Tesco - International Strategy

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After years and years of pursuing Sainsbury as the United Kingdom’s largest retailer, Tesco PLC broke through in 1995 and has become not only the largest retailer in the UK, but also the world’s 4th largest retailer, trailing only Wal-Mart, Carrefour and Germany’s Metro AG. Originally, Tesco’s soul focus was the retail grocery market. As of February 2010, the grocery market continues to be Tesco’s largest source of revenue and it has accounted for more than 50% of Tesco’s £ 59.4 billion of sales. Further, Tesco does not limit its operation strictly to the United Kingdom. Currently, Tesco resides in 13 countries worldwide and operates 1,911 stores across Europe and Asia. The company has also expanded in the United States and has plans for an additional 320 stores in 2010 across the world.

Australia’s economic and political stability and skilled labour force, provides a welcoming environment for foreign investors. With respect to the retail industry, consumer goods expenditure of 183 billion US $ in 2009 and an expected 212 billion US $ in 2010 presents significant opportunity to foreign retailers. However, risk exists as there is a limited presence of related and supporting industries for non-food products. As well, domestic rivalry remains strong in both grocery and non-food segments.

The objective is to implement Tesco’s hypermarket store format in Australia while increasing the company’s global market share. Tesco’s main competitors include domestic retailers such as Woolworths and Wesfarmers Limited and as well, Costco from the United States. The entry strategy into Australia will be an International Joint Venture with Coles Supermarkets, owned by Wesfarmers. Many Coles supermarket stores will then be remodeled into Tesco branded hypermarkets. In addition, Tesco will further employ its differentiation strategy by offering different departments and services to consumers. Since there may be hesitation in accepting a foreign retailer in this market, Marketing will be Tesco’s most important functional strategy. Lastly, Tesco will continue to explore other potential revenue streams in the Australian market through additional retailing services and new opportunities

Tesco PLC, founded in 1919, continues to employ a business model that revolves around satisfying its customers and simplifying their shopping experience. In the United Kingdom, Tesco has relied on a multiple format approach to succeed in the grocery market; the branding of different types of stores differentiated based on size and product diversification. From a small convenience store called Tesco Express, to a mid-size store called Tesco Metro, to a Tesco Supermarket, to a Tesco hypermarket called Tesco Extra and to online grocery delivery services, Tesco brings adds dimensions of value to the market and helps mitigate the potential risks of external factors (“Markets served and business model”, 2009). In addition, The company has been very successful in following customers into expanding markets within the UK, such as financial services, non-food related goods, telecommunications and garden centres and has effectively implemented this same approach in new markets abroad (“Long Term Strategy”, 2009). Tesco’s primary strategy objective resides in becoming a successful international retailer. Tesco’s reasoning for becoming a multinational enterprise was to obtain sustainable long-term growth by alleviating reliance on its domestic market. As a result of market saturation and limited growth potential in the UK throughout the 1990s and into the 2000s, Tesco has had to explore opportunities in foreign markets to not only build on but to maintain their position as one of the world’s largest retailers. In most countries, Tesco’s preferred entry strategy has been to acquire an existing retail chain or a significant portion of a chain’s stores and then have these stores remodeled...
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