EVALUATION OF TESCO’S EXPANSION INTO THE US MARKET
Executive Summary
The report highlights the business expansion of Tesco in the global business market of the United States. The report also points out the background, aim & objective and the research methods in a detailed manner. In-depth elaboration of the key findings and results has been described with the help of a graph and tables. The discussion is being done with the help of results and findings.
The report concerns the different reasons for the failure of expansion and the recommended strategy to expand the business in the international market. The report also jots down the terms of reference for the report to analyses the limitation and scope.
International marketing is the expansion of business in different regions of the world to satisfy the needs and demands of individual customers and to meet the global objectives of a business. The marketing activities are gained from the different business policies in different nations according to the choice of the marketers.
Tesco is a renowned retail industry in the business market of the United Kingdom with more than 500,000 employees worldwide with annual revenue of 52 billion British pounds. The business market of Tesco has expanded in different countries including Japan, Hungary, Thailand, Malaysia, South Koreaand Poland.
In the year 2007, the company Tesco entered the business market of the US with an investment of $500 million. The company has also spent $1 billion to research the ground market of the US with a time of two years. However, the company has failed to sustain in the business market of the US and left the market in the year 2013 at 150 million pounds (tesco.com, 2020).
Aim
The report aims to evaluate the business expansion of Tesco in the US market and also jot down the reasons why the business has been doomed in the US market.
Objective
The objectives of the report are listed below:
- To critically evaluate the business expansion of Tesco in the US market
- To analyses the reason why Tesco has failed to survive in the market of US
- To recommend suitable strategies that help the company for international business expansion
The research questions are listed below:
- How the company Tesco has expanded the business in the US market?
- What are the reasons for the failure of the company Tesco in the US market?
- What are the recommended strategies that help the organization for business expansion?
The study mainly focuses on the reason for the destruction of business in the US market by Tesco; however, there will be a need to point out the strategies that will be helpful for the organization before international business expansion. As commented by Wood et al, (2016), the study also sheds light on the strategic thinking and market analysis of the company before the expansion in the US market.
As per the case study, the company has invested two years with $1 billion for analysis of the market. This must be needed before the expansion of the business to identify the target customers, market segmentation and other marketing strategies (tesco.com, 2020).
The scope of the report mainly defines the aim to identify the business expansion of Tesco in the US business market and point out the reason specifically. In the opinion of Wood et al, (2017), the main limitations of the report are time constraint and filtering proper literatures from huge resource collection.
In this report, the proper review of different literatures has been carried out based on the topic of business expansion Tesco in the US market. During reviewing the literature, outcomes have been focused which can help to define the exact reason for the disruption of the business in the market of the US.
The review of literature is helpful to provide an in-depth knowledge about the collection of data, data analysis and data processing techniques. All the relevant data about the report has been collected from the open source journal of google scholar and ProQuest. All the journals are relevant to the topic of the report as it describes the business expansion of Tesco in the US business market.
The recent journals have been taken which explain the marketing strategy of Tesco which needs to be developed for further international business expansion (Shi et al, 2018).
In this report, positivism research philosophy has been selected which had been helpful to discuss the relation between the concept and variable of the research. The deductive research approach has been selected to define topic related to the impact of business expansion of organization Tesco in US.
The descriptive research design has been selected as it is helpful to summarize the issues of international business market in different region of US. The report mainly highlights literature review as the best possible research methods for the incorporation of innovative research instruments.
Moreover, literature review and research methodology provided the theoretical and practical concept of the topic in a proper manner.
Results and findings are going to focus on the major components and aspects associated with the US market in the process of Business expansion of TESCO. The major findings and results of the evaluation of the business expansion of TESCO in the market areas of the US are following:
3.1. Failed in the expansion in US markets
One of the most significant findings of evaluation analysis in the Business expansion process is failure of corporate survival of TESCO in the functional areas of the US marketplace.
According to the view of Wood et al, (2017), the applied Business expansion strategy such as merchandising strategy of TESCO in the functional areas of the United State has failed. The business performance of TESCO in the marketplace of the United States was found to be very poor.
