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Tesco PLC: Corporate Move and Strategy

Tesco PLC: Corporate Move and Strategy

Executive Summary

The report aims at highlighting the different corporate strategies addressed by the large multinational retailing brand of Britain, Tesco PLC. Over the years, Tesco has been steadily growing and maintain standards with the changing market and business environment. The Company has steadily diversified from food retail to non-food industries such as telecommunication, financial services and many others. However, grocery outlets are the main strategic move of the Company. Tesco has operated in almost every continent and has employed a wide range of population globally. Over the decades, it has become one of the most successful multinational corporations with a diversified business strategy. Being a corporate parent of several subsidiaries, it has successfully managed their financial moves and growth. Despite individually laid backs in business, it has always successfully come out of recessionary situations. Thus, to maintain steady business, the Company should manage its portfolio. All these have been described in detail in the following report.

1. Introduction

In 1924, the name “TESCO” was coined with a slogan of unequalled value. Since that year, Tesco PLC continued growing and expanding its business operation. The Company has expertise in launching grocery and retailing products. After that, the Company started a series of healthcare products in the early 1980s (Tesco PLC history 2020). Apart from grocery items and healthcare products, it is engaged in the production of school computers. Additionally, it is involved in providing banking services. Over the years, Tesco has diversified its operation and activities in different business chains and industries. However, maintaining customers’ expectations and giving liable services is the main objective of its business. It is a dominant multinational retailing company that has its operational base in almost every country. Apart from expanding in advanced countries, Tesco had the vision to expand in countries such as Ireland, Thailand, Malaysia, Poland and India. Tesco has a diversified corporate strategy, which has helped the Company gain a substantial competitive advantage in the retailing market (Tesco PLC Strategic Report 2018). Thus, this report aims to include the active businesses of Tesco along with its corporate strategy. In addition to this, the study evaluates the role of Tesco’s corporate parent, along with the existence of corporate advantage in its system. Lastly, it analyses the corporate strategy move of Tesco and provides plausible business recommendations for future sustainability.

2. Active businesses of Tesco PLC

Tesco PLC has its headquarters in Britain and is considered as the main business of the country. The reason behind its importance in England comes from its wide range of activities in the country in terms of employment provision and goods availability to the nation’s households. It is one of the most profitable supermarket chains in the world. Thus, it is known to be the artist of the small revolution started many decades ago and has grown into what we call a “supermarket”. The retail business of sustenance shopping has now been lined up on food superstores around the world. After Wal-Mart entered into the Non- food retailing chain, Tesco started diversifying its operation into different industry sectors such as banking, manufacturing of industrial products and  distributional activities (Tesco PLC Annual Report 2020). The Clothing ranges of Tesco consist of Fred, Florence and Cherokee, which are new launches in the apparel industry. However, these clothing chains are fast-growing in the United Kingdom’s market. Apart from these businesses, Tesco has diversified into the petroleum selling business and has a petrol station in various superstores of the Company. Its business aims to attract large amounts of consumers and gain strong brand loyalty. Thus, it is offering petrol at subsidised rates to make it affordable to the people it serves. This strategy of Tesco helped it gain a corporate advantage by reaching a wide range of customers.

Generally, a business is explained in the context of a particular model. A business model explains or directs a firm to value its customer’s needs, references, design of authentic products, and raising standards and functions (Puranam and Vanneste 2016). As a result, companies need to design proper market research reports to understand the target markets and product designs to attract customers and convince strategies. Following this, Tesco started expansion in manufacturing and selling organic products. Additionally, it offered alternative medicines and other healthcare supplements in its various stores. The largest of Tesco’s ventures is Tesco Homes, which focuses only on the construction of residential buildings in London. To prosper in this industry, Tesco aimed to collaborate with other associations in the same line of work and other companies (Samy Odemilin and Bampton 2010). A strong focus was established by Tesco to foster in this business line. As a Joint venture Initiative with the Royal Bank of Scotland, Tesco entered the business of providing and assisting in Personal Finance. For the organisation, the warmth never faded and customers remained the centre of their concern and service. This wing of Tesco was a massive success because it had grown a family of more than four million account holders, which resulted in an average of around Fifty Thousand Account holders joining in each week of progress. Therefore, establishing subsidiaries in other sectors yielded beneficial outcomes for Tesco.

