UNIVERSITI UTARA MALAYSIA (UUM)

BPMN6023 STRATEGIC MANAGEMENT SEMESTER 2010 / 2011

GROUP PROJECT
TITLE: TESCO STORES MALAYSIA SDN BHD

PREPARED FOR

: PROF. P.R. BHATT

PREPARED BY (808493)

: MOHD FHADLI BIN MOHD FUDZI NOOR ULFAH BINTI MUHAMAD ZIN (808504)

SUBMISSION DATE

: 13th FEBRUARY 2011

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TABLE OF CONTENTS
TITLE Table of Contents PAGE NUMBER 2

Acknowledgement

Introduction

4-5

Background of company

Overview of Retail Industry in Malaysia

Business Operation in Malaysia

Corporate Strategies

9-14

Competitor and Competitor Analysis

15-22

Financial Performance Analysis

23-24

Recommendations

25

Conclusion

25

Reference

Acknowledgement
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This Group Assignment for subject Strategic Management (BPMN) Semester October 2010 is to choose any topic and issues to be analyzed from the course syllabus, subject to lecturers approval. Hence, the students are required to submit brief information about their project.

Project report must be submitted on 13th February 2011. Presentation will be held during class. Students are advised to present their report in a simple yet knowledgeable manner. Marks will be awarded for contents, teamwork, creativity, presentation and the quality of the report. For the purpose of this Group Project, our team has chosen the topic: TESCO MALAYSIA STORES SDN. BHD. This paper shall present in-depth presentation highlighted on strategies, competitor analysis and recommendation.

We would like to extent our utmost appreciation and highest gratitude to our self as team members of this Group who had immensely contributed to the completion of this Group Project. Special thanks also to our lecturer Prof. P.R. Bhatt for his kind support and guidance.

