Introduction
Tesco is among the global leaders in retail business and has expanded to major parts of Europe and beyond. This paper reviews Tesco’s internalization strategies against the scale of Porter’s Diamond analysis. Besides, the treatise applies the Resource-Based View Theory to explain the international strategy of Tesco during its early expansion years.
Porter’s diamond analysis
From the case study, it is apparent that Tesco has a very stable financial arm, which has propelled its success in international markets such as Hungary, Ireland, and other regions. The financial arm enabled Tesco to acquire small retail stores such as Catrtreaus in France, Savia SA in Poland, Kmart in the Czech Republic, ABF in Ireland, and Lotus in Thailand. Besides, the financial strength has given Tesco an opportunity to strategically form joint alliances with global brands such as Samsung in South Korea and Sime Darby Behad in Malaysia.
Being a global brand, Tesco has gained a competitive advantage through market diversification as a result of better-organized expansion skills and strategy (Wright 2007). Besides, Tesco has gained from the spatial focus approach as an instrument for acquiring small scale opportunities in the diverse markets, which are turned into large-scale and viable business establishments across the globe (Johnson, Whittington, & Scholes 2011). The diverse portfolio has enabled Tesco to sustain it’s market expansionary strategies within Europe and Asia since it has perfected acquisition and joint venture negotiation skills (Kennedy & Ehrenberg 2007).
Apparently, most of Tesco’s products are used on a daily basis by many households. Thus, the demand for these products and services has remained high in the UK, Ireland, and other markets. Tesco systematically penetrated the retail business segment across the UK, Europe, and Asia as a global brand known for diversity in the services and products it retails. As part of the internalization strategy, Tesco opted for a joint venture approach in Korea and Malaysia to ensure that the products it retails are made visible in these markets.
Actually, Samsung has a substantial following in Korea, and a joint venture immediately translated into increased product visibility and sales for Tesco. In the Malaysian market, the joint venture with the Sime Darby Behad introduced Tesco into this global arena and created a room for actual market penetration beyond the traditional retail supermarkets (Johnson, Whittington, & Scholes 2011). As a result of successful penetration, Tesco was able to transform the small retail stores into hypermarkets that strategically located as the demand for its products soared.
Tesco is renowned for its partnership with many start-ups and other major players in the retail markets that it has managed to enter. As an expansion policy, the joint venture approach has enabled Tesco to forge lasting and beneficial partnerships that are strategic in managing supply chain networks, product distribution, and market penetration, even in the traditional markets (Kennedy & Ehrenberg 2007). For instance, Tesco has made successful partnerships with companies such as Sime Darby Behad, Samsung, Catrtreaus, Savia SA, and Kmart to sustain its international market coverage. Besides, some of the brands of Tesco have been franchised to gain a competitive advantage at a minimal risk level (Johnson, Whittington, & Scholes 2011).
In order to minimize the impact of competition from rival brands, Tesco opted for a localization approach involving penetration into small markets that are often ignored by other global giants. This strategy was a success in the Asian market where Tesco quickly regained control of the markets.
Although there are complaints about the strategy of unfair competition through the creation of oligopoly-like markets, the reality is that Tesco’s expanded market network might be responsible for the majority control (Johnson, Whittington, & Scholes 2011). Besides, innovative brands such as Catrtreaus, Savia SA, and Kmart have created an innovative, proactive, and sustainable business environment for Tesco in the global market.
From the above analysis, it is apparent that Porter’s Diamond analysis has explained the success of Tesco’s internalizing decisions from capital investment, demand, business strategy, and competitive advantage mix.
Resource-Based View Theory and International Strategy at Tesco
Abbreviated as RBV, the resource-based view theory examines how different tangible and intangible resources, which are available at the disposal of a company, are used to gain competitive advantage (Johnson, Whittington, & Scholes 2011). The heterogeneous resources are employed in the short-term and long-term to sustain a competitive advantage position. This means that another venture interested in copying the same approach might not succeed since the resources are not substitutable or imitable. In relation to the international strategy of Tesco during its early expansion years, the company opted for a series of acquisitions and joint ownership because of massive financial resources at disposal (Kennedy & Ehrenberg 2007).
As opposed to its competitors, which opted for centralized operation and retail business, Tesco’s strategy to spread market points around the world consolidated and strengthened its long-term partnerships with ventures such as Catrtreaus, Kmart, and Samsung at the global level. Moreover, the diversification of the business volume across the international network of suppliers was strategic in spreading the risks involved in the global market. As a result, Tesco made use of independent suppliers to increase market penetration (Kluger 2011). For instance, in the Asian market, Tesco inherited the supply chain and market networks from Kmart. From this retail and supply point, Tesco’s products were distributed quickly because the networks were functional.
Operational efficiency and market niche provide an indication of how well a company manages its resources, that is, how well it employs assets to generate sales and income (Bodily & Allen 2009). In relation to the international strategy of Tesco, the company embraced properly researched policies to ensure survival in the external markets in Europe, North America, and Asia. The policies included diversification, expansion, and integration of the inherited markets in Tescos’s retail model (Johnson, Whittington, & Scholes 2011).
Since the company operated in one industry, it was able to sustain the simple structure, even after the acquisition of companies such as Sime Darby Behad, Samsung, Catrtreaus, Savia SA, and Kmart in the foreign markets. Through strategic market expansion via the traditional approach of acquiring medium-sized supermarket chains, it was easy to springboard sustainable and continuous international expansion (Johnson, Whittington, & Scholes 2011). This approach served as the primary platform for further penetration into the traditional market networks from the supermarket chains it acquired.
From the international analysis through the RVB, it is apparent that Tesco created expansive market networks that resulted in increased product visibility and market penetration. Through acquisition and joint venture approach in partnerships with companies such as Sime Darby Behad, Samsung, Catrtreaus, Savia SA, and Kmart, it was easy for Tesco to sustain its competitive advantage by increasing market coverage.
Reference List
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Johnson, G, Whittington, R & Scholes, K 2011, Exploring strategy, Prentice Hall, Alabama.
Kennedy, R & Ehrenberg, A 2007, “Competing retailers generally have the same sorts of shoppers”, Journal of Marketing Communications, vol. 7 no. 2, pp. 19-26.
Kluger, J 2011, “Beauty and the Bytes”, Special Commemorative Issue, vol. 16 no. 2, pp. 30-35.
Wright, P 2007, “A refinement of Porter’s strategies,” Strategic Management Journal, vol. 8 no. 1, pp. 93-101.