Analysis of an MNEs internationalization Strategy
This aim of this study is to determine the international strategies used by multinational enterprises (MNEs) in host country. For this study, Tesco is chosen as multinational Enterprise (MNEs) that operates its business in different countries by establishing its new retail stores for targeting large numbers of customers.
This study also helped in understanding the importance of Dunning eclectic framework (OLI framework) for developing an international strategy for Tesco multinational company. Using Dunning eclectic framework also helped in analyzing the international strategies which Tesco used to enter the host country, Thailand.
At the same time, this report also outlined each eclectic framework i.e., ownership advantages, internalization advantages and location advantages in order to determine the Tesco performance. This study also helped in understanding that how this OLI framework supported company to develop its customer base and enter new emerging market efficiently.
In concern to this study, foreign direct investment, strategic alliances, exporting and licensing are found to be international strategies which support the company to enter the new market. But for Tesco, company foreign direct investment is found suitable to enter emerging market efficiently and effectively.
This international strategy i.e., FDI found to be effective as it help in judging the favorable environment , stakeholders needs, customers satisfaction level and so on. Therefore, dunning eclectic framework is very helpful and useful to understand the international strategy requirement for entering new market, Thailand.
This purpose of this report is to analysis the international strategies which are used by multinational firms in host country (Thailand). Tesco is selected as a Multinational Enterprise (MNE) from the host country (Thailand). Tesco uses some internationalized strategies as this firm serves or offers its products and services nationwide (Johnson, et al. 2017).
International strategy is very necessary for those business organizations that are operating or focusing to operate their business in the international market. Foreign Direct Investment, exporting, strategic alliances and so on are some strategies which support the firms to enter and sustain in the competitive market efficiently (Peng & Meyer, 2011).
The report will discuss the dunning eclectic framework for analyzing the multinational firm organizational structure as well as international strategies. In addition, this study will also help interpreting the changes and ways the multinational firm (Tesco) could use international strategies to attain a competitive advantage.
Moreover, some recommendations will also be provided to the firm that will help in developing and improving its efficiency and business strategies to a large extent. Further, this study will also outline some ethical guidelines that are required to be considered by the Tesco in order to meet the challenges in a competitive international market by using international strategies in an efficient manner.
Tesco Plc. is a British (UK based) multinational retail organization which is founded by Jack Cohen in year 1919 as a group of different market stalls. Tesco is a large retail store market where customers are offered with different types of products and services that meets the customer satisfaction level ad demand for the particular product.
Tesco operates its business in more than 14 markets across the Asia, Europe and North America and also have 2900 stores with over 300000 employees (Tesco PLC, 2018). The main purpose of Tesco is to earn lifetime loyalty from the customers buy creating value in customer’s mind. The products and services offers to customers by Tesco are electrical goods, consumable goods, insurance, mobile phones and grocery items and so on.
In addition to this, Tesco also believes in providing rewards to customers in form of vouchers so that customer relationship is developed. Tesco also focuses on developing customer loyalty towards the brand by holding the customer information confidential.
Tesco uses a effective payment system i.e., transaction processing system (TPS) which assist the company in recording the payments that are received from the customers after selling them products and services. However, Tesco uses various international strategies that help the firm to understand the market and sustain in the competitive market easily by meeting the customers requirement on time.
Dunning eclectic paradigm (OLI) is an effective and influential framework for a company to follow because it provides three-tiered framework which is used for determining that is it beneficial for pursuing the Foreign Direct Investment.
The OLI framework stands for Ownership, Location and Internalization framework that are three essential sources which help the firms in underlining the decision for becoming a multinational company.
The OLI framework provides help in analyzing the advantages which firms capture by developing international strategies like strategic alliances, direct foreign investment and so on (Martínez-Ruiz, et al. 2016).
Dunning eclectic framework is a holistic in nature but it is also found specific framework which help in analyzing the foreign direct investment which are made by international firms as a strategy to target or expand business globally.
The ownership advantage in OLI framework is that it addresses that an international firm have some specific advantages which help in overcoming the operational cost in a foreign country.
Location advantages in this framework stated that MNE’s must focus on choosing the location where it establishes its business in international market globally.
On the other side, internalization advantages framework help the MNEs in determining that how a firm influencing the cost of operating business in foreign country, trading off transaction, holding up and monitoring cost related to wholly owned subsidiary in against of exports, licensing and joint ventures entry modes.
In context to this, Chen (2014) clearly mentioned that use of dunning eclectic framework is just like an approach by an individual firm in order to focus on incentives and also to analysis the market advantages in a foreign country.
The international strategy plays a significant role in determining the business opportunities and threats which are present in the international market. For every organization, choosing a suitable international strategy is never seems to be easy whether it is direct foreign investment, strategic alliances, exporting or licensing (Wadhwa, 2011).
All these strategies are beneficial but involve some risk while offering products and services to the customers in the target market like social, environment and political risk. In respect to it, this study focus on understanding and analyzing the international strategies of multinational enterprise i.e., Tesco which is based on dunning eclectic framework.
