisis absolutely, till there are debt problems in Greece, Spain, Portugal, etc.

“UK Uncut Targets Topshop and Vodafone over Tax Arrangements” by Tracy McVeigh

Taxes is the most problematic question in any country. Considering the latest situation with taxes and regulations in the UK, it may be concluded that the problem is rather sharp for smaller companies rather than for big corporations. Having the problems, the government makes a decision to cut the budget rather than to tax the big companies. Such situation is rather convenient for the latest, still, it affects other members of the national economy.

The article focuses on the following companies, Vodafone, Barclays and Boots. The government plans a number of budget cuts which will influence all companies in the country except for such “tax dodgers” as the companies mentioned above. These companies are going to function within the same conditions. The taxation of those companies could bring at least £25 bn a year.

Richard Murphy, director of Tax Research UK said, “Large businesses are paying a smaller proportion of their income in tax than many individuals and small businesses in the UK and that’s unacceptable” (McVeigh 2010, par. 11).

This is the problem, rich people and large companies do not pay taxes or pay the smallest portion being aware of the mechanisms to avoid taxation fees and small business has to pay more to fill in holes in the budget. The protests which took place all over the country made a number of shops shut.

The positive decision of the government to tax rich people and big corporation could bring the country great profit which could be directed at the help for small business to develop and flourish (Lewis, Gabbatt, Taylor & Jeffery 2010). Thus, the taxation policies and regulations influence the companies greatly. It is impossible to find a company which does not care of the budget cuts and increase of fees.

“FTSE Today: Market Report – as It Happened Nov 30, 2010” by Rachel Cooper

Here are some problems with the euro which may influence UK economy greatly. The main focus of the article is debt of Spain and Portugal and how it may influence the UK companies. The most crucial problem is that “FTSE 100 slipped 22.68 points to 5528.27 and the FTSE 250 fell 81.85 points to 10607.75” (Cooper 2010, par. 1). It is necessary to consider two issues, the reasons for such problems and the companies in the UK it has influenced.

The main reason for the appearance of such situation in the world is the possibility of the default. According to the information mentioned by Jeremy Warner (2010) “default now looks pretty much inevitable in some or all of the fringe economies of the eurozone” (par. 4). The problem is connected with the eurozone debt crisis and the inability to solve the problem faster. Returning to the indexes, it is possible to show the following information, Royal Bank of Scotland slid 0.93 to 37.59p. Almost the same situation is with Barclays which fell 6.8 to 256.15p.

It was impossible to avoid the situation as the investors nerve and do not hurry to finance different organizations in any country of the eurozone because “Sunday’s €85bn bailout of Ireland by the European Union and the International Monetary Fund won’t stop Europe’s debt crisis from moving swiftly to another country” (Warner 2010, par. 41).

Thus, it may be concluded that the debt crisis in the European countries may lead to default and it is impossible to avoid the problem influence on any country. The British companies are influenced greatly as the investors are just waiting for the improvements in the situation and do not hurry up to invest their money in new projects.

“New Car Sales Fall for Fifth Month in a Row” by Graham Ruddick

According to Tim Moore, an economist at Markit, “household finances continue to suffer from a backdrop of squeezed disposable income, high inflation and ongoing public sector spending cuts” (Thompson 2010, par. 3). The article under discussion dwells upon car industry and the sales in the UK. The man problem which exists in the sector today is the low sales.

The problem became possible with the pressure on the households. The problem appears to be rather sharp as both private and public sector of the automotive industry suffer ad the country can do nothing as the pressure to the households may remain till the whole world recover from crisis.

Thus, being under the pressure on the households, the Society of Motor Manufacturers and Traders managed to show only the half of the predicted and expected sales (Ruddick 2010). People are unable to buy new cars as they do not trust the current situation. Both national and international factors influence human decisions.

The national problems may be considered as follows, low income from employment and rise of prices for some specific services as well as food (Thompson 2010). In the present situation cars are not the main problem which should be considered. Looking at the present situation it is impossible to state that something is going to change in the nearest future.

The government new tax policy leads to fees rise and cutbacks do not make people think optimistically. The statistical information shows that “Close to 47% of UK households expect finances to worsen in the year ahead, compared to 25% that anticipate an improvement” (Thompson 2010, par. 4).

This is the main reason for low sales in the automobile industry. So, it may be concluded that tax policies, government cutbacks, and the pressure on the households are some of the reasons for the low sales of cars among UK companies, and Society of Motor Manufacturers and Traders in particular.

Reference List

Cooper, R., 2010. FTSE today: market report – as it happened, 2010. The Telegraph. Web.

Fletcher, N., 2010. FTSE falls 2% to its lowest level for two months on renewed Euro debt fears despite Irish bailout. The Guardian. Web.

Inman, P. & Carolan, M., 2010. British Chambers of Commerce get gloomier about growth. The Observer. Web.

Lewis, P., Gabbatt, A., Taylor, M. & Jeffery, S., 2010. UK Uncut protesters spied upon by undercover police. The Guardian. Web.

McVeigh, T., 2010. UK Uncut targets Topshop and Vodafone over tax arrangements. The Guardian. Web.

Ruddick, G., 2010. New car sales fall for fifth month in a row. The Telegraph. Web.

Thompson, J., 2010. Households feel financial pressure. Money Market. Web.

Warner, J., 2010. Europe’s threat to UK economic recovery. The Telegraph. Web.
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Overall aims and objectives

This research shall attempt to develop a clear comprehension of expansion in foreign markets by making use of the example of Tesco. The research shall specifically consider the obstructions and difficulties that an organization faces when it considers expansion.

This thorough understanding shall be developed by making use of analysis instruments such as the SWOT analysis to judge the company’s internal and external standing as well as the use of Porter’s five forces to evaluate the standing of the company in a foreign industry as compared to the standing of the company in its native region.

The research shall also take into account the role and relevance of mergers and acquisitions as they come forth for an organization when it is considering expansion. Furthermore, marketing strategies, macroeconomic instabilities and the relevance of corporate social responsibility shall also be accounted for in the research. As a result of this analysis, the study will serve to form a clear comprehension of the intricacies of expansion. The final result shall serve as the establishment of a set of variables that should be considered by an organization when considering expansion. However, it is of the utmost importance to note that the frame of reference that the research shall make use of shall be one that shall be focused on multinational corporations and the findings therefore may not necessarily be applicable to organizations of a smaller size.

Special consideration shall be given to the areas of economies of scale, labour market trends, distribution difficulties and the presence of oligopolies in the market within which expansion is being considered. Competitors in the retail industry shall also be considered for their role in the dictation of market trends as well as their relevance when considered in light of the expansion. Also, it would be unfair to carry out a research concerning the intricacies of expansion and considering the role of the competitors without considering the role of the stakeholders as well. Similarly, the development of an expanded value chain shall also be covered in the research in order to acquire a thorough and practical understanding of the intricacies of expansion.

During the course of the research, the following questions shall be taken to be of primary relevance

• Why and when should a company consider expansion?
• What are the implications of an expansion on the mission, vision and goals of a company?
• What benefits can Tesco derive from an expansion in the US?
• How does an expansion such as Tesco’s into the US affect the US market?
• How shall marketing and branding strategies have to be adapted in order to suit the US market?
• What implications does the expansion have on the industry?
• How does corporate social responsibility fit into an expansion such as that of Tesco’s into the US?

Even though the research shall give special consideration to the questions presented above, it is important to note that neither the analysis nor the scope of the dissertation shall be limited by them, particularly in the exploratory analysis of the research.