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Introduction Tesco History Tesco originated in 1919 when Sir Jack Cohen used his gratuity from his Army service in the First World War to sell groceries from a market stall in the East End of London. By the late 1920s, Tesco (or TES from TE Stockell, a tea supplier that he used, and CO from Cohen) was selling from open-fronted shops in London high streets, the first store being at Burnt Oak, Edgware. Cohens motto was Pile it high, sell it cheap, referring to the idea that customers wanted inexpensive products at convenient locations and that volume would drive profitability. Sir Jack Cohen concentrated on growing the business, vigorously pursuing expansion. Tesco Stores (Holdings) Ltd was floated on the London Stock Exchange with a share price of 25 pence. Until the 1970's, Tesco operated on the 'pile it high, sell it cheap' formula Cohen had imported from the USA. However, the market was changing, leaving the company with slim margins and a serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in 1973, Tesco decided to try something dramatic and different which to become an inspirational mass retailer. Tesco decided to modernize itself, closing 500 unprofitable stores, and extensively upgrading and enlarging others. At this time, Tesco prioritized the development of large out-of-town stores where parking was convenient, the selection of goods broad, and where a higher volume of business could be generated at increased margins while reducing overheads. Other innovations throughout the 1980s included introducing own-label product lines, computerizing and centralizing distribution systems and developing shopping centre outside of the major cities. In 1983, Tesco Stores PLC renamed itself simply Tesco PLC. In 1993, when Tesco introduced 'Value' lines, a cut-price range of own-label goods, competitors scoffed and the share price sank. But Tesco had gauged the popular mood after years of recession, shoppers were looking for bargains, and sales soared. A year later, Tesco started 'One in Front opening a new till whenever a checkout line exceeded two trolleys. It cost millions in extra staff, but customers loved it. In 1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed by the then Deputy Managing Director, Terry Leahy. At first the other supermarkets were skeptical, but the concept caught the public imagination leaving the others racing to catch up. Cohen was responsible for several small revolutions in retailing which led to the rise of 'the supermarket' we know today.
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Tesco Now and Then Sir Terry Leahy, current CEO of Tesco PLC, has overseen 13 years of dynamic expansion and development that has taken Tesco from living in their rivals shadow to the UK's number one retailer and not to mention third in the world after Wal-Mart and France's Carrefour. After becoming CEO of Tesco, Leahy focused on each of the following areas: Tesco's core UK business, its international operations, its forays into the non-food sector and retailing services, and Tesco.com. The core UK business was an important part of Tesco's activities employing over 250,000 people in 1,779 stores as of February 2005. The UK business also accounted for 80% of Tesco's total sales. It operated through four different formats of stores - Express, Metro, Superstores and Extra, catering to the needs of different types of customers. Tesco continuously innovated and introduced new product lines to provide customers with a wider choice. But Tesco was already jumping ahead of its rivals throughout the 1990s with a swathe of innovations that look commonplace now, but were bold breakthroughs at the time. Tesco, Britain's biggest and most profitable supermarket chain is the darling of the City. Tesco PLC is a global grocery and general merchandising retailer headquartered in Cheshunt, United Kingdom. It is the fourthlargest retailer in the world measured by revenues after Wal-Mart, Carrefour and Metro and the second-largest measured by profits after Wal-Mart. It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in the UK where it has a market share of around 30%, Malaysia and Thailand. Originally a UK-focused retailer specializing in food and drink, it has diversified both geographically and by product, into areas such as clothing, electronics, financial services, telecoms, home, health, car and dental insurance, retailing and renting DVDs, CDs, music downloads, Internet services and software. Tesco's huge growth is a hard act to follow. With the domestic market increasingly saturated, some UK supermarket chains have looked to overseas markets to maintain their positions. This is a whole new ball game, bringing into play competition with large firms from other countries, such as US retailing giant Wal-Mart and French multinational Carrefour. Tesco began expanding internationally in the 1990s and now has outlets in the Republic of Ireland, Poland, Hungary, the Czech Republic, Slovakia, Thailand, Malaysia, South Korea and Taiwan. It has also recently bought chains in Turkey and Japan and is in the process of negotiating expansion into China. Each of Tesco market around the world can be categorized into 4 stages which were start-up or entry level,
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developing 1, developing 2 and established market. China, Japan United states and India falls under entry level market which the market have potential to growth and have dilutive returns for short terms. For developing market such as Turkey, Poland, Czech Republic, Slovakia and Malaysia, each have good market positions and improving in returns. Established market such as UK, Ireland, Thailand and Hungary, they have substantial profit centers and strong growth potential. In our full report here, the scope will be much on Tesco store in Malaysia, how they operate and what strategies they used to survive in the market. Background of the company Tesco Stores Malaysia Sdn. Bhd. Tesco Stores (Malaysia) Sdn. Bhd. was incepted on 29 November 2001, as a strategic alliance between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the latter holds 30% of the total shares. Tesco opened its first store in Malaysia in February 2002 with the opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia currently operates 33 Tesco and Tesco Extra stores. Total store by state in Malaysia is Selangor with 12 store, Kuala Lumpur 3 store, Perak 5 store, Johor 4 store, Penang and Kedah 3 store, Melaka, Negeri Sembilan and Kelantan 1 store. In year 2003, Tesco launched Tesco own brand, Tesco Value. In 2004, Tesco Malaysia launches its own house brand, Tesco Choice. In December 2006, Tesco also acquired Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to Tesco Extra and provides products for small local retailers. In 2007, Tesco launched Club Card. This acts a way to say thank you to customers by giving money back to them. Club card has received an overwhelming response from customers with nearly 2 million household members signed up to date. As of January 2009, Tesco have rewarded nearly RM10 million worth of Club card Cash Vouchers to the customers. Later in year 2008, Tesco introduce Green Club card and Green bags making Tesco Malaysia to be the first Tesco International business to introduce the Green Club card scheme. As part of its global commitment, Tesco Malaysia is market leading on tackling climate change in techniques of energy saving, launching Green Club card Points to incentivize customers shopping with their own bags, introduce degradable carrier bags, promote positive behavior among staff though Energy League competition intra stores and a recycling centre to facilitate customers to do their part for the environment. Apart from that,
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Tesco has launched new promotion campaign to the consumers, 50 basic needs guaranteed not beaten on price. 2009 has embarked Tesco as the number 1 Hypermarket in Malaysia. TESCO PLC has appointed Tjeerd Jegen as chief executive officer (CEO) for Malaysia from April 26 2010. Jegen replaces Chris Bush, who has taken over the helm at Tesco Thailand. As CEO of Tesco Malaysia, Jegen will be responsible for all areas of the business, from operations to marketing, finance and corporate affairs, involving 33 stores and over 11,000 staff. Prior to this appointment, Jegen was chief operating officer for Thailand's Tesco Lotus. Jegen began his retail career in 1995 when he joined Royal Ahold as management trainee. Overview of Retail Industry in Malaysia Major retail outlets have seen tremendous growth since 1980s. There are around 400 such outlets in Malaysia. After making their debut in 1990s, foreign-owned hypermarkets are fast gaining popularity in Malaysia, attracting customers with their one-stop and all-under-one roof concepts. Since their arrival, foreign retailers have been expanding rapidly. The Malaysian economy has demonstrated resilience in the face of external uncertainties. It is expected to remain strong despite the slowing of the global economy. The wholesale and retail sector falls under the supervision of the Ministry of Domestic Trade and Consumer Affairs (MDTCA) through the Committee on Wholesale and Retail Trade. According to Retail Group Malaysia, retail sales growth for the year 2010 is projected to grow by 5.5%. The group also expects a total sales turnover of RM74.9bil this year. Based on interviews of its Malaysia Retail Association (MRA) members, the industry recorded a positive growth rate of 7.9% in sales during the first quarter of 2010 (Q1), albeit from a low base. Sales in the same quarter last year were down 3.3% due to a decline in consumer demand. However, positive sales growth in Q1 2010 was still below the industry expectation of 10% at current prices, while the Malaysian national economy continued to expand at a faster pace in comparison during the same period by 10.1% at constant prices. Profit margins in the retail industry were only up 2.4% during Q1, although the difficult economic situation during the same period last year had caused a negative growth of 13.7%. In the retail sub-sector, MRA members stated that positive growths were recorded in retail sales during Q1. Specialty retail stores for instance those selling optical products, toys, bedding items and sportswear recorded the highest growth rate at 10.5% and department store cum
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supermarkets recorded the lowest at 3.9%. It was a similar story for profit margins in the subsector as specialty stores were the biggest growers, improving their figures by 11.2% whilst department store cum supermarkets suffered the most with a decline of 0.3%. Members of the MRA expect their businesses to improve at a slightly slower pace during Q2 with a growth rate of 5.6%. This was because sales have started to slow down unexpectedly during Q2. Q3 sales are also expected to expand by 6% due to the Mega Sales Carnival before maintaining at 3.5% during Q4. The report showed there were positive growth rate of 9.8% in sales in Q3. The report also stated several factors that would impact the growth of the industry for the second half of the year. These include the economic conditions, cost of living as well as the cost of borrowing. For the Q410 BMI Malaysia Retail Report reported that total retail sales has grow MYR153.76bn (US$43.65bn) in 2010 which only 6.10% growth rate in sales. Malaysia is classified as an uppermiddle income country by the World Bank. A low unemployment rate, rising disposable incomes and a strong tourism industry are key factors behind the forecast growth for the year 2010. Business Operation in Malaysia Tesco Malaysia employs nearly 13,000 employees and operates 36 stores and in two formats following the acquisition of the Makro Cash and Carry business in Malaysia in December 2006. Tesco Stores Malaysia Sdn Bhd has been separated into 2 formats which are Tesco Hypermarket and Tesco Extra Hypermarket. Tesco Hypermarkets The hypermarket format offers customers a complete one stop shopping for their needs from fresh food to groceries, from household needs to apparel. It carries more than 60,000 lines of products including nearly 3,000 own brand of products ranging from food to non-food items.

