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Implementation Of Tesco International Business Strategy In USA

Question

Task: Conduct an in-depth analysis and research on Tesco international business strategy and its implementation in USA.

Answer

Executive Summary
The aim of the paper is to analyse the success and Tesco international business strategy in entering the USA market in 2007. Tesco is one of the known and largest supermarkets of UK that planned to enter the USA market in 2007 with transnational strategy. The brand used cost reduction and local responsiveness to place itself in the international market. Further, Tesco also placed effectiveness research activities in the new market before entering to know the needs of the customers. In that relation it implemented the differentiation strategy of offering fresh food in affordable prices to the US customers. However, the company failed to implement what it planned and incurred huge loss in US.

Introduction
Tesco international business strategy refers to the plan that a business makes to guide them in their commercial transaction taking place in different countries. With the rising competition in the global sphere it has become important for businesses to take up such internationalism strategy where it can target more potential customers and make their products available for others. This helps the company to become competitively strong and earn more profit. However, conducting an internationalism strategy is a critical activity of the business that requires planned entry in a new market so that they can reap the best possible profit from it. Businesses that are highly becoming globally integrated are seen to have a common objective of reduce costs by creating economies of scale in the new market (Bouncken, Muench & Kraus, 2015). The report analyses the implementation and success of Tesco international business strategy in US. Further, the paper identifies and evaluates the market entry strategy of Tesco in US with future recommendations.

Discussion
Overview of the Company
Tesco is the company selected by the researcher for reviewing the Tesco international business strategy, which is a known multinational retailer with its headquarter in United Kingdom. The company opened their first grocery store in 1931 in London and since then it has been improving over the years. The company has been able earn a group sales of Euro 56.9 billion in 2018 and a group operating profit of Euro 2,206 million in 2018 (Tesco, 2019). The brand has been operating more than 3000 stores in its UK market and has become the biggest retailer in this country. Tesco is a public limited company owned by Tesco Plc. Tesco has more than 6500 stores in the world market such as Ireland, Hungary and Thailand. The company has also tried to enter the market of US in 2007 with its unique Tesco international business strategy (Tesco, 2019). The paper aims to analyse the internationalism strategy of Tesco in US and its success.

Implementation of Tesco international business strategy
Internationalism of a business involves using various kinds of strategy to make their entry in a new market a successful one. The framework that distinguishes the internationally operating businesses are based on two criteria that is global integration and local responsiveness. This means that the businesses that are seen to move globally have the objective to reduce costs by creating economies of scale through local responsiveness. However, businesses are seen to take up different types of internationalism strategy such as global strategy, transactional strategy, international strategy and multi-domestic strategy. Each of these strategies have their own benefits and capability of local responsiveness and global integration (Luxmore & Hull, 2018). In relation to Tesco it is seen that the company has adopted transnational internationalism strategy while entering the US market in 2007. This means that Tesco international business strategy is implemented using a transnational strategy which means that it aimed to maximize local responsiveness and attain global integration to reduce cost. The level of integration and responsiveness was both high in case of Tesco while entering the US market. The stated strategy of Tesco in the international market of US included elements of flexibility and local operations in terms of customers, culture, regulations and others in order to meet the local market needs at large. In US as well the brand was too focused in meeting the local needs and behaviours. Tesco entered the US market in 2007 with a small format store named as Fresh and Easy (Geeter, 2019).

Tesco was seen to eye the US market since 1980s and started making efforts to enter this market in 2000s when in 2006 it sent 50 senior officials to the US to live with the American families. In light of this motive it was seen that Tesco implemented internationalism through differentiation strategy because it wanted to target the US market with differentiated products. Differentiation strategy was implemented in US by offering fresh and affordable foods to the consumers (Geeter, 2019). This was because the company entered the US market with close research and development activity among the buying behaviour of the customers. It also gathered information about other retailers and convenience stores nearby and found that they can be different from them based on freshness and affordability. Through this the company aimed at gaining economies of scale and reduce their cost. Further, they also used sustainable strategy to implement their Tesco international business strategy in US where the store recycled and reused all its shipping and display material (Tesco, 2019). The store was also lighted with energy efficient bulbs and solar power driven distribution centre. This allowed them to reduce cost of shipping and electricity in the store of US. 