Literature review

It was in 1919 that Tesco first came into being when Jack Cohen began his business by attempting to selling surplus groceries. The area was of East London and Jack named his business, Tesco, which back then, was known for selling Tesco Tea. As the years went by, Tesco developed to sell far more products than Tesco Tea and eventually expanded not only its portfolio but also its regional distribution (Johnson, Scholes and Whittington 2005, p. 380). The expansion allowed Tesco to enter different industries. Through the decades, Tesco has not expanded to over two thousand stores functioning in over fifteen countries across the globe. The expansion was brought about as a result of a business strategy that was based on numerous joint ventures and acquisitions (Humby, Hunt and Phillips 2007, p. 231). In the United Kingdom alone, Tesco stores count over a hundred and fifty with revenues being well over three billion pounds.

The modern day Tesco has expanded eons beyond tea and now provides consumers with financial services, car insurance services and other services (Sandler 2009). The expansion being carried out by Tesco is one that is of a global nature. Tesco’s first ever stepping into the US was with the Fresh and Easy that was launched in 2007 (Finch and Teather 2006). As of now, Tesco has nearly one hundred and fifty stores in the US and has based itself in California in the region.

Tesco’s expansion is not one that comes out of the blue or as a result of a sudden change of management. Rather, it comes forth as a result of nearly two decades of market research into the American consumer market and the American consumer. Once can surmise from this fact that there are a number of possibilities that may exist in this regard. Either Tesco has judged the US market as one where increased competition leaves no room for errors and therefore has to be fully mastered before penetration; or the US market is one into which Tesco is too hesitant from entering on account of decreased interest (Peppers and Rogers 2004, p. 464). However, from the apparent condition of competition, chances are that the former holds true and the increased competition posed by strong players in the American supermarket industry serves to make penetration in the American market a highly tedious task.

Also, considering the fact that the action under question is an expansion in a foreign market, it is important to note that there is a considerable degree of complication caused by the trends that a company follows in its native market and those that is has to follow in an external market into which it expands. It would therefore be reasonable to surmise that there is no evidence that Tesco’s strategy in the UK shall prove to be just as successful if it is applied in the US. Acquiring market share can come across as a far more complicated task when put into play (Duff 2006). This is because of the fact that the American market has evolved to a point where the consumer is highly educated in terms of the choices available to the consumer and companies are giving an increased degree of attention to the retention of consumers which is serving as a higher entry barrier for new entrants.

The recent economic occurrences that have occurred on a global scale have made it all the more tedious for companies to enter into markets (Miller 2007). However, it has also made it all the more difficult for them to carry out consumer retention measures and this serves to reinstate the entry barriers to the same level at which they were before the economic recession hit (Clark 2009). Nonetheless, the recession has made it all the more difficult to carry out value chain development and expansion into an economy that has been hit severely as a result of the recession can make it excessively difficult to set up distribution networks and establish favourable relationships with the suppliers. Elements such as space rent, supplier coordination, distribution networking, franchising and the like have become more complicated now than they ever were before and companies find that increased attention towards these elements has left them with little time and resources to concentrate on the countering of cultural and regional differences (France 24 2009).

It is of the utmost importance to note, that in Tesco’s case in particular, the expansion into the US market is one that is very different for a company such as Tesco. Tesco became acclaimed for its expansion in the last two decades but was accustomed to expansion in developing countries in Asian and European regions (Finch and Teather 2006). However, the move to expand into the US is one that is of a comparatively different nature for Tesco since the American market is one that is well developed and where it is all the more difficult to carry out market penetration operations.

Another highly important aspect that merits highlighting is the fact that an expansion in time such as these cannot be carried out without expecting any retaliation from competitors in the area into which the expansion has occurred (Duncan 2008). The implementation of a defence strategy is inevitable by key competitors in the region into which a company such as Tesco has expanded and it is for the same reason that it is highly imperative for the expanding company to anticipate such actions. In essence, defence strategies come into play when a new entrant enters the market or when an already present competitor engages aggressive activities to capture market share through expansion in product lines, ranges or by simply expanding geographically. It is evident from this brief discussion that there are countless variables that come into play when a company chooses to expand. In essence, expansion on the part of one company may very well lead to implications on not only players in the immediate market but upon the very market in a larger sense as well.

Methodology

The establishment of a methodology for a research is perhaps the most crucial element of any research (Kumar 2008, p. 20). This is because of the fact that the research methodology has direct implications on the findings of the research (Ketchen and Bergh 2006, p. 374). The research methodology serves to highlight key elements in the research approach and serves to determine the scope and the vastness of the research (Kothari 2008, p. 1). It is therefore imperative to develop the research methodology well before the implementation of the actual research and any interaction with data that could influence the findings (Goddard and Melville 2004, p. 8).

The research methodology shall incorporate perhaps the most integral part of the research (Taylor, Sinha and Ghosal 2006, p. 1). Since it shall allow the research to establish a concrete and comprehensive directive during the course of the study, there is little doubt that the research methodology shall serve as the key determinant of the authenticity of the findings upon which the research shall come to a conclusion. It is for the same reason that the research methodology shall be elaborated upon in detail in the actual research. However, for the sake of establishing a clear comprehension of the research methodology, the following paragraphs shall present a preface to the fundamental elements that the research methodology shall constitute.

The research methodology shall be established only after due consideration has been given to the research approaches available; after which the one that comes across as most adequate for the research shall be followed without compromise during the course of the study. The research methodology shall not only include the selection of the sources of the data but shall also incorporate special consideration to the nature of the sources of information, the collection of the data and the analysis techniques that the findings shall be subjected to.

Special consideration shall be given to the potential limitations and constrictions that the research can encounter and the limitations posed by each of the selected data sources shall be identified in advance in the research in order to prevent letting them have an influence on the findings of the research. The research methodology will also provide a detailed understanding of the data collection and data analysis methods along with exploratory discussions on any techniques and tools that the research intends to bring into use during the course of the study. It is extremely important to highlight at this point that the research methodology shall also incorporate an analysis of former researches performed with regard to the research methodology adopted by this specific research in order to validate and justify the approach being adopted for the study.

Data collection

The data collection shall be carried out by incorporating a combination of primary and secondary sources. The primary and secondary sources shall be brought into use only after a clear and concrete threshold has been established to ascertain that the sources used qualify for their authenticity and legitimacy.

Data from primary and secondary sources shall be collected at differing stages during the research in order to ensure that a considerable degree of differentiation between the data can be maintained. This differentiation will be brought into use in later stages of the analysis of the data.

The data collected from the primary source shall be one that shall serve to provide a clear and insight into the current and most recent trends with respect to the research questions. Furthermore, the perspectives adopted during the course of the collection of information and the selection of the information shall be developed in line with the research questions considered. It is therefore safe to assume that the research questions shall have a considerable degree of influence on the gist of the research methodology adopted.

The data collected secondary source shall provide a descriptive context to the research and shall attempt to provide a comprehensive review of the variables of the study. The secondary data shall be fundamentally meant to provide the research with a ground work to build on and shall constitute exploratory discussions. The secondary research therefore, shall serve as a foundation upon which the data from the primary research shall build inferences. The secondary research shall also be brought into use to identify key variables and key elements pertaining to the subject of the research so that the findings of the primary research can be compared and contrasted with the body of knowledge that is already available on the subject.

During data collection, special consideration shall be given to the role of the limitations that can have potential implications on the data as it is being collected. For instance, the development of a faulty question that has multiple meanings may cause different respondents to respond to the very same question in differing frames of references, which would in turn jeopardize the research findings and the conclusions.

Data collection shall be performed with complete regard to ethical principles and in the event that any respondents are brought into use, the information acquired shall be used for the singular purpose of research. Furthermore, the data collection shall be carried out in a manner so that complications in the data are reduced to a bare minimum through cross examination and analysis for verification of the authenticity of the data acquired.