Tesco Extra Hypermarkets The Tesco Extra format serves the needs of small businesses, families and individuals all under one roof by providing a comprehensive range of products and services focused for small
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businesses including bigger pack sizes, special trolleys and checkouts as well as a dedicated business development team to support small business owners with their orders. Tesco Extra, the newest business format in Malaysia opens its first store on 30th April in Seremban, with the conversion and refurbishment of what was once Makro Cash & Carry Seremban.Now, 7 other Extra stores are in operation. There are 3 Extra stores located in Klang Valley which is Extra Cheras, Extra Shah Alam and Extra Selayang. The remaining Extra Stores are located in Ipoh, Plentong Johor Bharu and Extra Sungai Dua in Penang. The new concept store will combine the best practices of both Tesco and Makro businesses. The Tesco Extra store will also cater to all the needs of individual customers and families through its services and extra range of food and non-food products as well as the unbeatable prices that have become the hallmark of Tesco in Malaysia. Tesco Extra also has enhanced facilities in the store including disabled parking and toilets, parent and baby parking, all credit cards accepted, customer loading facilities, and different types of trolleys and checkouts to cater to the varying segment of customers. Corporate Strategies Adoption of strategies Tesco Stores Malaysia Sdn. Bhd. Tesco has a well-established and consistent strategy for growth, which allowed Tesco Stores Malaysia Sdn Bhd to strengthen core UK business and drive expansion into new markets. The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home such as financial services, non-food and telecoms and new markets abroad, initially in Asia. Tesco Stores Malaysia Sdn Bhd adopted few strategies to survive and sustain in the market. That few strategies are:

