Ivaylo PekachevKiril RavnachkiBUS 495Prof. Andre Mailer

Extended Executive Summary(Tesco conquers the world?)

The case presents a company that is considered as UK’s most successful grocery retailer. In this report, we discuss the possible future strategic directions for Tesco, having in mind the strategies that the company had followed from its origins.

Strategic DirectionTesco started as a UK- based grocery retailer and operated only within the

UK borders for decades. However, since the mid-90s, the company started investing in new markets overseas, seeking out new opportunities for growth and ways of generating long term returns for shareholders. Today, the Group operates in 13 markets outside the UK, in Europe, Asia and North America. Over 180 000 employees work in Tesco’s international business, serving in 2 026 stores and generating 700 million pounds profit. Over half of the company’s selling space is now outside the UK. All these facts show how successfully the company had penetrated into foreign markets, and how massive their international invasion is.

However, Tesco did not diversify only geographically, but also by product. The company started offering products and services in the areas of clothing, electronics, financial services, telecoms, home, health, beauty, car and dental insurance, retailing and renting DVDs, CDs, music downloads, internet services, software, fuel, film making and sound recording. Considering Tesco’s tremendous variety in terms of both products and markets, it is obvious that the company had followed the diversification strategic direction. Diversification is a strategy that takes an organization away from both its existing markets and its existing products, and this is exactly what the Tesco Company did- from a UK-based grocery retailer the organization became a worldwide enterprise operating in various types of businesses.

Possible Future Strategic DirectionsIn our view, there are four relevant strategic directions available to Tesco in

the future. The most suitable one would be to expand overseas sales. Although their international campaigns have been very successful, as half of Tesco’s sales come from their international business, Tesco could gain much more profits by continuing their invasion of foreign markets. With the exception of Ireland (91 stores), the company’s international expansion had mainly been in Eastern Europe (272 stores) and Asia (450 stores). There are several other foreign markets that could be extremely lucrative for the retail giant. One of these markets is the

Australian one. Australia’s retail industry has evolved to become one of the country’s major economic forces and its largest employer, providing a platform for entrepreneurship and innovation. The industry produces more than $200 billion in annual sales and a growth rate of more than 6% compound per year. All these statistics claim that the Australian market would be a wise decision for a market entry, as the industry is extremely profitable and still growing. Another and even more attractive destination would be the Russian market. As of April, 2010, retail is considered to be one of the fastest growing industries of the Russian economy. In the recent years, Russia has emerged as a leading name among the countries providing most favorable retail environment. In fact, Russia is the second most attractive destination for retail after India, thanks to its rapid economic growth and favorable policy framework. Other attractive foreign markets that Tesco could expand to are Central and East America (as Tesco is operating only on the West Coast) and Western Europe, which is mainly represented by the profitable retail industries of Spain and Portugal. We believe that the most appropriate method to pursue the strategy of expanding overseas sales would be through mergers and acquisitions, because acquisition is the quickest way to deliver the desired growth. Tesco has proved to be very successful when using this method in the past. The company had effectively acquired thousands of facilities in different continents. The second most suitable strategic direction for Tesco in the future would be consolidation. Consolidation is where organizations focus defensively on their current markets with current products. Formally, this strategy occupies the same box in the Ansoff matrix as market penetration, but is not oriented to growth. As Tesco operates in a highly competitive market with key players being Wal-Mart and Carrefour, the strategic direction of defending market share would be very appropriate. Tesco is currently successful in 14 different markets, and is the world’s second largest retailer in terms of profit (after Wal-Mart). That is why strengthening their positions in their current markets is an appropriate way to keep the company’s high financial performance. We consider that the most appropriate method to pursue the strategy of consolidation would be through organic development, because organic development is where strategies are developed by building on and developing an organization’s own existing capabilities. This method implies that a company should try to keep its current market share and aim to sustain its current accomplishments. A less suitable strategic direction for Tesco in the future would be to do nothing. This direction is somehow similar to consolidation, with the exception that the company does not make any specific efforts to sustain the current market share. It just continues operating in its current markets using its current business strategy and capabilities. This strategic direction can be achieved through the organic development method. As previously mentioned this method claims that a company should try to keep its current positions. The least suitable strategic direction for Tesco in the future would be diversification - a strategy that takes an organization away from both its existing markets and its existing products. Tesco has already been using this strategic

direction for years, and diversification is not a process that can last forever. The company is currently offering products and services in numerous areas, and no further innovations are needed. Nevertheless, if diversification is to be chosen as the strategic direction for the company in the future, it can be achieved through mergers and acquisitions. As previously mentioned, Tesco have been successfully using this method when penetrating foreign markets.

When applying the criteria of acceptability and feasibility to evaluate the possible strategic directions for Tesco in the future, we have determined that the “expand overseas sales” direction appears to be most suitable. In terms of feasibility, we suggest that the company will have enough capabilities (capital) to deliver that strategy, since Tesco had undertaken foreign markets entries numerous times. In terms of acceptability, we have concluded that it is very likely that the company will succeed in its foreign expansion and the outcomes of their strategy will be more than satisfactory, because Tesco had already conquered 13 foreign markets.