Data analysis

Once a concrete research methodology has been established and the data has been collected, perhaps the most pivotal element is the analysis of the data to derive findings and inferences from the data. A data set that is incorrectly analyzed may cause the findings to be far from legitimate and authentic and may eventually compromise the entire study and its validity. A data analysis generally includes a thorough examination of the data that is not only directed towards the determination of the validity of the data but is primarily aimed at deciphering the data for underlying patterns and relationships between the variables for which the data has been collected.

The data analysis shall be carried out in accordance and adherence to standardized methods of analysis. Depending on the research methodology adopted and the research approaches that the research incorporates, the analysis technique shall be established as one that is compatible with the research variables.

In order to ensure accuracy and reduce complexity, the data analysis shall be divided into two sections. The first section shall present the findings of the implementation of the strategy. The findings shall be presented and shall be discussed upon for their trends and contrasts. The discussions on the findings shall then be brought into use to develop inferences. These inferences shall then be compared to trends and relationships between the data that is already available on the subject. In this manner, the data analysis shall be carried out as a complete and systematic process.

During the course of the presentation of the findings, the data shall be fashioned into the form of a model so that it can be analyzed coherently. The development of this model shall incorporate the development of tables and figures that reflect upon cause and effect relationships between the variables for which the data has been acquired.

It would not be unjust to expect the analysis to make use of techniques meant to bring the data into a coordinated form. In fact, the development of the data into a systematic and sensible form shall be one of the most important parts of the data analysis. The data analysis shall also serve as the point from where the exploratory elements of the research come to a halt and following which the research begins to converge towards its conclusions through inferences and deductions.

The data analysis shall serve as a platform from which the research shall draw inferences. It is important to note that the analysis shall be limited to the presentation of the intricacies of the trends and relationships of the data. These trends and relationships in the data shall then be brought into use to develop inferences that shall constitute the conclusion of the study.

Time scale and Plan

The research shall incorporate five fundamental chapters. The first chapter shall serve as the introductory chapter and shall provide an insight in to the fundamental context of the research. The chapter shall also serve to identify the research questions and shall establish the scope of the research while serving to highlight the aims and objectives of the research. The second chapter shall constitute the literature review of the research. This section can be considered to be an expansively expanded version of the brief literature analysis presented above. The literature review shall constitute and exploratory analysis of the subject in question and shall form the groundwork for further research. The third chapter shall constitute a detailed explanation of the research methodology along with a discussion of the sources to be used and a justification of the selection of the sources. Furthermore, the research methodology shall also highlight key potential limitations and the ethical considerations that the research shall be taken into regard. Further on, the research methodology shall be implemented and the key findings shall be presented and analyzed in the fourth chapter following an elaboration of the conclusion in the fifth chapter. All key peripherals shall be presented in the appendices following the bibliography.

The submission of the dissertation shall follow the following schedule:

List of References

Clark, A. (2009) Starbucks shuts 300 more stores.

Duff, M. (2006) Tesco to make U.S. debut on West Coast. Web.

Duncan, H. (2008) Tesco under fire over US expansion. Web.

Finch, J. and Teather, D. (2006) Tesco takes plunge into tough US market.

France 24. (2009) Recession hits the US harder than expected. Web.

Goddard, W. and Melville, S. (2004) Research Methodology: An Introduction. South Africa: Juta and Company Ltd.

Humby, C., Hunt, T. and Phillips, T. (2007) Scoring points: how Tesco continues to win customer loyalty. Philadelphia: Kogan Page Publishers.

Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy. New Delhi: Pearson Education India.

Ketchen, D. J. and Bergh, D. D. (2006) Research Methodology in Strategy and Management, Volume 3. Oxford: Emerald Group Publishing.

Kothari, C. R. (2008) Research Methodology: Methods and Techniques. New Delhi: New Age International.

Kumar, R. (2008) Research Methodology. New Delhi: APH Publishing Corporation.

Miller, R. (2007) Recession Hits U.S. Profits; Economy Might Be Next. Web.

Peppers, D. and Rogers, M. (2004) Managing customer relationships: a strategic framework. New York: John Wiley and Sons

Sandler, K. (2009) 2nd UPDATE: Tesco Expansion Helps Sales Grow. Web.

Taylor, B., Sinha, G. and Ghosal, T. (2006) Research Methodology: A Guide for Researchers in Management and Social Sciences. Delhi: PHI Learning Pvt. Ltd.

Abrams, R. and Kleiner, E. (2003) The successful business plans: secrets and strategies. Palo Alto: The Planning Shop.

Basu, R. (2004) Implementing quality: a practical guide to tools and techniques: enabling the power of operational excellence. Surrey: Cengage Learning EMEA.

Campbell, D., Stonehouse, G. and Houston, B. (2002) Business strategy: an introduction. Oxford: Butterworth-Heinemann.

Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (2008) Strategic management: competitiveness and globalization: concepts and cases. Ohio: Cengage Learning.

Kotler, P. and Armstrong, G. (1991) Principles of marketing. New Delhi: Pearson Education India.

Lewis, J. P. (2004) Project Planning, Scheduling and Control. New York: Tata McGraw-Hill.

Rabb, T. K. (1999) Enterprise and empire: merchant and gentry investment in the expansion of England, 1575-1630. New York: Taylor and Francis, 1999.

Richardson, F. L. and Walker, C. R. (1977) Human relations in an expanding company. Cleveland: Ayer Publishing.

Spiers, J. W. (2001) How small business trades worldwide: your guide to starting or expanding a small business international trade company now. London: John Spiers Company.

Stapleton, J. and Thomas, M. J. (1998) How to prepare a marketing plan: a guide to reaching the consumer market. Vermont: Gower Publishing, Ltd.

Introduction

In this report, the performance of Tesco and Carrefour is evaluated by using financial and non-financial information available in the public domain and compared in the last three years from 2016 to 2019. Furthermore, their decision to make a strategic alliance is discussed along with recommendations for their businesses.

Financial Ratio Analysis

Tesco – Profitability

The profitability ratios of Tesco are given in Appendix A. It is noted that the gross profit margin of the company has improved in the last four years, from 5.40% in 2016 to 7.55% in 2019. Although its revenue only increased by 15.81%, its gross profit increased by 61.99% in that period, which shows that the company managed to lower its cost of sales. The operating profit also increased slightly from 1.82% in 2016 to 3.89% in 2019. It indicates that the company continued to face business difficulties that forced it to incur high operating expenses. The company made a net loss in 2016, and its net profit margin remained weak in later years.

Furthermore, the Return on Equity (ROE) increased to 11.51% in 2017 after a year of net loss. However, its value declined in 2018 and 2019, which was a significant concern for shareholders (Wahlen, ‎Baginski, and ‎Bradshaw, 2018). Overall, the profitability of the company remained weak despite small improvements in its ratios.

Carrefour-Profitability

The profitability analysis of Carrefour is given in Appendix B. It is noted that the company’s gross profit margin slightly declined in the last four years. Moreover, its operating profit margin fell drastically in 2017 due to the high-incurred operating expenses. In 2017 and 2018, the company made a net loss but made significant improvement in 2019 as could be noted from the net profit margin and ROE values. Overall, the profitability position of the company was highly volatile.

Tesco – Efficiency

The sales revenue/capital employed indicates that the company generated £2.11 in revenue for every £1 in its capital. However, this value fell to just £1.88 in 2019, which shows that the inability to efficiently utilize its capital. However, the sales revenue/employee ratio value slightly improved from 0.12 in 2016 to 0.15 in 2019 because of the reduction in its number of employees. The debtor turnover of Tesco improved from 80.23 in 2016 to 85.55 in 2019, after a decline in 2017 and 2018. It implies that it took lesser time to receive cash from its credit sales. The creditor turnover was comparatively low, which implies that the company took a long time to pay its creditors. There was also a slight improvement in its inventory turnover in the last four years, which means that the company did not see any major improvement in its retail business. Finally, the non-current asset turnover also weakened as its value was 1.84 in 2016 and 1.64 in 2019. Overall, it could be stated that the company’s efficiency improved but did not significantly change.

