A strategic management of Tesco

This paper describes the implication of theory in to practice of Tesco. The theory under
consideration in throughout this report is the Porters Five Forces Model. The complete analysis
of Tesco assessed through this report that to which extent they got success by the use of this
model in the industry. They used the complete implication of Porters work in their company and
this paper analyzes the effect of Porters strategies. Moreover, this report opts to evaluate the
strategy of Tesco used for marketing in order to gain the competitive position through
globalization internationally. That position is also based on the Porters strategy of competitive
positioning. This allows revealing the fact that how Tesco become able to got success over its
rivals name Asda and others through generic strategy.
Finally, the five forces model is investigated that actually identify the competition Tesco faces as
well as showed the gaps available for improvement. The data found for this report is collected
from a variety of sources included books, media articles, annual report of Tesco, Tescos website
and through other websites also. This information helped to discover that how Tesco get
competitive advantage in the industry by using the Porters Strategies and theories. The
theoretical model reflects its practice in Tesco with relation to the strategic analysis. In short, the
success of Porters model is analyzed through real world example. That revealed the fact that
how other companies can also get better position in industry through use of Porters model and
competitive advantage strategy.
Thus, the purpose of this paper is
To analysis the strategic implication of Porters Five Forces Mode as well as the use of
competitive advantage in Tesco.
According to Johnson, strategy is actually the scope and direction of organization which is based
on long term of the business. Its basic objective is to get advantage through configuration of
competencies and resources in rapidly changing environment. Generally, the levels of
management are categorized into three types according to strategic point of view within an
organization. The very first is associated with the top level where the corporate level of strategies
are maintained that are build by keeping in mind the overall purpose and mission of organization.
Second strategies are of business level that are of particular market as well as provide a way to
compete in them successfully. Third types of strategies are for operational level which actually
showed how successfully company delivers (Johnson et al, 2008).
Firstly, the brief introduction of Tesco is described in following. Tesco started in 1919 when
Jack Cohen opened a small stall in Londons East End. Then they started to trade in 1924 that
showed that Tesco is serving the UKs customers from a long period of time. In todays world
Tesco find itself much more than the weekly shop because they continuously introduced new
products, services and ways for shop. This all happen by their philosophy of Every Little
Helps (Tesco, 2014). Tesco has developed its business by becoming the third largest retailer of
grocery in the world in last decade. They did this through their excellent services which they
provide to its customers. Their growth strategy is based upon five parts which are non food, core
business UK, retail services, the community and international (Tesco, 2014). The market share of
Tesco was also continuously growing from its founding but it slows down in recent years due to
strong competition and technological development (Leahy, 2008). There were anticipations that
in 2012 by Institute of Grocery and Distribution (IGD) that Tesco would become the second
largest retailer of world after Wal-Mart that comes true. The growth of Tesco spurred in markets
by the international expansion like the US, India and China (Hall, 2008).
Tesco also take part towards the economic position of the country by employing more than
280,000 employees with more than 2100 stores in only UK. There are four different types of
formats available by Tesco for their stores. These stores types include Express stores, Metro
Stores, Superstores and Extra stores. The express stores were opened in 1994 and sell more than
7000 range of products through it. The first Metro store started its operations in 1992 that was
built to bring the convenience to shop in city and town location centers. The Superstores of
Tesco were opened in 1970 and it also offering some nonfood products like books and DVDs
from some years. The Extra stores began from 1997 and added a huge range of different products
like furniture, electrical items, health products, clothing etc. Besides the non food and food
products, Tesco provides retailing services. Tesco Personal Finance (TPF) provides 26 products
of choice for their market. These are ranging from credit cards and savings accounts to travel
insurances and cars. The growth strategy for Tesco has been consistent and well established that
actually helpful in its large expansion. The real rationale for its strategy is that to enlarge the
business scope to enable Tesco to deliver sustainable, long term and strong expansion (Tesco
Strategy, 2008).

After getting information regarding Company, the second step is to know about the position of
company into the context of its industry. This can be analyzing through competitive positioning
of company because it is the basic tool of analysis especially in the industry context (Campbell et
al, 2002 p.298). Competitive positioning is actually level of difference among choice of service
or product against its rivals (Lynch, 2003). According to Porters point of view, the company can
get a good position if it runs their affairs in accordance with current situation (Campbell, 2002).
An organization can only get achievement if they become successful in accessing the minds of
their consumers and this thing become them able to gain the competitive advantage on their
enemies (Darling, 2001). One strategic model is used for the relationship of the company and its
environment that is also a way for getting competitive advantage. That is based upon the Generic
Strategy Framework of Porter (Campbell et.al, 2002).