Tesco merged with several companies of the same industry as well as different sectors as a strategic move. To gain expertise in wholesale and retail, Tesco merged with Booker to provide attractive food at reasonable price ranges (Tesco PLC Strategic Report 2018). Tesco’s strategic move depended on its customers’ growing needs and changing demand (The Telegraph of the United Kingdom 2018). Over the years, Tesco started expanding its operation in the e-commerce sector and began providing legal services to its customers. It started selling its existing products globally through online platforms. Because of its brand image and worldwide positive recognition, it prospered in the e-commerce sector as well. Tesco launched its website for e-commerce as and provided services to an average of 120,000 customers globally in the first week of operation (Chaffey 2019). Apart from online business, Tesco provided legal services such as the online purchase of legal documents, self-designing wills, rental agreements, provision of legal advice, hiring experienced lawyers and storage of wills. However, this subsidiary service of Tesco faced massive criticism from its market competitors. The general opinion was legal services are mostly personalised and customised physically. The acceptance of the lack of a personal touch in acquiring legal service was shallow, which restricted buyers to limit the purchase of legal opinion online. Despite this negative feedback, Tesco prospered in its business. Therefore, despite certain loopholes in business, Tesco prospered in the field of retailing, e-commerce, banking and finances and production of technological products.

3. Role of the corporate parent

Generally, there are two approaches in the industry with the parent-subsidiary relationship. Under certain circumstances, the Parent company completely controls its subsidiary activities, whereas, in other situations, the parent firm decides to act independently and provide complete independence to its subsidiary organisations. This implies that the subsidiary works on its own and performs alone. However, the voting power and control over its shares remain in the hands of the parent organisation. These kinds of parent companies are known as “conglomerates” that carry their own business and invest in other entities for the sake of buying out control (Puranam and Vanneste 2016). This strategy can also be termed as diversification of the parent firm. These entities may belong in the same industry or different ones. The parent company serves as a guarantor for the subsidiary in times of financial need and it is also responsible for the statutory dues and obligations of the subsidiaries. In most situations, the management of business operations and financial resource handling is controlled by the parent firm. The reason behind such power adhered by the parent is its obligation to report all the revenues earned and losses incurred in its financial statements and the statements of all its subsidiaries. This obligation is fulfilled once consolidated financial statements are prepared by them to report end-year performance in monetary terms. This model of a parent-subsidiary company brings a lot of benefits in terms of tax reduction and other economic interests in the overall business (Holland Lindop and Zainudin 2016). However, parent companies acquire subsidiaries off-shore to expand trade and capture more massive market bases for future sustainability in other nations. Other than the acquisition of companies, the parent organisation merges with similar or different businesses to gain knowledge of other domains and industries (Cho 2011). This merger helps in lowering market competition and strengthen the business.

There are several benefits of establishing a subsidiary in other economies. A subsidiary can have its style of managing a business with the available resources and personnel to suit the culture and traditions of the nation of operation. Moreover, centralisation causes a problem because customers might feel that the Company is insensible to the local needs (BOAML 2011, pp. 7). As a result, there is a problem of expansion by a parent firm in a country with restrictive cultural values. Thus, the subsidiary tries to invite financial aid to the Company from people who might not be convinced with the operations of the parent company. However, the subsidiary requires the parent firm’s support and experience to restructure the process in a new country. Thus, the parent firm keeps investing in several local entities and develops each of them with its expertise and brand name. This indulgence of the organisation helps in earing larger profit margins. Moreover, using local bodies for diversification is essential because of the regulatory challenge presented by the host country (Evans and Mason 2018). Thus, this divestiture helps the parent expand into different locations and businesses, without losing the focus on the primary market or area of operation. Despite this plausible advantages, there are certain disadvantages raised through tax and bookkeeping separately by both entities. This factor leads to challenging compliance requirements from both ends and can affect the established Limited Liability Corporations.

