Tesco: International Strategic Business Units

Tesco: International Strategic Business Units

Jack Cohen founded Tesco Plc (TSCO.L) in 1919. After expanding into every available market in the United Kingdom, including developing new store formats for small areas (Tesco Metro) and a superstore format (Tesco Extra), new product lines such as electronics and home goods, and an environmentally-aware range of foods, the company began to expand internationally. The first expansion was in 1995, when Tesco opened a store in Hungary. Poland, the Czech Republic, Slovakia, Northern Ireland, the Republic of Ireland, Taiwan, Thailand, and South Korea followed this initial expansion in the 1990s. Today, Tesco serves a total of twelve international markets, plus all areas of the United Kingdom.

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Tesco has chosen to pursue a strategic business unit (SBU) across all of its business areas in order to maximize the degree of competitiveness within the individual market areas. Tesco operates using four strategic business units – Core UK, which handles United Kingdom grocery operations, International, which handles international holdings, Non-Food, which handles sales of electronics, home goods and other non-food items sold in Tesco Extra and other stores, and Retailing Services, which manages financial services, the Tesco.com web site, and Tesco Telecoms services.

A focus on the International strategic business unit, currently the focus of a lot of business development and change, provides insight into the company use of the SBU as a whole. The stated strategy of Tesco’s International SBU includes elements of flexibility, local operations including customers, cultures, supply chains and regulations, focus on a few countries, multi-format offerings in order to meet the needs of the local market, capability in people, processes and systems, and brand-building to create lasting customer relationships.

All aspects of the store’s marketing and design were custom-tailored to the market region in which they were opening. The name, Fresh and Easy, was intended to take advantage of Californian culture and values. Their product offerings within the store, with a strong emphasis on fresh fruits and vegetables, natural and organic foods, were intended to not only appeal to the tastes of the local culture but also to fill a gap in the current supermarket offerings within the region. The locations, which are primarily urban, small footprint locations in city centers and underserved neighborhoods, are intended to not only take advantage of the chance to enter an underserved market but also to fit the market needs of the surrounding areas and to integrate seamlessly into the neighborhoods.

These alterations to the core product (a small supermarket along the lines of a Tesco Express) have allowed for a successful entry into the Californian market, as Tesco have adapted to the local culture rather than attempting to import an unaltered product into an area. Tesco’s successful adaptation of their business practices to the new market has spurred reaction from their competitors, who almost immediately began improving their own fresh foods offerings and acquiring space for their own small footprint, in-city format stores in order to compete.

The strategic business unit organisational structure provides Tesco with flexibility to expand its operations in many different directions, it can expand its electronics line in the Non-Food SBU without disturbing the policies, practices or resources devoted to the International or Core UK SBUs, which allows it a large degree of flexibility and customisation capability within the organisation. It also allows the company to be successful internationally, as it can choose its market entry strategy to account for the needs of the new market, rather than simply mimicking the existing competitors or using the home country marketing, branding and business operation techniques. Tesco has been exceptionally successful at international business development, as is the market leader in five of its twelve international market areas.

In order for business development to continue to be successful, it must be sustained. Currently, Tesco has a number of business development areas in which it could focus. The growth of the non-food business unit holds great promise, as it could take advantage of the growing demand for these products. However, this business unit’s effectiveness may be compromised by current economic conditions. Sales of non-food products are largely driven by consumer confidence ratings, which are currently at a low. This means that the sale of large durable goods and luxury items, in particular, may be considerably depressed as consumers try not to make unnecessary purchases due to economic anxieties. Thus, continued development in the non-food strategic business unit may be counterproductive until the economic outlook improves. Before undergoing any further development in this area, a careful risk assessment should be undertaken. Source : https://tesco-business-strategy-brainscentral.com

Question 1

Based on the article above, Tesco choose to pursue SBU structure across all its business areas for maximising the degree of competitiveness. Advise Tesco based on your opinion on the success of TESCO upon pursuing the selected sturucture as the main tool to overcome competitors.

CLO 1 : Discuss the core issues, key concepts, elements, components and processes of strategic management

Question 2

Advice TESCO on the changes or improvements which ought to be done as to the retailing related sector in order to overcome the pandemic situation as faced by the world now strategically beside their current practice in the industry.

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