Download doc - Written Assignment

Transcript
Page 1: Written Assignment

UNIVERSITI UTARA MALAYSIA (UUM)

BPMN6023 STRATEGIC MANAGEMENTSEMESTER 2010 / 2011

GROUP PROJECT

TITLE: TESCO STORES MALAYSIA SDN BHD

PREPARED FOR : PROF. P.R. BHATT

PREPARED BY : MOHD FHADLI BIN MOHD FUDZI (808493)

NOOR ULFAH BINTI MUHAMAD ZIN (808504)

SUBMISSION DATE : 13th FEBRUARY 2011

Page 2: Written Assignment

TABLE OF CONTENTS

TITLE PAGE NUMBER

Table of Contents 2

Acknowledgement 3

Introduction 4-5

Background of company 6

Overview of Retail Industry in Malaysia 7

Business Operation in Malaysia 8

Corporate Strategies 9-14

Competitor and Competitor Analysis 15-22

Financial Performance Analysis 23-24

Recommendations 25

Conclusion 25

Reference

BPMN 6023 Strategic Management Page 2

Page 3: Written Assignment

Acknowledgement

This Group Assignment for subject Strategic Management (BPMN) Semester October 2010 is to

choose any topic and issues to be analyzed from the course syllabus, subject to lecturer’s

approval. Hence, the students are required to submit brief information about their project.

Project report must be submitted on 13th February 2011. Presentation will be held

during class. Students are advised to present their report in a simple yet knowledgeable

manner. Marks will be awarded for contents, teamwork, creativity, presentation and the

quality of the report. For the purpose of this Group Project, our team has chosen the topic:

TESCO MALAYSIA STORES SDN. BHD. This paper shall present in-depth presentation

highlighted on strategies, competitor analysis and recommendation.

We would like to extent our utmost appreciation and highest gratitude to our self as team

members of this Group who had immensely contributed to the completion of this Group

Project. Special thanks also to our lecturer Prof. P.R. Bhatt for his kind support and

guidance.

BPMN 6023 Strategic Management Page 3

Page 4: Written Assignment

Introduction

Tesco History

Tesco originated in 1919 when Sir Jack Cohen used his gratuity from his Army service in

the First World War to sell groceries from a market stall in the East End of London. By the late

1920s, Tesco (or TES from TE Stockell, a tea supplier that he used, and CO from Cohen) was

selling from open-fronted shops in London high streets, the first store being at Burnt Oak,

Edgware. Cohen’s motto was “Pile it high, sell it cheap,” referring to the idea that customers

wanted inexpensive products at convenient locations and that volume would drive profitability.

Sir Jack Cohen concentrated on growing the business, vigorously pursuing expansion. Tesco

Stores (Holdings) Ltd was floated on the London Stock Exchange with a share price of 25 pence.

Until the 1970's, Tesco operated on the 'pile it high, sell it cheap' formula Cohen had imported

from the USA. However, the market was changing, leaving the company with slim margins and a

serious image problem. Under the leadership of Ian MacLaurin, who succeeded Jack Cohen in

1973, Tesco decided to try something dramatic and different which to become an ‘inspirational

mass retailer’. Tesco decided to modernize itself, closing 500 unprofitable stores, and

extensively upgrading and enlarging others. At this time, Tesco prioritized the development of

large out-of-town stores where parking was convenient, the selection of goods broad, and where

a higher volume of business could be generated at increased margins while reducing overheads.

Other innovations throughout the 1980s included introducing own-label product lines,

computerizing and centralizing distribution systems and developing shopping centre outside of

the major cities. In 1983, Tesco Stores PLC renamed itself simply Tesco PLC. In 1993, when

Tesco introduced 'Value' lines, a cut-price range of own-label goods, competitors scoffed and the

share price sank. But Tesco had gauged the popular mood after years of recession, shoppers were

looking for bargains, and sales soared. A year later, Tesco started 'One in Front’ opening a new

till whenever a checkout line exceeded two trolleys. It cost millions in extra staff, but customers

loved it. In 1995 Tesco became the first supermarket to introduce a company loyalty card, an

idea developed by the then Deputy Managing Director, Terry Leahy. At first the other

supermarkets were skeptical, but the concept caught the public imagination leaving the others

BPMN 6023 Strategic Management Page 4

Page 5: Written Assignment

racing to catch up. Cohen was responsible for several small revolutions in retailing which led to

the rise of 'the supermarket' we know today.