1. Low Price Strategy i. Everyday Low Price

2. Customer-focused Strategy
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i.

To create value for customer to earn their lifetime loyalty

3. Growth Strategy i. ii. iii. Club Card scheme Green Club Card Own brand value

4. Differentiation Strategy i. ii. iii. iv. Core UK business Non-food business Community Personal Finance

Low Price Strategy Everyday Low Price An Every Day Low Pricing (EDLP) strategy of Tesco is more popular with shoppers than one driven purely by promotions, according to a recent survey in the UK. But a combination of the two is the best means of keeping shoppers happy. Pricing was a key strategy and selling point for Tesco. Low prices were adopted to maximize sales. Tesco's value-added products at low prices attracted many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went in for massive price reductions. The company adopted the strategy of 'Everyday Low Pricing' (EDLP), while continuing its other promotional activities. The EDLP program aimed to regularize low prices for Tesco customers. Low prices were not merely a strategy used for the occasional sale, but on a regular, daily basis. Adopting the EDLP strategy demonstrated Tesco's commitment to its customers, putting customer interests first. Customer-focused Strategy Create value for customer to earn their lifetime loyalty

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The core purpose is to create value for customers to earn their lifetime loyalty. Everything TESCO did, every innovation they bring to the market, every business decision they take, is driven by the customers. The underlying aim is of course to make higher profits, but there is a clear focus on customer service at the top level of the company. It remains to be seen whether Tesco will be able to maintain this focus now that it is widely perceived as a great corporate success story and the dominant company in the United Kingdom retail market or if it will succumb to corporate arrogance as sometimes happens to dominant companies. They believe that by living by the values, they will encourage and demonstrate behavior that will help them achieve in core purpose and set them apart from their competitors. Values enable them to build a common way of working. They want people in the business feel comfortable with these values and feel they can genuinely demonstrate them. They aren't about being soft and lovely, but about being rigorous and single minded about how they achieve their goals. Imagine how they translate in the context of a multi-billion pound company focusing on people both staff and customers. Growth Strategy Club Card scheme Club card is Tescos membership scheme which allows customers to save money on shopping by providing them price-off vouchers. Customers get a point on every pound they spend shopping at any stores of Tesco group of companies as well as at stores of their partner companies. Once a customer accumulates 150 points, these are then converted into Club card vouchers which enable the customer to save money on shopping. One can argue that other retailers also have similar loyalty programs. However it is interesting to note that while most loyalty schemes and relationship marketing strategies similar to Club card have often failed for other retailers, Tescos Club card has worked well and managed to succeed. It can be said that what has made Club card work so wonderfully for Tesco is the fact that with this simple single loyalty scheme, Tesco has been able to address to the customer segments of different age groups. Thus the main reason behind the success of Tescos relationship marketing strategy and loyalty program has been the way it has managed to establish Club card not as a marketing tool but as a product of relevance and value for the customers.