Carrefour – Efficiency

The company’s revenue per €1 invested in capital declined in the last four years with a significant drop recorded in 2019. However, its revenue per employee slightly improved in 2019 after three years of no change. The debtor turnover of the company declined in the last four years, which implies that it took a long time to receive cash from its credit sales. The credit turnover of Carrefour was very low, which reflects its strategy to prolong its cash conversion cycle. The inventory turnover was also slow as the company’s stores and warehouses held inventories for a longer period. The non-current asset turnover also fell in the last four years. Overall, the company’s efficiency weakened in the selected years.

Tesco – Liquidity

The current ratio and quick ratio values of Tesco were well below the standard value of one (Wahlen, ‎Baginski, and ‎Bradshaw, 2018). It indicates severe liquidity issues that the company faced, which could adversely affect its business in the coming years. Overall, the liquidity position of the company remained weak in the last four years.

Carrefour – Liquidity

Carrefour’s current ratio and quick ratio values were less than one, which implies that its current liabilities exceeded its current assets. Overall, the liquidity position of the company was weak.

Tesco – Gearing

The loans/capital employed analysis shows that the company managed to reduce its debt in 2017 and 2018, but failed to generate sufficient earnings to keep its leverage low in 2019. Furthermore, it is noted that the company’s ability to generate high operating profit was affected in the last year as the interest cover ratio value declined significantly from 8.79 in 2018 to 3.34 in 2019. Overall, the solvency position of the company was volatile.

Carrefour – Gearing

Carrefour’s loan to capital employed ratio did not change, but there was an increasing trend since 2017. The company’s interest cover improved after a significant decline in 2017. Overall, it is noted that the company’s leverage position was stable.

Horizontal Common Size Analysis

It is noted that Tesco’s revenue was 15.81% higher than the base year in 2019. Furthermore, its operating income was 147.59% higher than in 2016 in 2019. Although the net income of the company also increased, it fell significantly in 2019. The horizontal analysis of the balance sheet indicates that the company’s current assets were much lower than in 2016. The company invested heavily in acquiring non-current assets over the last four years. Furthermore, there was a decline in the company’s current and total liabilities as compared to 2016. The company’s equity improved as Tesco accumulated large earnings in the last four years.

Moreover, Carrefour revenue was 5.88% lower in 2019 than in 2016. Its gross profit and operating income were much lower than in 2019 as compared to 2016. However, its net income in 2019 was 52.21% higher than the base year. The horizontal analysis of the balance sheet indicates that the company’s current assets were slightly lower than in 2016, whereas its non-current assets were higher. On the other hand, its current liabilities declined in 2019, but total liabilities increased. The company’s equity deteriorated in the last four years due to net losses in 2017 and 2018.

Vertical Common Size Analysis

The vertical analysis indicates that the current assets of Tesco declined as a proportion of total assets, and its non-current assets increased. On the other hand, it is noted that the company’s current liabilities and total liabilities declined as a proportion of total assets, whereas its total equity increased.

The current assets of Carrefour also declined as a proportion of total assets, and its non-current assets increased. On the other hand, it is noted that the company’s current liabilities and total liabilities increased as a proportion of total assets, whereas its total equity declined.

Comparative Analysis of Tesco and Carrefour

The analysis given above indicates that Tesco performed better than Carrefour in terms of profitability. However, both companies faced significant uncertainties as competition intensified, and it is noted that both companies had financial losses in the last four years. Furthermore, the analysis shows that Tesco had stronger efficiency management as compared to Carrefour. Still, both companies faced cash-flow problems that forced them to delay payments to the suppliers, which could affect their relationships in the coming periods. Both companies had poor liquidity due to their high inventories and slow inventory movement. The gearing position of both companies was similar as they had maintained their capital structure and had low operating profits in the last four years.

Evaluation of Performance

The analysis showed that both companies lacked the strategic will and ability to face the increasing competition from physical-store retailers and online companies. Other companies were able to achieve stronger results due to their strong product diversification and acquisition strategies. Both Tesco and Carrefour focused on expanding their sales network due to which they lost their focus on primary high-profit markets, which allowed competition to strengthen and impose greater challenges for these companies.

Analysis of the Alliance

The strategic alliance between Tesco and Carrefour signed on July 2, 2018, was expected to enhance their product choices and supply chain management through the development of effective and efficient relationships with suppliers. Both companies opted for this alliance to improve the shopping experience of customers and increase their sales and profitability. However, it is noted that the revenues of both companies increased in 2019, but Tesco’s profitability weakened, whereas Carrefour made a significant recovery in the last year. The results showed that these companies did not have the low-price competitive advantage anymore, and they need to redevelop their strategies to avoid the declining phase in their lifecycles.

Conclusions and Recommendations

The primary weakness of Tesco and Carrefour is that they lost their focus on primary markets that generated high profits for them in previous years. Moreover, these companies failed to accept and address the challenges imposed by low-cost online companies. It is recommended that both companies should focus more on diversifying their product lines and improving the quality of branded items. Furthermore, they should lower their operating costs by closing down low-profit generating big retail stores, and investing additional amounts in their online businesses. These companies should invest in opening small stores that have greater customer reach. Both firms must work with local and international suppliers who can promise a high quality and timely delivery of products.

Reference List

Wahlen, J. M., ‎Baginski, S. P. and ‎Bradshaw, M. (2018) Financial reporting, financial statement analysis and valuation. 2nd ed. Boston, MA: Cengage Learning.

Appendix A – Tesco Ratios

Appendix B – Carrefour Ratios

Appendix C – Horizontal Analysis

Appendix D – Vertical Analysis

Introduction

This report entails a financial evaluation and analysis of Tesco PLC with the underlying objective being to gauge its attractiveness as an investment for potential investors in the equities sector. Tesco PLC is a British company that distributes groceries, and it is passionate about providing services to clients in an improved manner each day, either in their stores or online interactions. This evaluation will be undertaken primarily through ratio analysis and the integration of additional company and industry information obtained from its 2019 annual report and other external sources provided concerning this company.

Tesco PLC celebrated its centennial anniversary in 2019, having been founded in 1919 by Jack Cohen in East London as a market stall (Tesco, 2020). Currently, the company has operations across the globe, totaling 3,787 stores and employing more than 340,000 people as of 2019 (Tesco, 2020). 79% of the companys operations are found in the UK, with the rest being scattered in regions such as Europe and Asia-Pacific.

Comparative Analysis

Profitability Ratios

According to Sharma (2020), profitability ratios are useful measures for evaluating the potential of a business to generate profits from available resources. Accordingly, the ratios provide potential investors with a clear picture of the company’s expected future performance (Gibson, 2008). These ratios provide a clear analysis of current and past statuses of the company’s performance in a comparable manner. Moreover, financial ratios help to determine whether the business is utilizing its resources effectively to maximize returns (Denny, 2003). In this case, Tescos PLC Profitability ratios are summarised as follows:

• Return on Shareholders Funds – This ratio declined to 8.88% in 2019, down from 11.5% in the previous year. The decline was a result of the company’s decision to increase the equity of its ordinary shares (Eley, 2020).
• Return on Capital Employed – this ratio, on the other hand, increased to 7.77% in 2019 from 6.42% primarily due to a higher reported operating profit of the company. This higher operating profit is an indicator of increased efficiency in the companys operations.

There was an increase in Tesco’s operating and net profit margins for the year 2019, compared to the 2018 returns (Sabanoglu, 2020). One should emphasize that the operating profit margin excludes exceptional items to reflect ordinary operations, while the net profit margins include these items to show the whole of the operations. The increase in these margins is a positive indicator for investors considering that sales revenue in the same year also grew substantially to GBP 63.91 million, up from GBP 57.493 million in 2018 (Tesco, 2020).