In addition, it has been greatly affected by external factors such as trademarks, business regulation, business policies, competition and the economy of retail marketing. As per the view of Wood et al, (2016), policies and regulations associated with trademarks in order to enter in the marketing areas of the US greatly influence business performance and expansion of TESCO to a great extent.
In addition, trademarks policy has created different limitations in the export and import process of TESCO and it has greatly increased operational management and supply networks of the organization. According to the view of Evans and Mason, (2018), the rise of the cost of supply networks across different markets of America has negatively impacted the business expansion strategy of this organization.
The business regulations of America are completely different from the European countries in terms of flexibility and marketing rules. In addition, business policies and market competition have also put an impact on the business procedure implemented by the organization to retain to the US market.
Figure 1: UK shares in the US Stock Exchange
(Source: Yoder et al, 2016)
From the above graph, it can be identified that UK shares in the US Stock Exchange have been decreasing since 2011 to 2014 continuously. As per the views of Yoder et al, (2016), the share value of TESCO has been dropped by approximately 2% between the years 2011 to 2014.
Figure 2: Decline of TESCO share value in the International Stock Exchange
(Source: Fatricia, 2017)
The above graph also represents the failure of TESCO corporate survival in the functional areas of the United States. As per the view of Fatricia, (2017), TESCO share values have decreased from 28.8% to 27.5% and it has greatly included its corporate survival in the American market.
Figure 3: Performance of TESCO in the US marketplace
(Source: Kim et al, 2019)
From the above graphs, it can be stated that the performance of the TESCO in the US marketplace was very poor and annual returns and sales percentages of the organization have decreased to a great extent. According to the view of Kim et al, (2019), the stock values have decreased by 4.66% and it has had a great impact on the international performance and business practices of the organization.
Marketing withdrawal of TESCO from the US market is one of the most significant findings and results of this study. TESCO entered the marketplace of the United States in the year 2007 and it withdrew in 2013. As per the view of Tirawatnapong and Fernando, (2019), the experiences of 6 years in the functional areas and retails marketing have resulted as a huge loss for the organization.
3.3. Existence of the highly competitive environment
TESCO has to face numbers of subsidiary organizations in the marketing areas of the US such as the Sainsbury and Mark &Spencer’s. According to the view of Martínez-Ruiz et al, (2016), the presence of high markets competitions is one of the major regions of the marketing withdrawals of TESCO from the US.
3.4. Lack of connection with the target market
The company has invested a lot of capital to identify the business market of the US but the company has failed to connect with the target market of the US. The company has used US recipes in their ready-made meal to attract customers.
In the views of Fatricia (2017), as per the climatic change, the need and expectations of the customers are also changing. The company has focused on the ready-made meal mainly the urban food desert whereas the target customers mainly prefer fresh foods in their daily lifestyle environment.
3.5. Improper choice of Geographic Location by the organisation
For international business expansion, there is a need to choose the proper location that will tempt the target customers in huge respect. The company has expanded in the UK business market by choosing the location of the market near train stations and the underground hubs of the subway as the target customers of the UK mainly travel by train and use the subways.
As per the views of Kim et al, (2019), on the other hand, the US target customers rarely use subways and trains for transportations. In the US, people drive anywhere in the country, hence, in California and Nevada they lose a huge chunk of customers for business growth (Martínez-Ruiz et al, 2016).
3.6 Use of old business Strategies
As the business expands in the US market the company has opened their branch in the metropolitan area instead of Nevada, Arizona. The model and business strategy of Tesco is mainly interconnected with the customers of New York and Washington D.C.
Their thinking and lifestyle are more or less the same to the customers of London. In the opinion of Shin et al, (2020), hence, the company has needed to expand the business from the east coast of the US. Their overall performance is not up to the mark as they opened the first branches in the US but they did not change their strategies of business expansion which leads them to decline (Naidoo et al, 2016).