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Green Club Card Green Clubcard points are earned when customers re-use bags when shopping in store one point per bag, or opt out of receiving bagged products when shopping online one point per ten items delivered. They can also be earned by recycling a limited number of products, currently mobile phones and ink cartridges, through Tesco-branded recycling services. Once earned, Green Clubcard points are equal in value to normal points, but are listed separately on receipts and Clubcard statements. As part of its global commitment, Tesco Malaysia is market leading on tackling climate change agenda around energy saving initiatives, degradable carrier bags and Green Club card Points scheme to incentivize customers shopping with their own bags, Tesco also introduced its Green Club card League and Green Club card Champions to promote positive behavior among staff through inter-stores Energy League competitions and opened 6 recycling centers to facilitate customers to do their part for the environment. Own brand value Own brand value portrayed the strong brand image of TESCO based on effective strategy. Tesco is very good at using design across their own label, especially strategically. Tesco is often used as one of the best examples of own brand label in the retail industry. Majority of consumers buy the basic Tesco brand as it is cheap and good value for money. The use of Tesco logo is consistent in each of the products design. Brand values of Tesco are successfully throughout Tesco own brand ranges demonstrated through experience and way finding system. Tesco uses design to give something back to customers for shopping at Tesco. As competition is so intense retailers such as Tesco use design to differentiate from the competitors. Differentiation Strategy The strategy to diversify the business was laid down in 1997 and has been the foundation of Tescos success in recent years. The new businesses which have been created and developed over the last decade as part of this strategy now have scale, they are competitive and profitable in fact, the International business alone makes about the same profit as the entire Group did a decade ago. Core UK business
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The UK is the biggest market and the core of TESCO business. The aim is to provide all of the customers with excellent value and choice. It has been innovative and energetic in finding ways to expand, such as making a large-scale move into the convenience-store sector, which the major supermarket chains have traditionally shunned. Tesco has 702 stores and is the largest food retailer in the United Kingdom. Tesco continue to increase market share through their policy of cheaper prices, offering better value and providing more choice and convenience for customers. Market share of the UK has grown steadily since the early nineties as a result of our customer focused strategy Non-food business The aim is to be as strong in non-food as in food. This means offering the same great quality, range, price and service for our customers as in the food business. Many supermarket chains have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late 2004 it was widely regarded as a major competitive threat to traditional high street chains in many sectors, from clothing to consumer electronics to health and beauty to media products. Tesco sells an expanding range of own-brand non-food products, including non-food Value and Finest ranges. It also has done quite well in non-food sales in Malaysia. Community Making Corporate Responsibility integral to our business is essential in applying our values as a responsible business. We believe it is also an opportunity for growth. Tesco Malaysia is committed to stay close to the heart of the communities Tesco Malaysia is part of. We responded and worked with many local communities including NGOs such as the National Cancer Council (MAKNA) to raise RM450, 000 through fundraising and Walk for Life series to raise cancer awareness. Tesco has also raised funds for the Malaysian Nature Society through the sales of its designer green bag and carrier bag sales and Walk for Schools donation to local primary schools. Tesco Malaysias Charity partner of the Year 2010 is Nur Salam, and we aim to help improve the quality of life for these children through customer and staff fundraising activities at all its stores nationwide. Personal Finance
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Tesco has followed its customers into the growing world of retailing services, aiming to bring simplicity and value to complex markets. Tesco Stores (Malaysia) Sdn Bhd is making it easier for customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes through Easy by RHB at Tesco stores, collaboration with the RHB Banking Group. Following the successful launch of its first two financial products in January 2009, the co-brand Tesco-RHB Credit and Debit Cards, there are now five new, instant banking products being offered to existing and new customers expanding the range of products that customers can access quickly and conveniently while shopping at Tesco. Whether it's opening a savings account, applying for a credit or debit card, buying life and personal accident insurance, arranging Amanah Saham Bumiputera financing or applying for personal loans up to RM50, 000, everything is quick and convenient at Tesco. Background checks and approvals are completed on the spot at conveniently located kiosks in Tesco stores. This signifies another important milestone for Tesco in expanding its financial services in Malaysia. This is Tesco's way of showing that TESCO are looking into the needs of their customers by bringing them a more convenient way to get financial services and this new concept of banking allows our customers to get banking services during weekends and after office hours. They will consider any move to make shopping at Tesco an enjoyable and beneficial experience for our customers. Customers are of utmost importance and Tesco want to be able to give them as much benefit as they can. This may include entering into collaborations with other companies so that Tesco can offer the best in the market for their customers. It is a matter of keeping the interests of customers at heart. Easy by RHB @ Tesco is a revolutionary banking concept that offers simple, fast and convenient banking. Customers just need to bring their MyKad for on-the-spot approval and instant cash or loans up to RM50, 000, all without the need to fill-up any forms as details are captured electronically and a unique biometric verification system is used. This concept of being the first and only hypermarket in Malaysia to provide banking to their customers is exclusive to Tesco. The Easy by RHB @ Tesco kiosks are now available at 22 of Tesco's 33 stores nationwide daily, open from 10am to 10pm. The RHB Banking Group is appreciative to Tesco in bringing Easy into their stores, and concern that this step will further strengthen our partnership and cooperation. There are 33 existing Easy outlets in operation, 26 standalone, 5 Easy by RHB @ Pos Malaysia, and 2 kiosks at LRT stations and now with Tesco as the distribution channel, which will make the total number of Easy by RHB outlets 55 hope to reach out to more customers and give them value-add
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services that they do not get from other financial providers. In addition to that, this easy banking concept, touted to be the first-of-its-kind, also empowers the people to take control of their finances in a simple, convenient and affordable manner. Competitor and Competitor Analysis Competitor In this retail industry there is stiff competition between hypermarkets. Name such as Giant, Carrefour and Jusco are the biggest rival for Tesco Stores Malaysia to compete in the industry. This report will explain further regarding the Tesco Stores Malaysia rival. Giant Hypermarket In Malaysia, the name Giant has become synonymous with everyday low prices, big variety and great value. This has been underscored by few surveys conduct in Malaysia, which showed that Giant was perceived as the cheapest place, in Malaysia, to shop for everyday groceries beside Tesco. Giant holds second biggest share market in retail industry in Malaysia for the year of 2010 after Tesco. Jusco In order to be successful, it is vital for a shopping centre to have the right environment and tenant mix. Only then will customers be willing to spend endless hours here in pursuit of activities that entertain and help them to relax. Jusco provide laid back environment in their shopping complex. Customer feels free to shop not just that, they can also spend time with their family eating at the food court provided by Jusco. Jusco holds 22% of market shares and the third biggest after Tesco and Giant for the year of 2010. Carrefour Malaysia Carrefour's success is based on the talent and motivation of its staff. To increase efficiency and competitiveness, and in order to improve as a retailer, the Carrefour Malaysia is about to transform themselves and redesign its organization, enhance synergies between sales and purchasing, and create new relationships between head offices, countries and stores. Carrefour
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still sustains in the market in Malaysia and has 15% of market share in retail industry for the year of 2010. SWOT Analysis The SWOT Analysis shows that Tesco Stores Malaysia currently has the resource capabilities to successfully enter the market and is capable of implementing a market development strategy. The report recommends that Tesco target the high-end market segment with a differentiation strategy. Success in any company that operates for marketing and profit acquisition lies on the ability of the management in positioning and establishing the products or services being offered. Furthermore, the ability of the company and its management to compete and maintain a competitive edge among its competitor is another basis to say that it is successful. The constant development and innovation on the product line and the growing number of clientele also define the corporate standing of a company. This report analyzes the strategic capability of TESCO Malaysia (Exhibit 1). In analyzing how Tesco Stores Malaysia is competitive, the study utilized SWOT and value chain analyses for the industry attractiveness. Practical and strategic recommendations are elicited in relation to some pitfalls observed in this report. Strengths Own brand value Competitive pricing strategy Customer loyalty/relationship Acquisition of Makro Strong hypermarket format Opportunities Threats Weaknesses Dependable of UK business Burden of higher advertisement cost High turnover rate of employees