Efficiency Ratios

Activity or Turnover ratios are used to evaluate a companys efficiency and effectiveness in the undertaking of its day-to-day operations, according to Sharma (2020). These ratios are a measurement of an organization’s abilities to utilize its resources and management of responsibilities effectively. Tescos PLC Efficiency ratios are summarised as follows:

• The Inventory Turnover, Receivables Turnover, and Payables Turnover ratios of Tesco PLC remained relatively unchanged in 2019 compared to 2018 at 16 days, 9.4 days, and 53.9 days respectively. This status quo by extension implies that the company did not undertake any changes to its inventory management, receivables, and payables processing approach in 2019. Therefore, any increases in the companys operations can be attributed to the operation of these processes more efficiently as opposed to underlying fundamental changes to these functions
• The Sales Revenue to Capital Employed ratio of the company also remained unchanged in 2019 at 2.24 compared to 2018s 2.25.

The biggest indicator of the increased efficiency of Tescos operations in 2019 compared to 2018 was the Sales Revenue Per Employee which jumped significantly to 140.6K compared to 130.5K the previous year as indicated. The year-end figures of 454,419 for 2019 and 440,658 for 2018 are used because average values are not reported and demonstrate an approximate 8% increase in sales revenue per employee. In this regard, it can be concluded that evidently, the biggest driver of the companys increased efficiency is its human capital rather than its processes and functions.

Liquidity Ratios

According to Sharma (2020), liquidity ratios help to assess the financial capacity of a business to meet short-term obligations, such as debts, when they are due. High liquidity ratios indicate that the business is not at risk of bankruptcy, since it can easily pay off creditors (Coulon, 2019). Tescos liquidity ratios for 2019 are as summarised below:

• The Current Ratio, Acid Test Trae, and the Cash generated from operations to maturing obligations ratio all declined marginally to 0.61, 0.48, and 0.13 in 2019 respectively. In the previous year, these ratios respectively stood at 0.71, 0.59, and 0.17.
• The decline in these ratios is attributed to an increase in the companys Current Liabilities to GBP 20,680 Million compared to GBP 19,233 Million in 2018. Current Assets also declined marginally from GBP 13,600 Million in 2019 compared to GBP 12,570 Million in 2018.
• The decline in Current Assets is partly attributed to a decrease in the companys cash reserves of GBP 2,916 Million in 2019 compared to GBP 4,056 Million in 2018 (Tesco, 2020).
• Despite these marginal declines, the company’s liquidity ratios all remain in a healthy position indicating that it can comfortably meet its short-term obligations in the future.

Gearing Ratios

Gearing Ratios are used to evaluate a companys level of indebtedness and the use of Financial Leverage in the financing of the company’s operations and within its capital structure (Sharma, 2020). Tescos PLC Gearing ratios are summarised as follows:

• Gearing Ratio – Tescos Gearing Ratio in 2019 signified a massive improvement to 59.1% compared to 47.7% the previous year. This improvement was attributed directly to the decline in the companys Long term liabilities, a positive indicator to potential investors of the company as per the analysis.
• The reduction in the companys long-term liabilities may also explain the previously observed decline in the companys cash reserves. Accordingly, Tesco PLC utilized part of its cash reserves to cover its long-term obligations in the financial year ending 2019.
• Interest Cover Ratio – Tescos Interest Cover also increased significantly to 4.1 in 2019 from 2.7 the previous year. This increase is attributed to many factors, including the companys growth in its operating profit during this financial period.

Investment Ratios

Investment Ratios are used to evaluate the returns earned or attributable to the investors in a companys shares over a given time duration, usually one financial period or so depending on the company setup (Larrabee and Voss, 2012). Tescos PLC Investment ratios are summarised as follows:

• Dividend Payout Ratio – Tescos Dividend Payout Ratio increased from 25% in 2018 to 37% in 2019, with dividends paid increasing substantially from 3.0p to 5.77p during the same period.
• Dividend Cover Ratio – this ratio declined from 4.0 to 2.7 in 2019 due to the increased dividends paid out by Tesco 2019.
• The Dividend Yield Ratio increased significantly from 1.5% to 2.6% in 2019, underpinned by a higher dividend payout by the company. Within the same financial period, the companys Market Value Per Share also increased to 222.8p from 205.4p, subsequently resulting in the lower Dividend Yield Ratio.
• Earnings Per Share – Tescos EPS also increased in 2019 to 15.4p from 11.9p the previous year due to the higher dividends paid out.
• Tesco’s P/E (price to earnings) declined slightly, down from 17.3 in 2018 to 14.5 in 2019, as a result of the increase in the companys share value, and the corresponding increase in its earnings per share.

Recommendations and Conclusions

The analysis of Tesco PLCs performance in 2019 compared to 2018 based on financial ratios indicates that the company significantly increased its operating efficiency as evidenced by different measures such as its Turnover Ratios (Tesco, 2020). During this period, the company also intentionally sought to drive down its operating costs as shown in its annual report, which in the event significantly increased its operating efficiency.

Increasing sales and profit margins by extension have yielded an increase in the companys Dividend Payout, which is a significantly attractive proposition for potential investors in the business. Consequently, increased dividends have also led to an increase in the Market Value per share of the companys stock upwards resulting in increased Investment Ratios of the company.

The corresponding reduction in Tesco’s long-term liabilities further points to both the companys solvency and its increased attractiveness to potential equity investors (Wood, 2020). The companys P/E ratio is higher than that of its competitors, implying that it is its operating strategy that is driving the increase in value and not macro-level or industry factors. Based on the above considerations and the expected rise in Tesco PLCs value as it continues to roll out its turnaround plan, it is recommended that potential investors should Buy and Hold the companys shares over a mid to long-term horizon.

According to Epstein and Buhovac (2014), some external factors would impact the strategy of the company, which would be of great interest to potential investors. These factors include customers or target groups, the inputs from supplies, business competitors, media effects, political sways, technological advances, economic, social, and natural phenomena.

Limitations of Ratio Analysis

Ratio analysis is prone to several limitations which may impact its effectiveness as an analytical tool. In this regard, the first limitation of financial ratio analysis is its dependence on historical data, thereby lacking a forward-looking perspective in the output information of these ratios (Tracy, 2012). Secondly, financial ratio analysis does not factor in external influences, which impact a companys operations, such as the underlying macro-level factors (Lee, 2007). Thirdly, financial ratio analysis also fails to consider the impact of a companys human capital which is its most important resource to be included in the process.

Reference List

Coulon, Y. (2019) Rational investing with ratios: implementing ratios with enterprise value and behavioral finance. New York: Spring Nature.

Denny, R.S. (2003) Accounts for solicitors. New York: Psychology Press.

Eley, J. (2020) ‘Tesco defends payouts amid warnings over profit hits from coronavirus’, Financial Times, Web.

Epstein, M. J., & Buhovac, A. R. (2014). Making sustainability work: best practices in managing and measuring corporate social, environmental, and economic impacts. New York: Berrett-Koehler Publishers.

Gibson, C. (2008) Financial reporting and analysis: using financial accounting information. 11th edn. New York: Cengage Learning.

Larrabee, D.T and Voss, J. A. (2012) Valuation techniques: discounted cash flow, earnings quality, measures of value added, and real options. New York: John Wiley & Sons.

Lee, T.A. (2007). Financial reporting and corporate governance. New York: John Wiley & Sons.

Sabanoglu, T. (2020) ‘Tesco group revenue in the United Kingdom (UK) 2015-2020’, Statista, Web.