While analyzing the international strategies of Tesco, it is also determined that Tesco used varied method for entering the international market in each region by selling products and services at a low cost.
Mostly, organization structure is developed by keeping in mind dunning framework which helps in determining ownership advantages, internalization advantages and location advantages (Twarowska & Kąkol, 2013).
In respect to this, this dunning framework is used by organization while entering a new international market by using new entry modes such as licensing, exporting and FDI. Forsgren (2008) also elaborated that international strategy is supported by different theories in order to target specific market such as monopolistic advantage theory, transaction theory and strategic behavior theory and so on.
These theories play a significant role in developing the international strategies which help the firm to enter the market efficient without facing any barriers. The advantages of using strategies assist the firm in managing the superior technology, economies of scale and superior knowledge.
In respect to this, Brouthers, et al. (2015) explained that using these theoretical perspectives while analyzing international strategy is also beneficial as they determining the factors that influence the entry in to the international market. In addition, Tesco has entered a market nationally by understanding the market culture as well as developing a fairly unchanged model of a retail outlet.
But at the same time, Tesco also adopted a local strategy at the time of entering Asian market which is already a highly competitive market which large numbers of competitors.
Thus, using international strategy by multinational enterprise helps in expansion of the business in comparison to global retailer (Dunning & Lundan, 2008). In contrast to this using international strategy as an approach also leads to greater learning experience which international makes retailer like Tesco to experience a broader knowledge base competitive market.
Moreover, Tesco evolved its international strategy on the basis of different elements i.e., flexibility, focus local culture, multi-format, capability and brands.
Ownership advantage to the Tesco
Tesco ownership is owned by several partners and shareholders who provide financial support to the company. The ownership advantage is very effective for meeting the limited liability of the Tesco shareholder’s. The ownership advantage is beneficial for the company to raise large amount of fund or capital as there are large numbers of shareholders of Tesco.
Tesco enjoys the ownership advantage on the basis of its ability to cater or satisfy the customer needs when they enter their retail store (Wood, et al. 2016). But the ownership advantages affected the Tesco business performance and efficiency as main owner of the company loses the control and for that Tesco owner need to develop strict rules and regulations for controlling and protecting the interests of company and employees.
The ownership or stakeholders of the company Tesco includes customers, employees, owner, suppliers, government, and local community and so on. Tesco believes or feels like investing in foreign market will result into the achievement of exporting the products and services or culture of retail market to other market (Thailand).
The key to the success of transferring the Tesco ownership advantage by focusing towards the localization standard approach which help the firm to treat each market individually in order to understand the social expectations and cultural difference.
In addition, Cantwell (2016) also mentioned that operating business in a retail sector in new country will lead to increase in the scale and scope of its products and services sourcing in order to provide the benefit in both domestic and international subsidiary market.
Tesco’s ownership advantage has been grown up and developed in an advanced developed country within a competitive sector like retail. Pham, et al. (2016) added his view point by stating that strong competitive and ownership advantage is when it is transplanted to any developing country as a strategy to become leading player in the market.
For establishing the market in Thailand, Tesco conducted proper research before entering to the Thailand market so that ownership advantage can be used for dealing with the competition level in the international market in retail sector.
But on the other side, Gerbl, et al. (2015) also explained that local competitors are more market oriented in comparison to Tesco because company retail approach to target local customers is found to be innovative and entirely new.
Location advantage to the Tesco
For choosing particular location, Tesco took time to enter and operate the business in particular and also then it decided to enter sequentially rather than entering market simultaneously. The location advantage plays a significant role in identifying the good geographical location in respect to production costs, PESTEL factors, market access and distance, etc.
While studying, it is found that Thailand is best suitable location to establish and operate a new retail store because in that country, a customer spending power is high and also country economic condition is also relatively stable (Zhao, 2014). In this country, the potential to achieve future growth in the competitive market is also effective because Thai people demand for more attractive and innovative products and services.
The location advantage is big internationalization strategy for Tesco to enter the international market because this advantage provides the benefit to the domestic and international country to develop their relation as well as attract more foreign direct investment.
For achieving a location advantage, it is very important company like Tesco to analysis the market properly and identifies the main local competitors which are successfully targeting the customers in that market.
At the time of entering the international market, it is necessary to check the favorable environment of the competitive market in order to establish business and sustain in that environment for a long terms period.
Tesco’s decision to expand its business in overseas market was an effort to target and reach more numbers of customers easily. According to current scenarios, Tesco has reached to more than 2 billion of customers across the world by offering customers with innovative and varieties of products and services.
The location advantage played a crucial role in reaching to the customers in new country market because it necessary that location of operating business need to be favorable enough to accept new entrant in existing competitive market (Shulyn & Yazdanifard, 2015).
For sustaining in a new country, Tesco focused on relying on new HR policies and operational plan which is suitable with the cultural environment of the native county, Thailand.