In the third step, the application and identification of Porters models and theories is assessed
within Tesco. Porters five forces model is basically useful to companies in order to judge the
competition because it serves as a starting point in most organizations for the strategic
investigation (Campbell et.al, 2002). The five forces model of Porter means that it is an
industrys structural characteristics that identify the relative failure or success of firm. Porter
believes on the fact that the competition with in an industry roots in its core economic structure
(Jenkins et. al, 2002). According to Johnson, five force can be define as 1) Threat of new entry
within an industry 2) Threat of the substitutes in services and products of industry 3) Power of
the buyers in the services or products of industry 4) Power of the suppliers within industry 5)
Extent of the rivalry among competitors of industry. The criticism of Porters five force model is
that this model does not differentiate between the status of competitors of a firm or company.
However, this criticism is not true because the five forces model is actually related to macro
environment. Therefore there is only a need to view the macro environment on continuous basis
as this model is not constructed to be applied on isolation basis (Campbell et.al, 2002).
The application of five forces model in Tesco is also related to analyze the external environment
of the company. Tesco also put huge barrier for the new entry in the industry along with its
competitors like Sainsbury, Asda etc, (Research Papers, 2007). One example about the
accomplishment of Tesco is that it provides an advantage to buy in bulk through cheap products
which become them able to get economies of scale besides the new supermarket (321 Books,
2007).
The buyers power in Tesco force them to down the prices of products because if they does not
do so there are definite chances that they can move to other supermarkets. Therefore there is
need to adopt a balance approach to setting its prices as the supermarkets are trying to destroy
each other. The power of suppliers in case of Tesco is used for their own benefit. Yet the prices
are demanded through its suppliers in other case the retailer is not ready to provide the goods
delivery for selling (Research Papers, 2007). This results in the form of creating bad relations
with the suppliers. The Tesco has a benefit because its major market is to provide goods to the
smaller shopkeepers who always are ready to pay the demanded prices. It is their need to get
themselves ready to pay on demand because otherwise they cannot fine way to run their business
on continuous basis.
The rivalry of Tesco in the food sector is very strong and it always involve in the competition
with Sainburys Waitrose and Asda. These competitors have competition on the basis of their
products, promotions and prices regularly (321 Books, 2007). For the purpose of getting more
opportunities Tesco has to improve and expand their categories of products because in this way it
can actually involve in to the intense competition among Supermarkets of the UK. However,
there is also another strategy that is most important in todays world is online facility for the
stakeholders. Tesco has actually this competitive advantage over its competitors that it manages
and sustains this technological strategy from very beginning (Hackney et.al, 2006).
In fourth step, after analyzing the application of the porters five forces model there is a need to
know about the position of Tesco through its competitive advantage. For this purpose, the
generic strategy of Porter is being used here. This Generic strategy approach of the Porter is from
of the oldest approaches. According to which, there is a need to analyze the external analysis first
and then to get the desirable position strategically (Campbell et.al, 2002). The concept of generic
strategy is based on the differentiation, cost leadership, differentiation focus and cost focus (De
Wit et.al, 2004). According to concept OF Porter, the businesses should have an ability to get
something which is extraordinary and which is not usual and this happened through cost
leadership and differentiation strategy (Campbell et.al, 2002).
For broad segment of industry, the competitive advantage involves differentiation and cost
leadership strategies whereas for narrow segment of industry there is a need to achieve cost
advantages that involves differentiation focus and cost focus. However, this concept varies from
industry to industry or for generic strategy should be construct in accordance to the specific
industry (De Wit et.al, 2004). The generic strategy useful for Tesco is to adopt the cost
leadership and clothing is an example of this in which they have chances to charge the premium
price where they have differentiate its clothing line successfully (Johnsons et.al, 2007). The
criticism of this strategy is by Bowman. According to which, the competitive advantage is more
successful in that organization as compared to its competitors where customers are providing
with which they need or want and not with which they adopting above strategies. Thus, Bowman
proposed a new strategy clock against this. This strategy clock suggested that competitive
advantage and positioning can be achieved through managers. And the managers are required to
get them aware of the market requirements, changing and customers choices (Johnson et.al,
2008).
In accordance with strategy clock, Tesco adopts hybrid strategy because it kept the elements,
differentiation and cost leadership (Campbell et.al, 2002). This strategy allows them to achieve
simultaneously lower price against its competitors and differentiation (Johnson et.al, 2008). It is
being recommended that the Tescos products prices should not to be decreased if they used the
differentiation strategy. Because the prices of Tesco should be equal to its competitors like
Morrisons and Asda to obtain benefit especially for being the market leader (Johnson et.al,
2008). According to Johnson, the hybrid strategy is in the favor of Tesco for many reasons which
are discussed in following: The market share standard of Tesco in UK is very high because it
achieved greater volume over its competitors. The hybrid strategy is also used as the entry
strategy in market where the competitors are fully established already. This strategy was made
by Tesco when they are developing the global strategy. This is helpful for them in entering the
new markets with their superior products of low prices.