How Tesco international business strategy is evaluated?
The strategy that the company used to implement its Tesco international business strategy was done with the motive to gain benefit from it. However, in spite of all pre-launching plans, Tesco store in US named Fresh and Easy received criticism from the shoppers. Even though the layout and convenience of the store was appreciated by some, yet majority of the people were not happy with the brands that the store offered. About 45 percent of the products in US was private label and this made the shoppers furious about the quality (Geoghegan, 2011). Even though the company researched about the needs of the local customers in accordance to their preferences for price and quality, yet it failed to know the kinds of brands that the customer prefer and make a change in their product offering strategy. The company opened the stores of smaller size compared to a normal supermarket. However, it was not successful because the customers of West Coast usually drove to get food and other needs to areas that minimizes their needs of a mini markets. Further, it was also seen that the company also failed to reduce its costs and incurred a cost of over $2 billion in 2013. The overall Tesco international business strategy in US was a complete failure as there was no success achieved in terms of cost reduction, local responsiveness and differentiation. This is because the Americans already had the things that Tesco was providing to them with the only message of fresh and affordable.

Year

Number of Stores

2007

150

2011

175

Tesco international business strategy

Figure 1- Number of Tesco stores in USA
Source- Geoghegan (2011)

Tesco international business strategy

Figure 2- Tesco Trading profit 2010-11
Source- Tesco (2019)

In relation to the number of stores it was seen that when entering US the brand aimed at opening 1000 stores. However, it failed to do so as it was only able to open 175 stores till 2011 and then it exited the USA market in 2013 when it planned to increase the store number to 300. The major reason was increasing cost with no economies of scale in the market. In addition to this, it is also seen that the trading profits of Tesco in US in 2010-11 was negative that is Euro -186 million, which means the brand incurred a loss of this much amount. Compared to this the company was operating well in other markets of Asia, Europe and others.

Discussion on the failure of the and measures used to arrive at this conclusion
The company has implemented Tesco international business strategy and has entered the US market in 2007 by opening its first store in Hemet, California. According to the report of the Euro Monitor International, during that particular phase, it was the third-largest retailer. Tesco has started its business in the US under the name “Fresh and Easy” but it did not become famous among American consumers (Geeter, 2019). Tesco has failed in the US market because it could not connect with the correct target market. This can be considered to be one of the vital reasons in order to stay connected with US customers (Walker, 2012). On the other hand, the supermarket has failed to lay more focus on the US market which is vast and diverse. There has been provided for the creation of tremendous and better opportunity in the workplace and thus the supermarket can be regarded as successful in launching the brand in the American market.

Adaptability is also regarded as crucial for the success of a particular company. In the last five years, it has been found that Tesco has opened up many stores according to the initial model. However, in the global economy, it has been found that was tremendous pressure and thus the business failed to perform well in many sectors of the economy. Tesco has analysed and found that the experiences in the US market were different than the UK market. This was because the people of America preferred to carry out less shopping frequently, but they spend more when they visit. The online engagement and the loyalty program in the US supermarket have not attracted the people to a large extent. Moreover, the small market concept of Tesco in relation to self-checkout and online loyalty program has missed out different marks during different periods of time. According to the report of the Independent.com (2012), it has been found that Tesco international business strategy for the introduction of retail oases in relation to the ill-served food deserts of America has failed and this was due to the subprime mortgage crisis as well as the flagging economy. Further, the supermarket was forced to expand on those particular locations that were regarded as unsatisfactory retail sites and thus it has tried to fulfill the large scale overheads of its related infrastructure (Walker, 2012).