Sharma, R. J. (2020) Ratio analysis: financial ratios. New Jersey: Amazon Digital Services.

Tesco. (2020)About. Web.

Tracy, A. (2012) Ratio analysis fundamentals: how 17 financial ratios can allow you to analyze any business on the planet. New York: RatioAnalysis.net.

Wood, Z. (2020) ‘Tesco defends £315m dividend plan despite business rates holiday’, The Guardian, Web.

Tesco Plc’s Annual Report, 2019. Web.

Introduction

Research data from 2011 to 2013 reveals a rather interesting trend in the past 2 years wherein consumer spending has decreased within the U.K., U.S. and Europe yet has significantly increased within China and other Asian countries.

Some financial analysts have connected such an occurrence with the current popularity of Asia as an outsourcing destination thereby resulting in positive economic benefits for the local economy.

Since consumer demand within Tesco’s traditional markets has been waning, it thus necessitates the debate as to whether the company should think of expanding into international markets such as those in Asia (particularly China) in order to take advantage of this market opportunity.

It is based on this that this paper will explore the current problems within traditional markets for expansion such as the U.S. and will delve into the advantages found in new markets in Asia such as China.

The Company

Tesco is the world’s 3rd largest retailer with numerous stores located in international locations such as the U.K., Europe and Asia. It controls 30% of the U.K. grocery market and is poised to compete directly with the likes of Wal-Mart in terms of profitability and the number of stores the company has.

The Macroeconomic Situation

Examining Current Consumer Markets for Expansion

Ever since the 2008 financial crisis, the current U.S. consumer market has stagnated even until the final month of 2012.

While there are signs of recovery in some sectors, the fact remains that reliance on government aid programs is still at an all time high resulting in a market that seems far to unstable and poor in consumer demand to actually expand into (Aliber 2012, pp. 52-56).

The fact is that the scaling back of operations within the U.S. combined with slow economic growth is indicative of a deterioration of consumer spending which makes establishing more Tesco locations within the country far from ideal since it is unlikely that consumers would continue to patronize the products of the company which are priced at a mid to high range as compared to local competitors such as Wal-Mart and Costco which have far cheaper brand name goods (Morris 2012, pp. 20-22).

Not only that, there is a significant degree of market saturation within the U.S. wherein super stores such as Wal-Mart, Walgreens and Costco would make it difficult, if not impossible, for Tesco to establish a sufficient enough foothold for market penetration.

A similar situation can be seen in Europe at the present where countries such as Greece, Spain, Ireland, Italy, France and Germany had also been adversely affected with issues such as Greece’s sovereign debt issue, Spain’s housing crisis, the near collapse of the Irish banking system as well as political turmoil in Italy.

All of these factors have translated into decreased levels of consumer spending which would not bode well for any subsequent expansion of Tesco into these locations.

With low consumer spending and an atmosphere of economic uncertainty which pervades the domestic market within the aforementioned countries, any attempt to expand into such areas would result in wasteful operational costs for Tesco such as storage, utilities, taxes, worker salaries and employee benefits with no guarantee that it would be able to obtain a significant portion of the local consumer market share.

The fact is the current consumer market situation within the U.S. and Europe is not conducive towards sales and, as such, the company should look towards other markets for expansion.

One possible avenue of approach is to shift resources towards foreign markets which have not been as adversely affected by the current economic downturn and focus efforts there instead of in cathartic local markets.

Examining the Chinese Market

From 1990 to the present, China’s economy has grown to such an extent that it is now ranked as the second largest economy in the world in terms of manufacturing capability and local consumer demand (Hong 2012, pp. 561-577).

The outsourcing industry in particular has contributed to this rise with hundreds of international brands and retailers relocating their factories to China in order to take advantage of the cheaper corporate tax rates and low cost of labor (Hong 2012, pp. 561-577).

Not only that, China’s success has resulted in the creation of a prevalent upper and middle class whose spending habits have been increasing as of late and is increasingly oriented towards consuming various types of western goods and resources.

In fact, based on the study of Hong (2012) the sale of goods from the west (particularly from Europe) has been increasing exponentially within the country with numerous brands clamoring to penetrate into the Chinese market (Hong 2012, pp. 561-577).

This has resulted in an unprecedented level of demand for Western goods and brands making the Chinese market an ideal location for the expansion of numerous established brands within the U.S. and Europe.

When taking into consideration the decrease in consumer spending within the U.S. and European market and the unprecedented level of demand within China marked by increased consumer spending, it becomes immediately obvious that Tesco should expand its operations into the Chinese market.

Porter’s five factor framework for competition

Substitute Threat

When examining the possibility of substitute threats, what must be understood is that a large percentage of Tesco’s own stock actually comes from manufacturers that are located within China and several parts of Asia. This presents a considerable dilemma since such products can easily be obtained from local suppliers at a quarter of the cost.

In order to resolve such an issue, it is recommended that the stocks within the store focus more on high end goods from European manufacturers (Villar, Di & Segev 2012, pp. 341-349).

The reasoning behind this is connected to the influx of the “newly rich” within China and their preference for branded Western goods which they consider as superior to local products.

By focusing on the sale of high end goods, the company will be able to distinguish itself from other local stores and become a hub for wealthy Chinese consumers to shop for their everyday needs (Villar, Di & Segev 2012, pp. 341-349).

Entry Threats

Entry threats for the company come in the form of the ease of entry into the local Chinese market for both domestic and foreign competitors. While the country’s lax regulatory measures would make it easy for Tesco to setup shop within the country, the same ease of entry can also work against it.

Since it would take time to develop a loyal consumer base, Tesco would not have the capacity to be able to control the market. Not only that, due to the presence of a plethora of suppliers within China that normally supply some of the largest retail establishments within the U.S., this ensures that Tesco cannot compete in terms of cheaper prices or having a more diverse product lineup.

Rivalry

One possible threat faced by the company comes in the form of the production of local Chinese companies of not only cheaper products but cheaper services as well.

What must be understood is that there is a certain degree of technology stealing being done by local Chinese companies wherein the processes, brand style and means of production brought in by foreign companies are in effect copied, replicated and utilized by Chinese based companies and then subsequently appear in markets rivaling their original counterparts yet being marked at barely 1/3rd of the cost (Rules of the game 2008, pp. 4-5)

China has increasingly learned from various foreign businesses that had established themselves within the Chinese market resulting in the proliferation of not only copycat manufacturing companies but also copycat service industries as well.

Several of these companies have actually entered into various international markets (i.e. Latin America, the Middle East, and South East Asia) and subsequently challenged the market share of the companies that they copied.

They do this by presenting the same type of product and service yet at an invariably lower cost which companies at times cannot match. This presents itself as a considerable threat to Tesco’s market position in several of its key future markets within China and, as such, does not bode well for the company.

Supplier Power

What must also be taken into consideration is the fact that due to the low cost of doing business in China local manufacturers that copied the technologies and processes of companies that had outsourced to China were able to undercut prices resulting in situation where more international consumers chose to buy from these new companies due to the relatively lower prices for the same product.

The Economist (2004) states that it was the culmination of these events that brought about the development of a new Chinese upper class composed of businessmen and entrepreneurs that increased local demand for high end real estate development as well as high class foreign goods (Safe as houses, 2004: 41).

In the short term, Tesco may be able to utilize brand and product leverage to distinguish itself from local competitors, however, over the long term it is possible that local entrepreneurs may copy the store’s layout and provide cheaper imitation goods of Tesco’s products resulting in a loss of consumers and profit.

Buyer Power

To better understand the current wage situation within China, an analysis of the study of Wang & Gunderson (2012) was conducted in order see the difference between wages of a British worker and a Chinese worker.

It was shown that the average Chinese minimum wage consisted of 2,000 to 4,000 a month (190 and 380 pounds when converted using current exchange rate data) (Wang & Gunderson 2012, pp. 860-876).