In order to analyze the companys strategy there is need to identify it market segmentation and is
discussed in fifth step. The segment of market is the customers group with similar needs but
varies from the customers needs of other market or areas (Johnson et.al, 2008). The bases of
market segmentation are in stated here. First, is the geographic variable that includes difference
by region, country, and type of neighborhood / housing? Second, is Demographic variable that
includes stages of life cycle of the family, age difference, gender, occupation, income, race,
religion, education? Third, is behavioral variable like attitudes towards brand loyalty,
consumption occasions, and frequency usages? Fourth, is the psychographic variable that
exploits personality, lifestyle and intelligence difference among people (Campbell et.al, 2002).
The good thing in the market segmentation of Tesco is that they provide products to all the
market groups related to low income to the high income class (McNeilly, 2008). The ranges of
Tesco products is very high that have diversity like health products to fashion, organic products
to furniture, electrical items to special healthy snacks for kids etc. This showed that Tesco
segment them successfully and their profit is the evidence of it (McNeilly, 2008). However,
there are some gaps in the market segmentation of Tesco that if fulfilled then it has no threats
from its competitors. These are also related to some products offering or packages that are
offered by its competitors.
The globalization factor is also involved in the offering of product and services. Lasserre (2007)
suggested that globalization is phenomenon of industries transition from the multinational to the
global along with change of competitive structure. Industries like processed food,
telecommunications, retail and personal care are in globalization process. It is related with
constancy of practices and products along with high integration and coordination in activities of
value chain of Tesco (Lasserre, 2007). Inkpen and Ramaswamy (2006) stated that companies
that serve globally must recognize what are the customers needs from perspective of
international and domestic standard (Inkpen et.al, 2006).
In last sixth step, the analysis of Tesco will be based on the porters generic strategy of global
basis, and diamond theory of Porter. The Porters generic strategy in global conditions suggested
five alternative strategies of what should be used by a business in the international operations.
These alternatives are based on elements like to which extent business is being globalised or with
the scope of competitors in industry. The global strategy of Porters stated, competitive
advantage results from the global scope of an organizations activities and the effectiveness with
which it coordinates them (Campbell et al, 2002). He argued that competitive advantage on
global basis is depends upon configuration and coordination of the value-adding activities. Tesco
have competitive advantage in global basis that it enable its customers to get or shop all things
from one place or under one roof. However, the Yips driver globalization framework actually
develops concept of the global strategy which is mostly preferred in place of porters generic
strategy globally. This is because it examines the both level of globalization in industry with
description of industrys features which are less or more global naturally. Yip believes that this
framework actually recognizes the aspects of industry that are varied from local to global level
(Campbell et.al, 2002).
The above discussion is based on the developing of competitive advantage. However, the
sustainability is as important as the development of competitive advantage. This is the basic
threat to every business when it enters to new market that they are at risk. This risk can be
minimized through developing a competitive advantage. Thus, the sustainable competitive
advantage is the assurance of success for any organization. Tesco is an example of this and it
also have sustainable competitive advantage in several different markets like Asia, the US and
Europe.
The example of Tesco is actually completely fit in the diamond theory of Porter because Tesco
has sustainable competitive advantage against its competitors that are not actually so successful.
There is more than ten years of experience is involved in the Tescos international strategy and
that includes six factors in it. These six factors are become flexible, maintain focus, develop
capability, act local, multi format usage and build brands. These are the main reasons because of
which Tesco become able to sustain its competitive and is now the second largest supermarket
in whole world (Tesco, 2008).
Consequently, it is obvious from above discussion that porters work is still useful in todays
businesses of world. In this report, the brief description of porters work is described along with
real world example of Tesco that how it becomes successful against its competitors by utilizing
porters model.
The findings of this paper showed that the Porters models and theories are relevant to grocery
industry of today in accordance to its competitive positioning. However, it can also be utilized in
all other industries for success like Tesco. All porters strategies become helpful for Tesco to
become the second largest grocery retailer in not only the UK but in whole world. The important
point of consideration in this analysis that comes for the success of a company is that the
sustainability and consistency is significant for the usage of any strategy. Tesco is regularly
changing its policies according to the requirement of its customers and by utilizing the porters
competitive strategies. However, the growth is that which is essential and comes after regular
reviewing of strategies according to rapidly changing world. Tesco is continuously investing for
his thing which is good and helpful for it on long term basis. Tesco can also achieve first place
through more investing on their strategies according to changing requirements.
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