During the analysis, it is also found that Tesco invested in Thailand (Asian counties) because it determined that Thailand would be a base to set and run business in other countries.
The location advantage achieved in Thailand by Tesco is that it got dual benefits of accessing a new market and also developing base to manage and control the operational functions regionally.
Internalization advantage to the Tesco
Tesco is suitable for successfully achieving the internalization advantage and warrants to a physical presence in Thailand. The international strategy i.e., exporting and licensing found to inappropriate for the Tesco because exporting would not release the full effort or potential to develop relation with the competitors or marketers.
For Tesco, internalization was found to be very appropriate for the Tesco to enter the international market efficiently and effectively. Internalization advantage provides benefit to the multination company in reducing the transaction costs (Ilonen, et al. 2011).
This internalization advantage also helps in analyzing the management efficiency by determining or examining the management ability to protect the business from any threat or challenges that incurred at the time of development of international strategy.
Moreover, Forsgren (2008) also added that in Multinational firms, employees (local staffs) are also provided with the ownership as they understand the local market and customer’s requirement more efficiently. In Thailand, Tesco efficiently managed to reach the customers but in US, Tesco failed to appreciate or satisfy the large customer base.
The use of internalization advantage supported the company for avoiding the clashes due to the cultural differences if it is allowed to use fully internalize manner.
Even though, Tesco enjoying successful position in the UK market by using effective business model then also Tesco decided to move towards Thailand for targeting Thai people and Asian market. By developing its subsidiary in different overseas market, Tesco able to reach large numbers of customers and provide them with its effective customer service delivery (Grant & Jordan, 2015).
The internalization advantage is also assisting the company Tesco to train their staff members to learn the culture by fully exploiting the location and ownership advantages simultaneously. Thus, for integrating other operations in Thailand by Tesco, it is very important that internalization activities fall under the responsibility of Tesco.
The interpretation from this above study is that Tesco developed international strategies by focusing to the external and internal environment and market conditions efficiently and also tried to match the strategy with the market environment.
However, these all above stated factors are focused by the company while making any Foreign Direct Investment (FDI) in other country where company wants to establish or serve its services (Hardaker, 2017). The discussion for this study is that Tesco is also company which focuses on attaining competitive advantage and benefits by determining the customer requirements and market trend properly.
Although, dunning eclectic paradigm is conveniently fitted to this study as it help in explaining the Tesco international strategy which is adopted for entering to the new market. The pattern of managing FDI of Tesco in Thailand is efficiently dome by using all three OLI frameworks which assisted company to analyse the get motivated and enter new country market with a confidence in order to boost the other economy market also (Severn, 2007).
For Tesco, FDI is found to be effective international strategy which is good matching with the decision to move to new emerging market like Thailand.
From this discussion, it is also clear that MNEs transfer their ability and improved ownership advantages in order to deal with the institutional challenges in particular host countries.
In a similar manner, this study highlighted on the ownership advantages of Tesco in host country, Thailand where company got support from the foreign investors and local staff members.
The location advantage is also found best suitable for Tesco as it is determined the purchasing power is very high and this leads to timely entry to the market and this was found to be a risk for improving customer base. The decision to invest directly in one of the Asian country found to be well suitable and effective to increase its market share and expansion of a business.
Based on the above study, some recommendations can be made to Tesco plc in order to succeed in establishing the business presence in the competitive international market. First, recommendation to the Tesco is that company should dispose of Greenfield investment strategies because it is found during analysis that company faced high cost on it in past years.
In addition, it is also recommended to the company that it should use or develop that strategy which fit to the culture of the target market and also company focuses on choosing the targeted market like it did already in South Korea.
After data analysis related to international strategies of multinational enterprise (Tesco), some recommendations are also provided to Tesco in order to improve and develop its position in nationwide market efficiently by targeting customers globally.
Therefore, Tesco Plc. should also suggest that it must focus continuously incorporating the local strategies and also respond to the culture of the local and targeted markets (Verbeke, 2013). At the same time, the company should also focus on enhancing the market intelligence and customer database in order to provide customer with the attractive service delivery.
The ethical consideration that multinational firms need to focus on while offering and marketing products and services in an international competitive market is that understand the customer’s requirements in advance.
In addition to this, Rugman (2008) also stated that other ethical consideration that company need to follow is that as well as keep the customer information confidential in order to develop customer loyalty and relation with the customers.
Moreover, company also required to focus more towards social responsibility consideration in the emerging market in respect to deal with the commitment related to responsibility of society, regions and market.
In concern to it, entering to a new market is a challenging task for the organization for which they required to develop or improve their business strategy in order to target the large customer base. The business ethics are required to be developed by considering the native country cultural environment and legal, social and environmental factors (Peng, 2014).
The alternative options which can be suggested to Tesco in respect to ethical guidelines is that company need to focus on the developing or improving its strategy and business model according to host country culture in order to retain local staff members in the retail store. Thus, Tesco also required to analysis the market by following the business ethics in order to avoid any threat or conflict.
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