Tesco Now and Then

Sir Terry Leahy, current CEO of Tesco PLC, has overseen 13 years of dynamic expansion and

development that has taken Tesco from living in their rival’s shadow to the UK's number one

retailer and not to mention third in the world after Wal-Mart and France's Carrefour. After

becoming CEO of Tesco, Leahy focused on each of the following areas: Tesco's core UK

business, its international operations, its forays into the non-food sector and retailing services,

and Tesco.com. The core UK business was an important part of Tesco's activities employing

over 250,000 people in 1,779 stores as of February 2005. The UK business also accounted for

80% of Tesco's total sales. It operated through four different formats of stores - Express, Metro,

Superstores and Extra, catering to the needs of different types of customers. Tesco continuously

innovated and introduced new product lines to provide customers with a wider choice. But Tesco

was already jumping ahead of its rivals throughout the 1990s with a swathe of innovations that

look commonplace now, but were bold breakthroughs at the time. Tesco, Britain's biggest and

most profitable supermarket chain is the darling of the City. Tesco PLC is a global grocery and

general merchandising retailer headquartered in Cheshunt, United Kingdom. It is the fourth-

largest retailer in the world measured by revenues after Wal-Mart, Carrefour and Metro and the

second-largest measured by profits after Wal-Mart. It has stores in 14 countries across Asia,

Europe and North America and is the grocery market leader in the UK where it has a market

share of around 30%, Malaysia and Thailand. Originally a UK-focused retailer specializing in

food and drink, it has diversified both geographically and by product, into areas such as clothing,

electronics, financial services, telecoms, home, health, car and dental insurance, retailing and

renting DVDs, CDs, music downloads, Internet services and software. Tesco's huge growth is a

hard act to follow. With the domestic market increasingly saturated, some UK supermarket

chains have looked to overseas markets to maintain their positions. This is a whole new ball

game, bringing into play competition with large firms from other countries, such as US retailing

giant Wal-Mart and French multinational Carrefour. Tesco began expanding internationally in

the 1990s and now has outlets in the Republic of Ireland, Poland, Hungary, the Czech Republic,

BPMN 6023 Strategic Management Page 5

Page 6: Written Assignment

Slovakia, Thailand, Malaysia, South Korea and Taiwan. It has also recently bought chains in

Turkey and Japan and is in the process of negotiating expansion into China. Each of Tesco

market around the world can be categorized into 4 stages which were start-up or entry level,

developing 1, developing 2 and established market. China, Japan United states and India falls

under entry level market which the market have potential to growth and have dilutive returns for

short terms. For developing market such as Turkey, Poland, Czech Republic, Slovakia and

Malaysia, each have good market positions and improving in returns. Established market such as

UK, Ireland, Thailand and Hungary, they have substantial profit centers and strong growth

potential. In our full report here, the scope will be much on Tesco store in Malaysia, how they

operate and what strategies they used to survive in the market.

Background of the company

Tesco Stores Malaysia Sdn. Bhd.

Tesco Stores (Malaysia) Sdn. Bhd. was incepted on 29 November 2001, as a strategic alliance

between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the latter holds

30% of the total shares. Tesco opened its first store in Malaysia in February 2002 with the

opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia currently operates 33

Tesco and Tesco Extra stores. Total store by state in Malaysia is Selangor with 12 store, Kuala

Lumpur 3 store, Perak 5 store, Johor 4 store, Penang and Kedah 3 store, Melaka, Negeri

Sembilan and Kelantan 1 store. In year 2003, Tesco launched Tesco own brand, Tesco Value. In

2004, Tesco Malaysia launches its own house brand, Tesco Choice. In December 2006, Tesco

also acquired Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to

Tesco Extra and provides products for small local retailers. In 2007, Tesco launched ‘Club

Card’. This acts a way to say thank you to customers by giving money back to them. Club card

has received an overwhelming response from customers with nearly 2 million household

members signed up to date. As of January 2009, Tesco have rewarded nearly RM10 million

worth of Club card Cash Vouchers to the customers. Later in year 2008, Tesco introduce Green

Club card and Green bags making Tesco Malaysia to be the first Tesco International business to

introduce the Green Club card scheme. As part of its global commitment, Tesco Malaysia is

BPMN 6023 Strategic Management Page 6

Page 7: Written Assignment

market leading on tackling climate change in techniques of energy saving, launching Green Club

card Points to incentivize customers shopping with their own bags, introduce degradable carrier

bags, promote positive behavior among staff though Energy League competition intra stores and

a recycling centre to facilitate customers to do their part for the environment. Apart from that,

Tesco has launched new promotion campaign to the consumers, 50 basic needs guaranteed not

beaten on price. 2009 has embarked Tesco as the number 1 Hypermarket in Malaysia. TESCO

PLC has appointed Tjeerd Jegen as chief executive officer (CEO) for Malaysia from April 26

2010. Jegen replaces Chris Bush, who has taken over the helm at Tesco Thailand. As CEO of

Tesco Malaysia, Jegen will be responsible for all areas of the business, from operations to

marketing, finance and corporate affairs, involving 33 stores and over 11,000 staff. Prior to this

appointment, Jegen was chief operating officer for Thailand's Tesco Lotus. Jegen began his retail

career in 1995 when he joined Royal Ahold as management trainee.