The other features of Fresh and Easy that has demotivated the consumers of America are the shrink-wrap food packaging, the self-checkout system and the unmemorable name. There should be focus on the own brand and thus this will make it easier to expand the sale in the Fresh and Easy. However, this was not followed and it can be said that Tesco is the first Britain supermarket that has failed to attract the customers in America. In the first five months after its opening in 2007, 60 more stores opened up in US (Geoghegan, 2011). At the end of 2008, 150 more Fresh and Easy stores opened across different locations in California. In April 2009, it has been found that Fresh and Easy has reported loss of $200 million. Further, in June 2009, the Fresh and Easy stores were criticized for the employment of part-time workers and thus rejection of the request in order to set up a union. In April 2011, it has been found that the loss of Fresh and Easy has increased to $220 million. Further, in January 2012, there were more than 12 Fresh and Easy stores that have temporarily closed down due to the weak local economy. Moreover, in April 2013, it has been found that Tesco has confirmed a cost of $2bn and thus it will create exposure to further business (Onikoyi, 2019). Thus, it can be said that the company has not taken any blind initiative to adopt Tesco international business strategy to start up its venture in the US. It has spent three years on-ground research and thus has spent the US $1 billion. However, there was a misinterpretation of the survey and the market data collected and thus it has failed to operate in the US market successfully. Therefore, all these aspects indicated that Tesco’s entry into US was unsuccessful.

Development of an alternative strategy of Tesco international business strategy
Tesco must try to build trust among the customers although this might require a longer time span. However, once trust is built among the customers, it can make good progress and thus compete with its other competitors in the market. Marketing is considered to be an essential part in order to grab more customers and this was not followed by Tesco in the US market. There should be a proper perception of the value of Tesco’s product. On the other hand, Tesco must carry out “Food Love Stories” campaign and this can be regarded as an important strategy to grab the attention in the market. This campaign must focus on the quality of the food and thus it will be easier to reorganize the structure of the brand in a short span of time. Further, the price of Tesco’s product must also be economical because pricing is an important benchmark in various supermarkets as well as to compete with its competitors (Jameson, 2013). The loyalty scheme of the company is one of the largest assets to attract customers and thus grow accordingly in the US market.

As Tesco is one of the leading supermarkets in UK, the customers in US also expected that the prices of the product will be cheaper and they will get the best deal for shopping. However, this was not true and thus it has eroded the trust of the customers. Asda was providing the same goods at 6% cheaper rate than Tesco. Moreover, Tesco must give more importance to long term promotion and this is likely to bring more commercial income to the customers. The employees who were placed at the senior position must be provided with greater responsibility so that they would try their best to study the US market and thus attract more and more customers through the adoption of the correct strategy (Silverthrone, 2010).

Another alternative strategy of Tesco international business strategy that the company should have implemented for successful market entry was adopting strategic alliances as well as partnerships with the dominant and the existing retail companies present in the USA. This would have resulted to proper exposure of Tesco to every market conditions that existed during the time span of entry. Further, this would even give more time as well as resources and every possible local help needed for a successful strategy for USA. It is essential to have a local expertise in the market because the new player must coordinate with the all the existing players for overall growth and development (Walker, 2012).

Another important market approach that Tesco international business strategy could have adopted is the cost leadership strategy or even the product differentiation strategy. However, cost leadership would have not been a safe option as every existing retail company was abiding by the strategy named as “Everyday Low Price”. However, the differentiation would have propelled to make a proper product/ service differentiation. This is because when customers are given more liberty and freedom to enjoy their shopping experience leads to excellent personalized approach. Moreover, every big retailer had significant amount of SKUs present in their own warehouse style stores so making proper differentiation based on products would have been troublesome. The only possible way to be explored was through service level.