Have ready customers from low and mid- Stiff competition within industry
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income households Explore into new location in Malaysia Diversification to maintain UK business

Changing in customer tastes Government policies

Exhibit 1: SWOT Analysis for Tesco Stores Malaysia Sdn Bhd. Strengths Own brand value Tesco has a strong own brand value which is becoming known throughout Malaysia due to existing expansion programme. Competitive Pricing Strategy The targeted price cuts enabled Tesco to attract more shoppers from competitors and capture the volume that supported the lower prices. Tesco has extended its low price positioning in coregroceries across non-foods lines to undercut competition which actually Tesco selling with low price but provide high volume. Customer loyalty/relationship Tesco gained customer loyalty or relationship by launching Club Card scheme. Customers like the Club card programme mainly due to the personalized treatment they receive and the relevance of rewards. Acquisition of Makro Tesco acquire Makro and convert it to Tesco Extra. What Tesco do is they operate it similar to Makro, but more flexible. For example, Makro do not allow customer to buy in small quantity, but Tesco Extra allow but charge higher than those buy in bulk. By doing so, Tesco could earn profit from those SME as well, besides individual customers or family type customers. Strong hypermarket format
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The expansion of new stores by adding space to existing locations has contributed to the growth of Tesco supermarket. Besides that, Tesco runs two type of hypermarkets format which Tesco Hypermarket and Tesco Extra Hypermarket. Weaknesses Dependable of UK business Since Tesco Stores Malaysia is one of Tesco PLC UK market in Asia, all the business decision has to follow UK. This could be the weaknesses for Tesco Malaysia to expand their business widely. Since Tesco is foreign brand hypermarket in Malaysia, Tesco PLC has to adapt to local business. Although international business is still growing, and is expected to contribute greater amounts to Tesco's profits over the next few years, Tesco Stores Malaysia is still highly dependent on the UK market (73.8% of 2003 revenues). Any changes in the UK supermarket industry over the next year for example, will somehow affect the Asia market such as Malaysia.