3.1 Corporate parent’s role of Tesco PLC

Tesco PLC, as a corporate parent of its subsidiaries follows takeover as well as the absorption of entities over all the continents. However, these entities remain independent firms and work as subsidiaries of Tesco. Moreover, as a parent, Tesco has a more significant role to play in the business and maintaining the revenue earned by its subsidiaries. The operation and activities of Tesco are spread over three continents with more than £72 income from operations. This high degree of operational structure makes it the leader of a retail food company. Among the eleven food outlets, the four markets are globally recognised (Wood Wrigley and Coe 2017). The core strategies are formulated and instructed by the parent and implemented by the subsidiaries. Tesco supports the decisions of Greenpeace formed for the advancement of the world. Additionally, its formation is initiated to work and contribute to environmental protection. The Company restricts the clearing of the forests in Amazon and decides to give away free food to the poor in the United Kingdom. Apart from contributing to world environment protection, Tesco has agreed to provide better business opportunities to payments made by small suppliers to the business. The Company has launched a “4R” campaign to create all-new packaging that is delivered online and re-used. There is a line of around one hundred and fifty products like sauces, chocolates, yogurt, and moisturizers with packaging that can be used entirely again. This campaign plan has been launched in joint efforts with Loop to carry out its operation worldwide. All these strategies implemented and drawn by Tesco aims at adhering to its corporate and social responsibilities (CSR) (McWilliams and Siegel 2011). Moreover, CSR is essential for gaining market advantage and attract customers for its subsidiaries in new markets.

Over the decades of Tesco’s operation, it has created financial benefit by opening new branches and merging with other companies. Thus, the corporate synergy of Tesco has been positive. The profitable worldwide activities and the positive business image have helped Tesco list on the London Stock exchange (LSX) as well as in the FTSE 100 stocks list. However, when the Organisation operates in one nation, there is a point of saturation to its business. It will grow better when it can advance in new areas outside the national borders. Most other chains in the United Kingdom, like Sainsbury and M&S, have also started expanding outside the nation towards the overseas market to maintain their business level. Thus, with the rise in the competition, any industry involved in retail trade should keep on developing operations to fulfil changing needs and combat the increasing competition (Zhao, 2014). These companies started competing with the other retail giants in the US, like Wal-Mart and French multinational player Carrefour. Thus, Tesco implemented strategies for opening new outlets in other countries in a different industry. Tesco’s decision urged it to open business and services in the banking and telecommunication sector (Carpenter 2020). Tesco opened stores all over the Republic of Ireland, Malaysia, Taiwan and South Korea. Towards the other end, expansion started in Japan and Turkey as well. In early 2004, there was a boost in international sales, specifically in Asia; the group profits also raised by 71.8 %. The Association of Convenience Stores (ACS) has shown a survey that suggested that a minimum of 59% of shoppers visited convenience stores more than once in a week (Haddock-Millar and Rigby 2015).

In 2020, when the world is fighting a Pandemic, Tesco commits to take care of both its staff and customers. Thus, to combat the virus, risk assessment is done continuously in partnership with the trade unions (USDAW and UNITE) and all guidelines and measures have been reviewed periodically. A separate set of risk assessments suitable for the business lines is prepared. For instance, the risk assessment for merchandising is independent and the risk assessment for Food Logistics and Pharmacy is unique. There is a maintenance policy in place for National Operating Centres and Operating Service centres and the stores. Tesco is a classic example of how an objective may be obtained even if there is a notable difference in communications and controls (Woods 2007). All these indicate that Tesco successfully administers its subsidiaries’ success, which makes it a successful parent organisation.