Overview of Retail Industry in Malaysia

Major retail outlets have seen tremendous growth since 1980s. There are around 400 such

outlets in Malaysia. After making their debut in 1990s, foreign-owned hypermarkets are fast

gaining popularity in Malaysia, attracting customers with their one-stop and all-under-one roof

concepts. Since their arrival, foreign retailers have been expanding rapidly. The Malaysian

economy has demonstrated resilience in the face of external uncertainties. It is expected to

remain strong despite the slowing of the global economy. The wholesale and retail sector falls

under the supervision of the Ministry of Domestic Trade and Consumer Affairs (MDTCA)

through the Committee on Wholesale and Retail Trade. According to Retail Group Malaysia,

retail sales growth for the year 2010 is projected to grow by 5.5%. The group also expects a total

sales turnover of RM74.9bil this year. Based on interviews of its Malaysia Retail Association

(MRA) members, the industry recorded a positive growth rate of 7.9% in sales during the first

quarter of 2010 (Q1), albeit from a low base. Sales in the same quarter last year were down 3.3%

due to a decline in consumer demand. However, positive sales growth in Q1 2010 was still below

the industry expectation of 10% at current prices, while the Malaysian national economy

continued to expand at a faster pace in comparison during the same period by 10.1% at constant

prices. Profit margins in the retail industry were only up 2.4% during Q1, although the difficult

BPMN 6023 Strategic Management Page 7

Page 8: Written Assignment

economic situation during the same period last year had caused a negative growth of 13.7%. In

the retail sub-sector, MRA members stated that positive growths were recorded in retail sales

during Q1. Specialty retail stores for instance those selling optical products, toys, bedding items

and sportswear recorded the highest growth rate at 10.5% and department store cum

supermarkets recorded the lowest at 3.9%. It was a similar story for profit margins in the sub-

sector as specialty stores were the biggest growers, improving their figures by 11.2% whilst

department store cum supermarkets suffered the most with a decline of 0.3%. Members of the

MRA expect their businesses to improve at a slightly slower pace during Q2 with a growth rate

of 5.6%. This was because sales have started to slow down unexpectedly during Q2. Q3 sales are

also expected to expand by 6% due to the Mega Sales Carnival before maintaining at 3.5%

during Q4. The report showed there were positive growth rate of 9.8% in sales in Q3. The report

also stated several factors that would impact the growth of the industry for the second half of the

year. These include the economic conditions, cost of living as well as the cost of borrowing. For

the Q410 BMI Malaysia Retail Report reported that total retail sales has grow MYR153.76bn

(US$43.65bn) in 2010 which only 6.10% growth rate in sales. Malaysia is classified as an upper-

middle income country by the World Bank. A low unemployment rate, rising disposable incomes

and a strong tourism industry are key factors behind the forecast growth for the year 2010.

Business Operation in Malaysia

Tesco Malaysia employs nearly 13,000 employees and operates 36 stores and in two formats

following the acquisition of the Makro Cash and Carry business in Malaysia in December 2006.

Tesco Stores Malaysia Sdn Bhd has been separated into 2 formats which are Tesco Hypermarket

and Tesco Extra Hypermarket.

Tesco Hypermarkets

The hypermarket format offers customers a complete one stop shopping for their needs from

fresh food to groceries, from household needs to apparel. It carries more than 60,000 lines of

products including nearly 3,000 own brand of products ranging from food to non-food items.

BPMN 6023 Strategic Management Page 8

Page 9: Written Assignment

Tesco Extra Hypermarkets

The Tesco Extra format serves the needs of small businesses, families and individuals all under

one roof by providing a comprehensive range of products and services focused for small

businesses including bigger pack sizes, special trolleys and checkouts as well as a dedicated

business development team to support small business owners with their orders. Tesco Extra, the

newest business format in Malaysia opens its first store on 30th April in Seremban, with the

conversion and refurbishment of what was once Makro Cash & Carry Seremban.Now, 7 other

Extra stores are in operation. There are 3 Extra stores located in Klang Valley which is Extra

Cheras, Extra Shah Alam and Extra Selayang. The remaining Extra Stores are located in Ipoh,

Plentong Johor Bharu and Extra Sungai Dua in Penang. The new concept store will combine the

best practices of both Tesco and Makro businesses. The Tesco Extra store will also cater to all

the needs of individual customers and families through its services and extra range of food and

non-food products as well as the unbeatable prices that have become the hallmark of Tesco in

Malaysia. Tesco Extra also has enhanced facilities in the store including disabled parking and

toilets, parent and baby parking, all credit cards accepted, customer loading facilities, and

different types of trolleys and checkouts to cater to the varying segment of customers.