Lastly, a successful market entry strategy can be met only if TESCO understood its appropriate target audience and market within the existing retail segment. The best suggestion in this case of Tesco international business strategy would be the use of fresh food as well as making a proper exposure of the cost-effective garments as well as several exotic food items which could have been targeted to the particular ethnic community (Onikoyi, 2019). With a proper focused approach, there could have been mixture of better and innovative ideas and a huge success at the forefront.

The market entry strategy adopted by Tesco international business strategy can be understood better with the help of a table given below:

Alternative business Objective of Tesco

Marketing Priorities

Marketing Strategy

To gain trust of the customers

To attract more customers through proper campaign

Tesco must carry out “Food Love Stories” campaign. Tesco must give more importance to long term promotion and this is likely to bring more commercial income to the customers

To expose Tesco international business strategy in USA

To coordinate with the all the existing players for overall growth and development

Adopting strategic alliances as well as partnerships with the dominant and the existing retail companies present in the USA

To create product differentiation in the market

To explore the service level aspects of the firm

Cost leadership strategy or even the product differentiation strategy

To understand the target audience and market within the existing retail segment

To provide goods and services in a cost effective way

Development of a proper focused approach

Conclusion
Therefore, it can be concluded that Tesco has tried to move globally and thus reduce its cost with the help of economies of scale. For doing so, the company has implemented Tesco international business strategy that is transnational strategy while entering into the USA market. There was higher level of integration and responsiveness and thus the company has tried to carry out its business in a smooth way, but it has failed. Tesco has entered the US market by opening different stores known as Fresh and Easy. Tesco has tried its best to gain trust among the US customers but it has failed to do. There were many reasons why Tesco was not successful. The first is being unable to understand the target market and their tastes and preferences. The prices of the products were on the higher end and moreover the supermarket failed to provide fresh food and offer loyalty programs to the customers. Thus, Tesco must provide more focus on the price of the product and it is an important criterion to develop in the US market. Moreover, the company could have implemented the Tesco international business strategy for a successful entry of the US market such as strategic alliance, a focused market approach as well as differentiation through service and innovation.

References
Bouncken, R. B., Muench, M., & Kraus, S. (2015). Tesco international business strategy Born globals: Investigating the influence of their business models on rapid internationalization. International Business & Economics Research Journal (IBER), 14(2), 247-256.

Geeter, D. (2019). Here’s why Tesco’s ‘Fresh & Easy’ stores failed in the United States. Retrieved 4 December 2019, from https://www.cnbc.com/2019/03/14/tesco-fresh-easy-stores-failed-in-united-states-united-kingdom-retailer.html

Geoghegan, T. (2011). Why is Tesco struggling in the US?. Retrieved 4 December 2019, from https://www.bbc.com/news/magazine-13190124

Jameson, A. (2013). Where Tesco went wrong: America. Tesco international business strategy Retrieved 04 December 2019, from https://www.thenational.ae/business/where-tesco-went-wrong-america-1.596906

Luxmore, S. R., & Hull, C. E. (2018). Are Non-Profits Better at Adopting a Transnational Strategy Than For-Profits? How Environments Affect the Way Greenpeace Fights Genetically-Modified Organisms in Europe and the United States. Contemporary Management Research, 14(3), 225-251.

Onikoyi, O. (2019). The Failure of Tesco in the USA. Tesco international business strategy Retrieved 04 December 2019, from https://medium.com/swlh/the-failure-of-tesco-in-the-usa-d2823842ffbb

Silverthrone, S. (2010). Tesco’s Stumble into the US Market. Tesco international business strategy Retrieved 04 December 2019, from https://hbswk.hbs.edu/item/tescos-stumble-into-the-us-market

Tesco. (2019). PLC | About. Retrieved 4 December 2019, from https://www.tescoplc.com/about/key-facts/

Walker, T. (2012). Why does Tesco work in the UK but not in the United States? Retrieved 04 December 2019, Tesco international business strategy from https://www.independent.co.uk/news/business/analysis-and-features/why-does-tesco-work-in-the-uk-but-not-in-the-united-states-8393592.html

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