Figure 4: Different Reason of failure in the business market of US
(Source: Shi et al, 2018)
3.7A difference of lifestyle of the target market of the UK and US
The company has failed to recognize the differences between the lifestyle of the target market of the United Kingdom and the United States. Both the countries have shared the same language, the same heritage but their shopping’s habits are fully different.
The company Tesco has failed to identify the discrimination between the shopping habits of US target market and UK target market. According to the author Shi et al, (2018), as the Americans are less frequent to the retail or grocery market, they spend more per visit. Hence, the loyalty program, self-checkout policies could not tempt the target customers of the United States.
4.1. Reasons for failure of TESCO expansion in US
The followings are the major reasons for the failure of the markets expansion strategy of TESCO in the US markets areas:
Figure 5: Reasons for TESCO expansions failed
(Source: Shi et al, 2018)
Trademarks: One of the most significant reasons for the failure of TESCO expansion in different regions of the United States of America is the policy and laws associated with trademarks. Trademark policies have become one of the major challenges and barriers to getting an entry for different reasons in American retail markets.
According to the view of Shi et al, (2018), trademarks have controlled the markets entry and exit process which put an impact in the supply networks of TESCO in the American marketplace. In addition, trademarks policies and regulations have increased the operations cost of the organization and reduced their annual profits to a great extent.
On the other hand, it has put an impact on the behaviours of the international investors and affects the business performance of the TESCO in the American marketing areas (Martínez-Ruiz et al, 2016).
Business regulations and policies: The business regulations and policies based on the American trade and commerce process have affected business performance and practices of TESCO.
According to the view of Ngamcharoenmongkol, (2018), the business laws and policies of the US are completely different from UK laws and it has affected the performance to a great extent. In addition, the changes and referendums of the business policies have affected the marketing strategy and approach of TESCO.
Existing high market competitions: One of the major reasons for the failures of business expansion of TESCO in the American markets is the existing high market competitions. According to the view of Ngamcharoenmongkol, (2018), the major competitors of TESCO in the American markets are Sainsbury and Marks &Spencer’s. Most of the American customers prefer to collect groceries from Marks &Spencer’s and Sainsbury instead of TESCO.
The prices of high market competition greatly affect business practices and opportunities associated with a competitive advantage to a great extent. As argued by Li (2016), the rise of competition in the American market has been caused due to the entry of new products and subsidiaries in functional areas.
Market structure: The market structure of America retailers is one of the major causes of the failure of the existence and survival of TESCO. According to the view of Shi et al, (2018), is based on the Oligopolistic marketing structure and the market competition is very high. In oligopoly market structure, the entry and exit of the marketing functional areas are very challenging in nature.
Figure 6: Illustration of the Oligopoly market structure
(Source: Li, 2016)
The policies of trade and commerce associated with retail business in America control the oligopoly market structure and consequences. In addition, corporate survival in the oligopoly market structure is very difficult and challenging. As argued by Li (2016), the existence of high market competitors and strict government policies has contributed to the process of market withdrawal of TESCO from retailing in the US.
Economic factors: The major economic factors that contribute to the process of market withdrawal of TESCO from America are the rise of the inflation rate, a decrease of exchange value, fluctuation of employee’s performances and labour cost. One the other hand, the economic policy of the government and monetary policy of banks also influences the business practices.
As per the view of Yoder et al, (2016), the Brexit referendum greatly influences the inflation rate and it has put a direct impact on business practices and performances of different British organizations in the international market. According to the view of Ren et al, (2019), the rise of the inflation rate has increased the cost of supply networks and the operational Management process of TESCO to an extent.
One of the most significant economic factors that have put an impact on the business practices of TESCO in America is the fluctuation of employees’ performance and labour cost. As per the view of Yoder et al, (2016), politicalreferendum has changed the structure of organizationand it has changed labour cost to a great extent and put an impact on the employee’s performance
According to the view of Ren et al, (2019), economic instability has affected the pricing strategy of TESCO and results and the negative responses from the customers by influencing their buying behaviours[Referred to appendix].