Burden of higher advertisement cost Since Tesco Stores Malaysia launching Everyday Low Price campaign, all the cost including papers, printing, people and distribution and marketing promotion has to be bare by Tesco. High turnover rate of employees Tesco experienced high turnover rate with their employees especially in the operation department. Many of their employees resign after only working one or two months in their supermarket, which is not good for them as they will need to find and employ new employees. The cost of training and development for new staff will burden Tesco. Opportunities Have ready customers from low and mid-income households
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Tesco have ready customer instantly which come from low and mid-income households. Households now are increasing and everyone needs to buy household products, this creates a good demand for them. Explore new location in Malaysia This is conjunction with their current strategic plan which is to open up more stores. Besides that, they can try to increase the variety of their house brand, as well as introducing other products for their house brand to compete with their competitors. Diversification to maintain UK business Tesco Stores Malaysia have discovered the potential to exploit weaker competition and higher margins (cross-subsidize core groceries) and giving customer more alternative to choose variety product and services instantly.

Threats Stiff competition within industry There are other major supermarket chains, such as Giant, Carrefour and Jusco in Malaysia competing alongside with Tesco Malaysia. To make sure Tesco successful in the industry is to make sure Tesco sustain in the market and establish to be number hypermarket in Malaysia. Changing in customer tastes Customers tastes and preferences would change according time. Tesco Stores Malaysia has to make sure they maintain their images and create more value for customer. Sometimes, customers would assume that by buying low price product, it will reflect the bad images of the products.
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Government policies Government rules and policies sometimes will pose great threats to small and medium-size retailers in Malaysia especially to foreign own hypermarket like Tesco. Tesco Stores Malaysia needs to follow Value Chain Analysis Another analysis that would be discuss in this report is Value Chain Analysis (Exhibit 2) Primary Activities [Adds value (+), Losses value (-), Potential to add value (P+)]

Exhibit 2: Porters Generic Value Chain for Tesco Stores Malaysia Sdn Bhd Inbound logistics Inbound logistics are placed at the first stage of the value chain as they possess the earliest opportunity to create value. Therefore, the elements of this stage are considered to be upstream activities. The logistical tasks, in this case, include the receipt of goods from suppliers, storage of goods, handling & transportation of goods internally and placing the products on the shelves. Tesco tries to maintain the level of consumer choice in store (+), whilst improving the efficiency
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of its distribution system (+). In applying a quality control procedure concerning damaged goods and products, it provides an excellent opportunity to reduce costs unfairly incurred by the company, therefore preventing these costs being passed on to the consumer (P+). Operations The production element of Tesco activities are service orientated. Hence, operations could be the second upstream opportunities that enable services and products to be provided, tasks such as opening every day in accordance with trading hours, maintaining the shelves, and the stock (+). In order to obtain future competitive advantage Tesco has to consider expanding further in terms of operating hours in those places, where it does not occur or opening new Metro and Express stores (P+). However, this might be restricted by law or planning councils, which is essentially takes away competitive advantage (-). Outbound logistics The third stage of the value chain is the outbound logistics that is concerned with delivering the product to the customer. Tesco currently adds value in its home delivery service (+). However, other tangibles that have to be improved are those of parking facilities, trolley collectors, till staff and systems to gain competitive advantage, if executed more efficiently than competitors, they will add value by saving the customer time (+), whilst increasing the turnaround (+). Adding value could be achieved through the implementation of a trolley deposit system, keeping them tidy and enabling customers to get to and from the premises quicker, as well as making these facilities readily available and quicker to obtain (P+). Marketing and sales Marketing and sales are placed under downstream elements of the value chain. Club card gives further discounts and loyalty for the customers (+). However, Tesco may also decide to attract more customers by advertising lower prices advertising campaign or more discounts offers (+). With a more customer sophistication and their awareness of ethical business practices, it may give the company some constraints in terms of selling environmentally friendly products (-). In return, Tesco can take it as an advantage and provide customers with more of the recycling
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points and include information in their advertisements, adding value for customers who will believe that by choosing to shop at Tesco, people are helping the environment (P+). Support Activities Company Infrastructure Planning and control functions are the ones that account to provide the continued focus on the costs and cash control of the companys operations (+). And departments such as profit protection whose main jobs are to reduce shrink. The company has now increased its staff count who are involved in upgrading its anti-fraud software (infrastructure/technology interdependence), and installing new security systems which aim to reduce internal theft, an expense the customer will now not have to cover in the price of their purchases (+). Human resource management HRM is regarded as up and downstream activity, covering everything from recruitment to management development. The company aims to increase the number of training schemes and further develop its recruitment programmes so to pass on to the customer the benefits of a well recruited, well trained staff, not the costs (+). Tesco continues to invest in customer service (+), where training is also linked directly to pay, so the staff are motivated to learn, and are encouraged to improve their approach to customers and service provision quality (P+). Technology development It is a downstream activity and is the ability to provide new innovative product ranges/ solutions that anticipate customer needs. It also remains a key competitive advantage, adding value, as Tescos brand name gives the product vitality (+). However, installation and capital investment is a long term process and needs total commitment of the staff. But who will be responsible for the service provision and the floor personnel? (-) Financial Performance Analysis.
Profit & Loss BPMN 6023 Strategic Management Page 23

