Tesco

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BUSINESS WORLD – BUSINESS ENVIRONMENT
GLOBALISATION AND TESCO

Terms of Reference

The aim of this report is to give a detailed explanation of globalisation, what its main drivers are, its undesirable effects, how big a part Tesco plays in going global and what political, economic, sociocultural, technological and legal forces a multinational organisation might face when expanding into other countries.

Main Body
Globalisation
Globalisation is the integration of the world’s domestic economies into one single international market. It can also be defined as the ‘death of distance’ (Cairncross, 1997). Globalisation allows for the free trade of goods and services between nations; it allows workers to be employed more easily around the world; it allows businesses to benefit from foreign direct investment (FDI) and it allows markets to develop at a faster rate due to the interchange of new technological advances and intellectual knowledge. The process of globalisation is motivated largely by the desire of multinational corporations to increase profit but also by the motivation of individual national governments to tap into the wider macroeconomic and social benefits that come from greater trade in goods, services and the free flow of financial capital. * The term globalisation is generally used to describe an increasing internationalisation of markets for goods and services, the means of production, financial systems, competition, corporations, technology and industries. Amongst other things this gives rise to increased mobility of capital, faster propagation of technological innovations and an increasing interdependency and uniformity of national markets. (OECD, 2001).

The process of globalisation has several main drivers apart from of course multinational companies wanting to expand. Barriers to international trade are falling, tariffs and other import controls have declined making it cheaper and easier to trade between countries. Trading blocs allow for the free trade between countries within it, the EU has become the most powerful trading bloc in the world with a GDP nearly as large as that of the United States. There has been a major improvement in transportation, for example, containerisation greatly reduces the expense of international trade and increases its speed, especially of consumer goods and commodities, bringing prices down in the country of manufacture and closer to the prices in the export market. Deregulation of global financial markets allows for FDI and an increase in the free flow of money.

Tesco - A Global Organisation
Tesco is the largest chain of supermarket within the UK; it dominates the market with a share of 25%, making it a monopoly. The company has become successful through strong marketing techniques, good store location and efficient inventory management. It was one of the first to recognise that there was a gap in the market for unbranded value goods, which helped it to fast-track to the leading position in the UK in the early 1990’s. In 1995, Tesco overtook Sainsbury’s as the UK’s largest supermarket (www.corporatewatch.org) so as the company grew stronger and generated a larger cash flow, management decided that the only way to expand even further was to invest abroad. When Tesco researched into international markets they decided that entering into countries where there were already well established supermarkets would not be the best option as they would struggle with tough competition. Unless Tesco invested heavily into research and development (R+D) in these established markets, they would not be able to compete with domestic chains that would already have a clear understanding of the needs and wants of their consumers. They decided to expand into emerging economies where there was little competition such as Eastern Europe and Asia.

Tesco initially expanded into Ireland and France but ‘The perceived success (or otherwise) of their early venture abroad would have...
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