Corporate Strategies

Adoption of strategies Tesco Stores Malaysia Sdn. Bhd.

Tesco has a well-established and consistent strategy for growth, which allowed Tesco Stores

Malaysia Sdn Bhd to strengthen core UK business and drive expansion into new markets. The

rationale for the strategy is to broaden the scope of the business to enable it to deliver strong

sustainable long-term growth by following the customer into large expanding markets at home

such as financial services, non-food and telecoms and new markets abroad, initially in Asia.

Tesco Stores Malaysia Sdn Bhd adopted few strategies to survive and sustain in the market. That

few strategies are:

BPMN 6023 Strategic Management Page 9

Page 10: Written Assignment

1. Low Price Strategy

i. Everyday Low Price

2. Customer-focused Strategy

i. To create value for customer to earn their lifetime loyalty

3. Growth Strategy

i. Club Card scheme

ii. Green Club Card

iii. Own brand value

4. Differentiation Strategy

i. Core UK business

ii. Non-food business

iii. Community

iv. Personal Finance

Low Price Strategy

Everyday Low Price

An Every Day Low Pricing (EDLP) strategy of Tesco is more popular with shoppers than one

driven purely by promotions, according to a recent survey in the UK. But a combination of the

two is the best means of keeping shoppers happy. Pricing was a key strategy and selling point for

Tesco. Low prices were adopted to maximize sales. Tesco's value-added products at low prices

attracted many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went

in for massive price reductions. The company adopted the strategy of 'Everyday Low Pricing'

(EDLP), while continuing its other promotional activities. The EDLP program aimed to

BPMN 6023 Strategic Management Page 10

Page 11: Written Assignment

regularize low prices for Tesco customers. Low prices were not merely a strategy used for the

occasional sale, but on a regular, daily basis. Adopting the EDLP strategy demonstrated Tesco's

commitment to its customers, putting customer interests first.

Customer-focused Strategy

Create value for customer to earn their lifetime loyalty

The core purpose is to create value for customers to earn their lifetime loyalty. Everything

TESCO did, every innovation they bring to the market, every business decision they take, is

driven by the customers. The underlying aim is of course to make higher profits, but there is a

clear focus on customer service at the top level of the company. It remains to be seen whether

Tesco will be able to maintain this focus now that it is widely perceived as a great corporate

success story and the dominant company in the United Kingdom retail market or if it will

succumb to corporate arrogance as sometimes happens to dominant companies. They believe that

by living by the values, they will encourage and demonstrate behavior that will help them

achieve in core purpose and set them apart from their competitors. Values enable them to build a

common way of working. They want people in the business feel comfortable with these values

and feel they can genuinely demonstrate them. They aren't about being soft and lovely, but about

being rigorous and single minded about how they achieve their goals. Imagine how they translate

in the context of a multi-billion pound company focusing on people both staff and customers.

Growth Strategy

Club Card scheme

Club card is Tesco’s membership scheme which allows customers to save money on shopping by

providing them price-off vouchers. Customers get a point on every pound they spend shopping at

any stores of Tesco group of companies as well as at stores of their partner companies. Once a

customer accumulates 150 points, these are then converted into Club card vouchers which enable

the customer to save money on shopping. One can argue that other retailers also have similar

loyalty programs. However it is interesting to note that while most loyalty schemes and

BPMN 6023 Strategic Management Page 11

Page 12: Written Assignment

relationship marketing strategies similar to Club card have often failed for other retailers,

Tesco’s Club card has worked well and managed to succeed. It can be said that what has made

Club card work so wonderfully for Tesco is the fact that with this simple single loyalty scheme,

Tesco has been able to address to the customer segments of different age groups. Thus the main

reason behind the success of Tesco’s relationship marketing strategy and loyalty program has

been the way it has managed to establish Club card not as a marketing tool but as a product of

relevance and value for the customers.