4.2. Impact of the US economy in the business performance of TESCO
In between the year 2007 and 2013, the US economy increased very rapidly and the International Exchanges Rate has also accelerated drastically. According to the view of Jin et al, (2018), the major impact of the US economy in the business performances of the TESCO are the new entrants in the marketing areas, rising economic pressures, trade and commerce regulations and corporate sustainability.
According to the view of Ren et al, (2019), the increase of the new entrants in the marketing areas has increased the competitors and subsidiaries for TESCO in the functional areas of US retailing and it greatly influenced the business performances. As per the view of Yoder et al, (2016), one of the major impacts of the US rising economy in the business performance of TESCO is the increasing economic pressures such as the improvement of the supply networks and operational areas.
4.3. Opinions of retails analysts
In the study, the opinions regarding the doomed venture from the outset have been discussed based on the different retails analytics. According to the view of Ren et al, (2019), the evidences of retail analyst form the newspaper, media and the data of UK and US stock exchanges are in supports of the marketing failure of TESCO in the functional areas of the United States of America.
The annual reports of the TESCO also show the major loss of the organization in practising business in the USA. In addition, as per the statement of the annual reports of TESCO, the Brexit referendum has greatly influenced the marketing policy of the organization and increased their operational and supply networks cost in a great extent.
Tesco used “Fresh & Easy”, however the brand failed. This occurred primarily due to wrong placing of stores. For example, their stores were not located in metropolitan cities, such as, Arizona and Nevada. Secondly, they were unable to understand taste preferences as well as life style of the average American (Cnbc.com, 2019).
The retails analytics of the organization Sainsbury and Marks and Spencer’s has also given their opinions on the performances of TESCO in the American markets. As per the view of Yoder et al, (2016), the differences in marketing structure in between European countries and America contribute in the major reasons of the failures.
The retail analytics and business experts of the American marketing areas has given their opinions based on the organizational structure of TESCO and even it is mentioned that trademarks policieshave negatively influenced their business process and strategy.
5. Conclusion & recommendation
It can be concluded from the report that the company Tesco has failed to expand its market in the United States. The report highlights the research background, aim & objective, report scope, limitations and the research questions.
It can also be found from the review of the literature that the main reason for business destruction includes the disconnection with target markets, outdated business strategies, and failure to distinguish the target market of US and UK.
The report also concerns the key findings and the result of the research and discusses the findings with the help of supportive figures, charts and graphs. The report also points out the recommended strategy that will be needed for international business expansion.
Recommendation
The suitable recommendations for international business expansion by the company Tesco are listed below:
- Identification of Segmented Market: the company Tesco needs to identify the segmented market as per the demand of the customers in that particular place. As the products will sell in the local market, the demands and priorities of the target customers need to focus. In the influence of Coe et al, (2017), there is a need to prepare a product gap analysis to identify the product which cannot be offered by the local target market. There will be a need to perform SWOT analysis in the competitive business market for comparing the price of the product with other business organizations.
- Develop Strategies and Business plan: there is a need to implement a short time, long time strategies to measure the individual business goals of the organization. As influenced by Tirawatnapong and Fernando, (2019), complete elaboration of business models and strategies for the expansion in the global market. The annual budget of expansion needs to be done and also the risk and contingencies needed to be declared.
Figure 7: Recommendations of the Business expansion
(Source: Sung et al, 2018)
- Incorporation of new tools and Technologies: the company needs to incorporate new tools and technologies for enhancing business productivity and annual revenues. In the influence of Sung et al, (2018), the traditional strategies of business may disrupt the overall growth as they will not influence the target customers. Hence, incorporation of new business tools and strategies will be helpful to increase the target customers and enhance the annual revenues.
- Mitigate the language and cultural differences: as different regions, people have different cultures, taste, values and beliefs. Hence, there is a need for the company Tesco to identify the culture and taste of the people and implement it in their service and products. As influenced by Wu, (2016), the cross-cultural differences can be easily overcome with the help of innovation in product and adapt to the cultural essence of the place. This will help the organization for expanding the business in the different places of the international business market.
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Appendix: Tesco’s performance in international expansion
(Source: Wu, 2016)
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