4. Existence of corporate advantage

Corporate advantage implies that sum businesses owned jointly have a higher value than individual parts. (Puranam and Vanneste 2016, pp. 4-5) suggested that a collection business earn higher NPV than different companies. However, the presence of corporate advantage does not necessarily indicate the presence of a competitive advantage. Thus, to gain a corporate advantage, strategic management is necessary. Tesco has been following a two-tier expansion move in expansion. The first expansion of Tesco is in the non-food sector in the United Kingdom. This part of the development includes operation in telecommunication, healthcare and financial services in the UK. There were notable differences in the performance of one country to another. In the beginning, the Company expanded in the UK and recorded healthy growth and performance. However, in the European Market, it failed to prosper, yet managed to establish telecommunication and financial services profitably (Petljak and Štulec 2015). Similarly, in South Korea, Tesco’s business strategy did not yield plausible outcomes (Coe and Lee 2013). On the other hand, the second part of its expansion process focused on raising the value of its grocery business in Europe, South East Asia, and the Middle East. In terms of its supermarkets’ success, managing relationships and execution is the critical element (Mollah 2014). The corporate advantage is visible in the annual report of Tesco PLC, where the financial report indicates its growth over the last five years. In return, the Company has decided to extend its support to the small suppliers by reducing the credit period to five days from fourteen days. All these indicate the corporate advantage earned by the Company by diversifying the business into different industrial segments.

Apart from this, Tesco had a great take or leave policy when it came to acquisitions. The Company could foresee growth in different businesses and immediately acquires a fair price buyout. The merger with Booker and the purchase of Giraffe restaurants and cafes are particular examples of corporate synergies successfully planned by Tesco (Spyrou Tsekrekos and Siougle 2011). A successful takeover of 2008 by Samsung-Tesco of South Korea is noteworthy (Wood Wrigley and Coe 2017). This takeover generated plausible earnings for Tesco and made it valuable by earning higher NPV. The method of acquiring entities differs from one continent to another, and from one culture to another is a challenging procedure (Foster and Noh 2013). The transformation of Tesco from a small retail unit in the UK to a global leader in the supermarket and grocery chain is a classic example of corporate strategy and advantage. Tesco’s corporate strategy differs from one country to another, depending on the business environment and needs of the market (Chang 2011). There are four main components of the Asian market of the Company, which consists of Thailand, Malaysia, South Korea and Japan. This selection is made because of its unique demand with knowledgeable customers and a friendly business environment with advanced technology. Today, Tesco has grown to be a global market leader because of its subsidiaries and firms (Imrie and Dolton, 2014). In addition to its corporate strategy, Tesco has earned a competitive advantage from offering reasonable prices, more extensive online marketing and a higher rate of innovation. This strategy has helped the Company in making wider brand recognition to compete with its existing competitors.

5. Corporate strategy move of Tesco PLC

Corporate strategy is that plan of companies with multiple businesses that helps them collate the diverse range of companies they carry out. The Company’s activity may be unique in itself or maybe coupled with similar companies in one division. Not only that, but the strategy may also be about managing ownership of a completely different corporation like done by a Parent Company (Puranam and Vanneste 2016). Since the beginning of its establishment, Tesco has focused on the diversification of its business into new locations and different brands. As we advance, since the last 60 years, Tesco has acquired more than 30 separate entities and revived them and renamed them as its own. The Company has been researching new markets and environments for business expansion. This development is evident from the worldwide operation and diversified business plan of Tesco. Unfortunately, the strategically formulated plans are not appealing in the real business environment (Cummings and Angwin 2011). It has been a collaboration and a merger of all acquisitions initiated by Tesco that has yielded both negative and positive outcomes for the Company. The main aim of Tesco was to strengthen existing ventures through good mergers and acquisitions. Merger with Booker was beneficial, whereas some units brought losses to Tesco even when they were making sense when initially acquired. The Victor Value Chain, the French supermarket and a specific number of convenience stores named Catteau were all sold as liabilities of the parent organisation.  Tesco was forced to decide to sell them because of their large amount of losses.