Considering the fact that the average salary of a worker in the U.K.’s manufacturing industry is 2,000 pounds, the gap seen represents a considerable salary problem given the type of goods that the company normally stocks.

For Tesco, the wages of local Chinese workers are far too low given the company’s predilection to stock mid-range to high end products (Wang & Gunderson 2012, pp. 860-876).

Thus, a vast majority of local Chinese consumers are more likely to patronize small local establishments that source their products from local sources as compared to shopping at Tesco with its massive international supply chain.

This is further evidence that if the company is to expand into China, it would need to focus on the rich and middle class since the lower class within China have barely enough money to afford the company’s products (Wang & Gunderson 2012, pp. 860-876).

Competitive strategies

Distribution and Sales Strategy

At first, it would be necessary to increase people’s awareness about the vending machine concept. This news could be spread through social networks within China which is the least expensive method of promoting the product and attracting customers.

Additionally, fliers could be distributed in the venues where the shopping centers will be built and will act as the main distribution channels for the company (Ataman, Van Heerde & Mela 2010, pp. 866-882). Overall, the main advantage of this approach is that it will allow the company to increase its customer base within a short time.

Furthermore, word-of-mouth can also greatly benefit the venture as this communication channel will become particularly important at the initial stages when customers are not aware of the products on offer.

In order to implement this aspect of the project, the company will need to form alliances with local media outlets and consumer groups in order to increase the amount of “hype” associated with the opening of a Tesco store.

Development Plan

The key element that needs to be considered at the start-up of this kind of a business is which location would be the most suitable for the business’s needs. Based on this, sites with a great quantity of pedestrian traffic would be essential in order to obtain adequate levels of revenue.

Widespread locations for positioning a successful Tesco location would be within the cities of Beijing, Shanghai, Guangdong and Hong Kong due to the high concentrations of upper and middle class consumers within such regions (Michael 2007, pp. 20-23).

Analysis on the company’s operating exposure

In the case of China, Tesco actually exposes itself to a considerable level of operating exposure wherein in the next 3 years as the property bubble of the country “pops”, this would result in a considerable devaluation of the Yuan which would negatively impact the company.

Management of operating exposure

The best way of managing this level of exposure is to focus on its supply chain wherein it would focus on minimizing the amount of products in storage and maximizing the sale of easy to move products.

By ensuring that products only arrive when they are needed rather than storing them, this enables the company to be more flexible and minimize its financial losses once the property bubble pops.

Summary and conclusion

Based on what has been presented in this report, it can be seen that entering into the Chinese market comes with both advantages and disadvantages.

Disadvantages come in the form of considerable local competition while advantages come in the form of a newly wealthy middle and upper class within the country that have a considerable demand for western goods and brands.

Reference List

Aliber, RZ 2012, ‘Great Recession or Mini-Depression?’, Wilson Quarterly, vol. 36, no.1, pp. 52-56, via EBSCO database.

Ataman, M, Van Heerde, H, & Mela, C 2010, ‘The Long-Term Effect of Marketing Strategy on Brand Sales’, Journal Of Marketing Research (JMR), vol. 47, no. 5, pp. 866-882, Business Source Premier , via EBSCO database.

Hong, C 2012, ‘Trade liberalization, wages, and specialization in China’, Journal Of The Japanese & International Economies, vol. 26, no. 4, pp. 561-577, via EBSCO database.

Michael, DC 2007, ‘The Sales and Distribution Revolution’, China Business Review, vol. 34, no. 5, pp. 20-23, Business Source Premier, via EBSCO database.

Morris, CR 2012, ‘Boom Times Ahead?’, Commonweal, vol.129, no. 15, pp. 20-22, Literary Reference Center, via EBSCO database.

Mucha, T, & Scheffler, M 2006, ‘FROM THE GROUND UP’, Crain’s Chicago Business, vol. 29, no. 26, p. 18, MasterFILE Premier, via EBSCO database.

‘Rules of the game’ 2008, Business China, vol. 34, no. 10, pp. 4-5, Business Source Premier, via EBSCO database.

‘Safe as houses’ 2004, Economist, vol. 371, no. 8377, p. 41, MasterFILE Premier, via EBSCO database.

Villar, M, Di, A, & Segev, S 2012, ‘Chinese and American perceptions of foreign-name brands’, Journal Of Product & Brand Management, vol. 21, no. 5, pp. 341-349, Business Source Premier, via EBSCO database.

Wang, J, & Gunderson, M 2012, ‘Minimum wage effects on employment and wages: dif-in-dif estimates from eastern China’, International Journal Of Manpower, vol. 33,no. 8, pp. 860-876, Business Source Premier, via EBSCO database.

Tesco as a well-linked hypermarket in Europe is an international chief in the produce, plan as well as overhaul of technology-based elucidation for the upstream power business (Tushman & Anderson, 2004). Tesco’s burly obligation as well as its advanced agenda, Tesco has made it to acquire inventive resolutions.

Tesco has been a base of merit due to it having enough skills needed to bring about the success of the industry (Tornatzky & Klein, 1982).This is due to the fact that, it has professionals in investigation and progressions, mechanization as well as manufacturing in the team involved with coming up with the resolutions

A supermarket is a giant shop that deals with merchandizing different types of goods and services in a well displayed manner (Tidd, Bessant & Pavitt, 2005). There are several types of produce found in the supermarket. These include; foodstuffs, clothing, household utensils and luxurious goods.

Industry is a division of cost-effective development activity that deals with the production of goods and services that helps one to make profit in any type of business started by an entrepreneur. Supermarket industry is an area of business that sells manufactured goods in fit exhibited order that makes the customer to see them easily and how much each item costs (Adair, 1990).

Due to the dilemma of having many individuals who are not in a position of purchasing goods in a supermarket because of less or unlimited moment as well as people don’t feel like using their time on retail of rations, has brought about the need of having futures and innovations (Tornatzky & Klein, 1982).

Futures within the supermarket industry can be viewed as the expectations of the business success or rather the trends of a certain supermarket towards the achievements of its set goals which is to attain maximum profit hence sustaining its existence.

Innovations of supermarket on the other hand, can be termed as the complete changes through introduction of new ways of doing things within a supermarket business that will enable people to purchase their goods.

Goals oriented supermarket industry that will appreciate its vision should formulate new ventures that require creativity as well as networking strategies of fresh innovations that will allow those people with no time to purchase in it (Fichman, 1999).

The needs for novel innovations to generate and evaluate ways of making supermarkets goods available for those customers who lack time to buy, may call for techniques such as brainstorming, creativity, ideas appraisal, trend analysis as well as a thought transfer from one economy to another or rather one locality to another.

In any case, a supermarket industry that fails to innovate often dies due to lack of critical view of future success that stabilizes it (Kenneth, 2009).

For a supermarket industry to deal with problem of people not purchasing due to lack of time, it is wise to put in place new innovations in marketing strategies, consumer’s behavior change from unfavorable to favorable altitudes of buying, management approach as well as leadership review. Future success of a supermarket will be attained if these innovations are laid down perfectly.

The supermarket industry has been faced by a number of challenges especially after becoming position two in the Korean market and therefore it ought to strategize more specific plans so as to go up to position one without the need of increasing the number of stores.

This is one of the major challenges that Global grocery chain Tesco had to do away with in order to be successful (Kenneth, 2009). This therefore, calls for introduction of certain techniques that would help to diminish the problem of people not buying form the supermarket industry.

Tesco’s management ought to dig up to this so as to know the base cause of people not buying from the supermarket industry (Kiernan, 1995). With the main cause of this problem the management involved would be in a position to put down workable strategies that would help do away with the problem or else better ways coping with the situation and still be successful.