Year Ended 27 February millions Turnover Operating Profit Net Interest Profit Before Tax Profit After Tax

2010

2009

2008

2007

2006

56910.0 3457.0 -314.0 3176.0 2336.0

53898.0 3169.0 -362.0 2917.0 2138.0

47298.0 2791.0 -63.0 2803.0 2130.0

42641.0 2673.0 -126.0 2653.0 1881.0

39454.0 2280.0 -127.0 2235.0 1586.0

Balance Sheet
Year Ended 27 February millions Intangible Assets Tangible Assets Fixed Investments Total Fixed Assets Stocks Cash at Bank and in Hand Total Assets Creditors Amount Within 1 year Creditors Amount After 1 year Total Liabilities 4177.0 24203.0 1015.0 34258.0 2729.0 2819.0 46023.0 23928.0 2616.0 31342.0 4076.0 23152.0 321.0 32085.0 2669.0 3509.0 45564.0 22789.0 1796.0 32658.0 2336.0 19787.0 309.0 23864.0 2430.0 1788.0 30164.0 8179.0 1202.0 18262.0 2045.0 16976.0 322.0 20231.0 1931.0 1042.0 24807.0 6598.0 1378.0 14236.0 1525.0 15882.0 480.0 18644.0 1464.0 1325.0 22563.0 5786.0 1534.0 13119.0 2010 2009 2008 2007 2006

Key Figures
Year Ended 27 February Earings Per Share Basic (p) Earings Per Share Diluted (p) Earings Per Share Adjusted (p) Earnings Per Share Growth (%) Total Dividend (p) 2010 29.33 29.19 31.82 10 13.05 2009 27.14 26.96 29.06 6 11.96 2008 26.95 26.61 27.37 22 10.90 2007 23.61 23.31 22.36 10 9.64 20.20 19.92 20.30 16 8.63 2006

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Operating Margin (%) ROCE (%) Dividend Cover Dividend Yield Price / Earnings Ratio

6 15 2.44 3.10 13.20

6 13 2.43 3.60 11.50

6 17 2.51 2.70 14.60

6 19 2.32 2.20 19.90

6 20 2.35 2.60 16.50

Tesco must also have in place both financial and strategic controls. Financial controls are in terms of profit targets, capital bids and performance appraisal. Strategic controls in terms of overall strategic balance, agreed business plan, optional services and infrastructure and any short-term constraints such as human resources. Recommendation In this report, we find that the use of strong identities of the Value and Finest ranges (own brand value) to transfer across the store could create a better customer experience. Tesco Stores Malaysia needs to improve in term of quality of brand appearance. If they could create more exclusive brand image of Tesco, customer might have good minded set of Tesco. Besides that, Tesco Stores Malaysia should applied or adopt TESCO PLC strategy which to have an online transaction such as Tesco.com. Customer could access to any of Tesco product online and have more information about the product before buying it. This will totally increase the demand to shop at Tesco. Conclusion The success of the Tesco Stores Malaysia shows how far the branding and effective service delivery can come in moving beyond splashing one's logo on a billboard. It had fostered powerful identities by making their retailing concept into a virus and spending it out into the culture via a variety of channels which are cultural sponsorship, political controversy, consumer experience and brand extensions. In a rapidly changing business environment with a high competitors pressure Tesco have to adopt new expansion strategies or diversified the existing in order to sustain its leading market position in an already established retailing market. The company must constantly adapt to the
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fast changing circumstances. Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and execute these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Tesco's cognitive and behavioral learning processes. In large organizations as Tesco strategy should be analyzed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Tesco's strategy at a corporate level defines the businesses in which Tesco will compete, in a way that focuses resources to convert distinctive competence into competitive advantage. References http://www.tesco.com.my http://www.tesco.com. Johnson, G., Scholes, K., Whittington, R., (2005) Exploring Corporate Strategy Text and Cases, 7th Edition, FT Prentice Hall M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985 Jeannet, J., Hennessey, D.H, Global Marketing Strategies, 6th Edition, Houghton Mifflin

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