However, Tesco’s secret to success in a few years has been mainly the expansion of its subsidiaries overseas. Moreover, Tesco’s success has been built on some underlying themes, such as the customer’s key, teamwork and collaboration, accepting the change and technological advancements (Brannen Moore and Mughan 2013). Furthermore, Tesco did not stick to the mainstream food line and moved on to various other business lines, which had higher margins of profit and better revenue from operations. Thus, slowly the organisation has moved towards a multinational consumer company from a food chain retailer in the United Kingdom. Its success has been built on the principles of low pricing devised for products, building customer loyalty and stepping into retail service lines like legal, banking and insurance. Despite the random setbacks created by faulty acquisitions and market uncertainties, Tesco’s continuous diversification of portfolios helped maintain stability in the retail business. All these indicate that there are loopholes in strategies formulated by the Company, resulting in severe business failures. On the whole, this can imply that Tesco has prospered significantly well by diversifying its business globally.

5.1 Recommendation for Tesco

Since the year 1919, Tesco PLC has strategically planned its every move to gain an advantage and establish a successful worldwide business. The constant merger decisions and acquisition strategies were made to acquire a more significant proportion of the market. Its business portfolio largely depended on mergers with other businesses, acquiring competitors, and diversifying into different products and services (Zhao 2014). However, absolute instabilities restricted the success of certain acquisitions and diversifications into new countries such as European nations and South Korea. Thus, the Company should make necessary changes in its business portfolio to reduce the risk of economic and market uncertainties. Therefore, Tesco should focus on online and home delivery services. This factor can raise income in the pandemic, where individuals are restricted from moving out. Local companies in host countries can help Tesco grow, which can be either absorbed by Tesco or it can enter into a Joint Venture Agreement with them (Brannen Moore and Mughan 2013). This strategy of diversifying business in the host economies can stabilise shocks of credit crunches. Tesco has recently stopped expanding; thus, it should diversify by partnering with other big brand names or industries. Moreover, Tesco should be careful in all its marketing campaigns as it had seen a significant setback by the Christmas Advertisement released in 2017. This consideration is essential because it creates a negative brand image in the market, which can harm its finances. Thus, concerns like this should be addressed faster so that they do not harm the image of the Company and raise CSR issues for Tesco.

Apart from these, Tesco should reconsider being a part of the European Union, given the Brexit situation. This is because it can cause harm to the home country’s market capturing rates. Moreover, Wal-Mart and Carrefour’s growth should be closely monitored to reduce threats from the competition and maintain a competitive advantage. Tesco should pay attention to the market research reports and local surveys before expanding in a region to avoid failed acquisitions and losses because it has already suffered from failed acquisitions in the past. Tesco should take a revision on its low-cost strategy to go upwards in profits. Tesco should roll out the terms and conditions of the issue of any of its products to avoid any controversies like the Club Card controversy. Moreover, proper research must be carried out before taking a call on export sales. The export plans of the Company failed severely in Japan due to a lack of adequate research before starting the venture. Additionally, Tesco’s diversity is its strength; Tesco should plan on the maintenance of local demands in the countries of its operation. It should plan on benefitting from provisions and regulations as it is the largest employer in Europe and thus, it should try to cut on the huge labour expenses incurred. Tesco is a part of the most significant four supermarkets; it should plan on opening up smaller stores to enter economies of scale at various places. Lastly, it should organise more of the campaigns that it does to help people around the world. Thus, Tesco should make changes in its business portfolio to safeguard itself from financial shocks.

6. Conclusion

The study has focused on the different corporate strategy moves of Tesco PLC in terms of diversification of the portfolio, business acquisition and expansion in different countries. The Company did not restrict itself in growth and thus broke all records, even the ones made by it. The Company successfully managed both its grocery outlets and non-food involvements. Through each passing year, the Company grew in different directions and brought changes in its business structures. The acquisitions brought in extensive advantages to the Company in terms of earning stable profits and high revenue. However, the few setbacks that the Company faced, it has always grown. The first trouble that the Company faced frequently is caused by the diverse culture of the regions in which it has been expanding. Thus, if Tesco starts working on the same integration, it will wipe off the sole thing standing on its way to achieve new heights. The project has been made, keeping in mind the vision of Tesco in establishing itself as a high-value brand. Therefore, in conclusion, this can be implied that Tesco has successfully managed its retail brand along with fostering in other industries. However, it should change specific areas in its diversification plans to overcome severe difficulties.

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