Ivaylo Pekachev

Kiril Ravnachki
BUS 495
Prof. Andre Mailer
Extended Executive Summary
(Tesco conquers the world?)

The case presents a company that is considered as UK’s most successful

grocery retailer. In this report, we discuss the possible future strategic directions
for Tesco, having in mind the strategies that the company had followed from its
origins.

Strategic Direction
Tesco started as a UK- based grocery retailer and operated only within the
UK borders for decades. However, since the mid-90s, the company started
investing in new markets overseas, seeking out new opportunities for growth and
ways of generating long term returns for shareholders. Today, the Group operates
in 13 markets outside the UK, in Europe, Asia and North America. Over 180 000
employees work in Tesco’s international business, serving in 2 026 stores and
generating 700 million pounds profit. Over half of the company’s selling space is
now outside the UK. All these facts show how successfully the company had
penetrated into foreign markets, and how massive their international invasion is.
However, Tesco did not diversify only geographically, but also by product.
The company started offering products and services in the areas of clothing,
electronics, financial services, telecoms, home, health, beauty, car and dental
insurance, retailing and renting DVDs, CDs, music downloads, internet services,
software, fuel, film making and sound recording. Considering Tesco’s tremendous
variety in terms of both products and markets, it is obvious that the company had
followed the diversification strategic direction. Diversification is a strategy that
takes an organization away from both its existing markets and its existing
products, and this is exactly what the Tesco Company did- from a UK-based
grocery retailer the organization became a worldwide enterprise operating in
various types of businesses.

Possible Future Strategic Directions

In our view, there are four relevant strategic directions available to Tesco in
the future. The most suitable one would be to expand overseas sales. Although
their international campaigns have been very successful, as half of Tesco’s sales
come from their international business, Tesco could gain much more profits by
continuing their invasion of foreign markets. With the exception of Ireland (91
stores), the company’s international expansion had mainly been in Eastern Europe
(272 stores) and Asia (450 stores). There are several other foreign markets that
could be extremely lucrative for the retail giant. One of these markets is the
Australian one. Australia’s retail industry has evolved to become one of the
country’s major economic forces and its largest employer, providing a platform for
entrepreneurship and innovation. The industry produces more than $200 billion in
annual sales and a growth rate of more than 6% compound per year. All these
statistics claim that the Australian market would be a wise decision for a market
entry, as the industry is extremely profitable and still growing. Another and even
more attractive destination would be the Russian market. As of April, 2010, retail
is considered to be one of the fastest growing industries of the Russian economy.
In the recent years, Russia has emerged as a leading name among the countries
providing most favorable retail environment. In fact, Russia is the second most
attractive destination for retail after India, thanks to its rapid economic growth and
favorable policy framework. Other attractive foreign markets that Tesco could
expand to are Central and East America (as Tesco is operating only on the West
Coast) and Western Europe, which is mainly represented by the profitable retail
industries of Spain and Portugal. We believe that the most appropriate method to
pursue the strategy of expanding overseas sales would be through mergers and
acquisitions, because acquisition is the quickest way to deliver the desired
growth. Tesco has proved to be very successful when using this method in the
past. The company had effectively acquired thousands of facilities in different
continents. The second most suitable strategic direction for Tesco in the future
would be consolidation. Consolidation is where organizations focus defensively
on their current markets with current products. Formally, this strategy occupies the
same box in the Ansoff matrix as market penetration, but is not oriented to growth.
As Tesco operates in a highly competitive market with key players being Wal-
Mart and Carrefour, the strategic direction of defending market share would be
very appropriate. Tesco is currently successful in 14 different markets, and is the
world’s second largest retailer in terms of profit (after Wal-Mart). That is why
strengthening their positions in their current markets is an appropriate way to keep
the company’s high financial performance. We consider that the most appropriate
method to pursue the strategy of consolidation would be through organic
development, because organic development is where strategies are developed by
building on and developing an organization’s own existing capabilities. This
method implies that a company should try to keep its current market share and aim
to sustain its current accomplishments. A less suitable strategic direction for Tesco
in the future would be to do nothing. This direction is somehow similar to
consolidation, with the exception that the company does not make any specific
efforts to sustain the current market share. It just continues operating in its current
markets using its current business strategy and capabilities. This strategic direction
can be achieved through the organic development method. As previously
mentioned this method claims that a company should try to keep its current
positions. The least suitable strategic direction for Tesco in the future would be
diversification - a strategy that takes an organization away from both its existing
markets and its existing products. Tesco has already been using this strategic
direction for years, and diversification is not a process that can last forever. The
company is currently offering products and services in numerous areas, and no
further innovations are needed. Nevertheless, if diversification is to be chosen as
the strategic direction for the company in the future, it can be achieved through
mergers and acquisitions. As previously mentioned, Tesco have been
successfully using this method when penetrating foreign markets.
When applying the criteria of acceptability and feasibility to evaluate the
possible strategic directions for Tesco in the future, we have determined that the
“expand overseas sales” direction appears to be most suitable. In terms of
feasibility, we suggest that the company will have enough capabilities (capital) to
deliver that strategy, since Tesco had undertaken foreign markets entries numerous
times. In terms of acceptability, we have concluded that it is very likely that the
company will succeed in its foreign expansion and the outcomes of their strategy
will be more than satisfactory, because Tesco had already conquered 13 foreign
markets.