One of the major causes would be the rising level of economy in the current world as well as people becoming more and more committed to various activities thus, little or no time is left for them to go buying food from a supermarket (Kenneth, 2009).

This would have in a great way led to the consumers preferring to purchase their goods from other places where the time spent doing the same are limited. They tend to work for more hours and saving little or no time for buying foods. The supervisors in the supermarkets therefore ought to come up with policies that will help reduce the time spent by people buying food.

There have been a number of implications that have come up with the aim of saving the supermarket industry in South Korea. One of the suggestions included the application of mobile trade in order to improve the convenience of shopping. The industry also ought to establish an indulgence of problems within the South Korean way of living that is coming up on groceries.

To come with answers on what to be done to the hard working Koreans in order to make their lives easier, the management would have to take a virtual store to customers within a passageway station to lessen the time spent by the hard working nation of South Korea (Rogers, 1983).

The industry would also make photos of the commodities they sell as well as their prizes. By offering delivery services to the consumers on the products they purchase, it would help to attract more buyers to the stores. This is due to consumer spending very little time on purchasing the goods as well as transporting them.

Innovation is all about managing alteration in an organization. The majority of transformations are produced by disorderly innovation and frequently come from the mind. These transformations mostly affect the inner working as well as marketing in an organization (Wejnert, 2002).

The innovation alterations that would occur in the supermarket industry often require a lot of explanation so as to ensure there are none that would affect an organization without its management being ready. In case these alterations are brought into an organization, by innovation may end up flowing to the entire association system.

The department concerned with this kind of planning in the supermarket industry ought to be full of professionals so as not to involve strategies that would otherwise lead to failure of the industry.

Some of the innovations that would work for the problems in Tesco in South Korea would encompass; ensuring that there are modifications for the consumer. This type of disruption necessitates the association concerned to envisage for the consumers something they can visualize for themselves (Adair, 1990).

The other innovative modification is for the employees where they are expected to do things in a different way that would bring positive outcomes in the organization.

Tesco ought to improve the virtue markets as they play a great role of advertising the kind of goods found in the supermarket hence acting the role of advertising for their goods.

In addition to this, the hard working people of South Korea would find it easier to purchase goods via the virtual markets as the services are favorable to them due to reasons like; goods can be delivered to them after buying those who are set aside for these activities, there is no time wastage for the people as they go to the store to select and purchasing the products.

This is because the virtual markets are positioned at convenient position for the customers and the costs of the various goods tagged to the various goods thus making it easier for the consumers to select what they want within a short duration.

With the intention of inspiring people to purchase goods and services as well as alter their outlook, advertising is of these virtual markets is crucial so as to ensure all those that might be interested in purchasing these goods but have limited time can have an opportunity to buy the goods from the supermarket industry.

This can be regarded as one of the swift means of attracting more consumers despite of their limited time. This means of marketing Tesco supermarket industry in South Korea engrosses putting into practice as well as developing the company’s publicity policy (Tushman & Anderson, 2004).

In a supermarket, there are experts who often work in organization whose work range from; planning, investigating, assessments, novel trade expansion customer and purveyor connection, digital responsibilities such as creation, production and designing as well as generating incorporated advertising operations.

There are 4P’s of innovation that include; production innovation, process innovation, paradigm innovation and position innovation that can be applied in Tesco to increase its outputs (Fichman, 1999). The 4P’s of innovation are described as follows:

Process innovation

This refers to whatever can be done to advance procedures so that they are quicker, cheaper or more proficient in an organization. The procedure modernism may also be used to refer to whichever new thoughts are employed to already existing procedures either by adding or complete removing the already existing ones with an aim of making profit.

This kind of modernism can centre its attention on processes via which produces are created as well as their delivery. Due to the problem in South Korea of people not buying foods from the supermarket, Tesco could employ this kind of innovation which would help change the view of their products (Fichman, 1999).

For instance it may choose to change their means of delivery or even include in if it never existed. This would be a likely way of encouraging the hard working people to buy their foods from the industry.

Product innovation

The product modernism is a kind of innovation that involves brings in a product or improves a given product or the services offered to the consumers. That is, the modifications on what is offered to the consumer.

Product modernism is aim at changing what the consumer is used to for instance, modifying the shape, color as well as changing the ingredients of a particular product. In these modifications the packaging is also another important factor to consider motivating the consumers.

In South Korea this kind of an innovation is applicable especially where the industry would improvise different food products that are durable for example PlumpyNut a curative food that can be distributed both outside as well as within the medical setting (Adair, 1990). This would work out to increasing the number of consumers in the industry.

Position innovation

This type of innovation is whereby the organization decides to change the view of their products according to the customer’s perception symbolically. This includes the need to know what the customers feel about a particular product as well as the way forward to improve his or her view.

As business organizations are aimed at increasing on their profit, it as therefore crucial that the industry modify its products according to what the consumer likes (Wejnert, 2002).

This is due to the fact that, the profits gained by an organization id dependent on the consumer’s perception and rather not on how perfect their services or produces are. Tesco is an industry that ought to apply this kind of an innovation so as to modify how the hard working nation perceive their produce and this would eventually end up in attracting the consumer who do not like buying from the supermarket.

Paradigm innovation

This kind of innovation involves changing the manner in which things are done in an organization. Paradigm may include improvising other means of selling their produce for instance change the process of selling over the counter to on-line selling, trading on the internet or introducing catering method (Senior, 1997).

Tesco supermarket in South Korea therefore needs to change its way of serving their consumers to any or all of the means to motivate the customers’ willingness to purchase from the supermarket. This is a better way of serving those who are too busy and have no time to spend buying food fro the supermarket.

The incremental innovation is a kind of modernism that involves utilizing technologies on hand, centering its attention on price or characteristic developments in existing products, advertising as well as procedures.

Tesco industry came up with this kind of an innovation whereby the already existing technologies were used and developments were employed in their products to fit the needs of the consumers (Adair, 1990). These incremental modernisms, normally pursues an orderly procedure that is;

1. A latent profitable advancement to an already existing produce or procedure that is rapidly located in a clearly distinct time-tested procedure calculated to establish or disapprove its worth to the corporation.
2. The procedure has managerial funding, and the task of a improvement group
3. progress and commercialization are normally bound beside a proper phase-gate course

Radical innovation discovers novel skill as well as a high level of ambiguity. This kind if an innovation centers its attention on progressions services or produces, with unparalleled presentation features.

It also generates spectacular changes that alter existing manufacture or markets. In the supermarket industry, Tesco had to come up with a variety of activities and decision to improve the number of their consumers.

The adoption and diffusion form of innovation aims at provision of a directional point of view to the process of innovation. This kind of a theory recounts to the level of modernism efforts via differentiating macro from micro hypothesis.

Supermarket industry in South Korea applied this type of an innovation where the adopters of a skill procedure had to go through five phases of diffusion process in order to increase on the outputs. The stages include; affiliation, verdict, execution, confirmation as well as knowledge.

The Tesco industry ought to also increase the number of virtual markets in a given area. A rise in the number of such markets will reduce the time spent by a consumer going long distances. Also, this will help decline the congestion in the supermarkets industries hence faster services to the customers (Senior, 1997).

This will in a great way attract more customers as their limited time will be enough for them to buy foods. The increase in number of supermarkets offers the consumers a better chance of viewing as well as selecting the kind of foods they want.

In conclusion, Tesco industry to be successful there are various strategies that ought to be put in place. Therefore, to ensure future in a supermarket, innovations need to be specific on attaining more customers who can buy food from the supermarket (Adair, 1990).

Also, achievable goals need to be set and worked on so as to ensure success in Tesco industry. These all factors combined, will lead to a success in the supermarket industry and as a result the industry will end up making profit which was the bottom line of starting the Tesco industry.

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