Global Markets

Executive Summary

This report discusses the expansion of Tesco up to date and analyses their future plans to enter into the North American market. Tesco has been very successful because of its good adaptation to the local environment. Tesco have a very flexible store format with a wide range of food and non-food goods. It is currently expanding at a highest rate than any other international retailer and they do have a very good position in Asia and Europe.

However the venture into the "wild west" has its positive but also negative sides. They will not only have to face Wal-Mart, the major competitor, in all three countries, Mexico, Canada and the United States on their home soil, but other retailers that also are well established.

Other factors that can have a fatal impact are trade barriers, cultural barriers, customs and laws. These will all be explained in detail in this report. Even though Wal-Mart is the market leader of this industry, there are areas, which Tesco can exploit to gain a foot in the door to this difficult and highly competitive industry. The usage of Tesco's club card scheme could be a very good example to gain that advantage. This enables them to collect data about the spending habits and product choices of their customers enabling them to target goods and services more effectively into the new market.

Tesco does have good strategies and also is very able to differentiate their stores from the other North American stores. With their wide portfolio of stores and products, Tesco can exploit and use this to their advantage especially when it comes to the competition with Wal-Mart.

To conclude Tesco can use their six point strategy to good effect and with their knowledge and experience from other international markets that they are based in would help them in order to enter the North American market. They would make fewer mistakes when compared to the other UK based companies that tried to expand in North America.

Introduction

Tesco, the UK based supermarket leader, is the third largest supermarket retailer in the world. Their chief executive Sir Terry Leigh has expressed his interests in expanding into the North American market.

To-date Tesco has been very successful not only in the home markets but in the international ones too. They have expanded into the eastern European, Asian and Russian markets by acquiring or merging with existing companies. This enabled them to learn about the business set-up, and requirements needed to be successful, implement strategies and learn from the locals.

Main Body

1.1 Tesco's current standing

Tesco PLC is a United Kingdom-based international supermarket chain. Tesco has come a long way since their first store which opened in 1929 in Edgware, London. They are currently the largest British retailer, both by global sales and by domestic market share . To this date Tesco is one of the top three international retailers in the world, with around 2,000 stores and 326,000 people in 13 countries across Europe and Asia. Tesco's sales have almost doubled in the past five years, with the company taking market share from other major supermarket retailers like J Sainsbury and others in the United Kingdom.

Originally Tesco specialized in food, but as their business expanded they have moved into areas such as clothes, consumer electronics, consumer financial services, internet service and consumer telecoms. In the year ended 26 February 2005 Tesco made a pre-tax profit of Ј1.962 billion on turnover of Ј33.974 billion, over Ј2 billion was underlying profit before certain accounting adjustments. Tesco's increasing returns and strong year-on-year sales growth indicates that their international business will continue to flourish. Their diverse multi-format strategy and developing global capability suggests that such a trend is likely to continue.

1.2 Tesco's international expansion

Tesco's expansion in the international market began in 1994, and in the year ending February 2005 its international operations accounted for just over 20% or 1/5 of sales, or about Ј7 billion. It has focused mainly on developing markets with weak incumbent retailers in Central Europe and the Far East, rather than on mature markets such as Western Europe and the United States. The firm's aim is to have half of group sales outside the United Kingdom by 2010.

Tesco rolls out successful UK initiatives in other countries. For example Tesco Financial Services and Tesco Express convenience stores both operate in several markets. Overall Tesco's success is based mainly on getting the basics of retailing right slightly more often than most of its rivals . A core component of Tesco's international strategy is consistent processes and policies, replicating UK-developed retailing excellence across the world while incorporating local cultural differences and tastes.

The table in the appendix shows Tesco's current international operations and turnovers.

1.3 International strategy

In most countries Tesco's preferred tactic seems to be to buy an existing retail chain, or a significant share of one, and turn it into a Tesco subsidiary. Then it can begin the tactics which undercut local traders, aggressively competitive pricing, selling petrol, launching loyalty card schemes, 24 hour opening and so on.

However Tesco has developed its international strategy using their 10 year international experience gained from their success. Their strategy is based on the following 6 elements :-

1. Be flexible - each market is unique and requires a different approach

2. Act local - local customers, local cultures, local supply chains and local regulations which requires a tailored offer delivered by local staff

3. Keep focus - to be a leading local brand is a long term effort and takes decades, not just a few years

4. Be multi format- no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and you need to take a discounter approach throughout.

5. Develop capability - developing skill in people, processes and systems and being able to share this skill between markets will improve chances of success in challenging markets

6. Build brand - brands enable