Green Club Card

Green Clubcard points are earned when customers re-use bags when shopping in store one point

per bag, or opt out of receiving bagged products when shopping online one point per ten items

delivered. They can also be earned by recycling a limited number of products, currently mobile

phones and ink cartridges, through Tesco-branded recycling services. Once earned, Green

Clubcard points are equal in value to normal points, but are listed separately on receipts and

Clubcard statements. As part of its global commitment, Tesco Malaysia is market leading on

tackling climate change agenda around energy saving initiatives, degradable carrier bags and

Green Club card Points scheme to incentivize customers shopping with their own bags, Tesco

also introduced its Green Club card League and Green Club card Champions to promote

positive behavior among staff through inter-stores Energy League competitions and opened 6

recycling centers to facilitate customers to do their part for the environment.

Own brand value

Own brand value portrayed the strong brand image of TESCO based on effective strategy. Tesco

is very good at using design across their own label, especially strategically. Tesco is often used

as one of the best examples of own brand label in the retail industry. Majority of consumers buy

the basic Tesco brand as it is cheap and good value for money. The use of Tesco logo is

consistent in each of the products design. Brand values of Tesco are successfully throughout

Tesco own brand ranges demonstrated through experience and way finding system. Tesco uses

design to give something back to customers for shopping at Tesco. As competition is so intense

retailers such as Tesco use design to differentiate from the competitors.

BPMN 6023 Strategic Management Page 12

Page 13: Written Assignment

Differentiation Strategy

The strategy to diversify the business was laid down in 1997 and has been the foundation of

Tesco’s success in recent years. The new businesses which have been created and developed

over the last decade as part of this strategy now have scale, they are competitive and profitable in

fact, the International business alone makes about the same profit as the entire Group did a

decade ago.

Core UK business

The UK is the biggest market and the core of TESCO business. The aim is to provide all of the

customers with excellent value and choice. It has been innovative and energetic in finding ways

to expand, such as making a large-scale move into the convenience-store sector, which the major

supermarket chains have traditionally shunned. Tesco has 702 stores and is the largest food

retailer in the United Kingdom. Tesco continue to increase market share through their policy of

cheaper prices, offering better value and providing more choice and convenience for customers.

Market share of the UK has grown steadily since the early nineties as a result of our customer

focused strategy

Non-food business

The aim is to be as strong in non-food as in food. This means offering the same great quality,

range, price and service for our customers as in the food business. Many supermarket chains

have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late

2004 it was widely regarded as a major competitive threat to traditional high street chains in

many sectors, from clothing to consumer electronics to health and beauty to media products.

Tesco sells an expanding range of own-brand non-food products, including non-food Value and

Finest ranges. It also has done quite well in non-food sales in Malaysia.

Community

Making Corporate Responsibility integral to our business is essential in applying our values as a

responsible business. We believe it is also an opportunity for growth. Tesco Malaysia is

committed to stay close to the heart of the communities Tesco Malaysia is part of. We responded

BPMN 6023 Strategic Management Page 13

Page 14: Written Assignment

and worked with many local communities including NGOs such as the National Cancer Council

(MAKNA) to raise RM450, 000 through fundraising and Walk for Life series to raise cancer

awareness. Tesco has also raised funds for the Malaysian Nature Society through the sales of its

designer green bag and carrier bag sales and Walk for Schools donation to local primary schools.

Tesco Malaysia’s Charity partner of the Year 2010 is Nur Salam, and we aim to help improve the

quality of life for these children through customer and staff fundraising activities at all its stores

nationwide.

Personal Finance

Tesco has followed its customers into the growing world of retailing services, aiming to bring

simplicity and value to complex markets. Tesco Stores (Malaysia) Sdn Bhd is making it easier

for customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes through

Easy by RHB at Tesco stores, collaboration with the RHB Banking Group. Following the

successful launch of its first two financial products in January 2009, the co-brand Tesco-RHB

Credit and Debit Cards, there are now five new, instant banking products being offered to

existing and new customers expanding the range of products that customers can access quickly

and conveniently while shopping at Tesco. Whether it's opening a savings account, applying for

a credit or debit card, buying life and personal accident insurance, arranging Amanah Saham

Bumiputera financing or applying for personal loans up to RM50, 000, everything is quick and

convenient at Tesco. Background checks and approvals are completed on the spot at

conveniently located kiosks in Tesco stores. This signifies another important milestone for Tesco

in expanding its financial services in Malaysia. This is Tesco's way of showing that TESCO are

looking into the needs of their customers by bringing them a more convenient way to get

financial services and this new concept of banking allows our customers to get banking services

during weekends and after office hours. They will consider any move to make shopping at Tesco

an enjoyable and beneficial experience for our customers. Customers are of utmost importance

and Tesco want to be able to give them as much benefit as they can. This may include entering

into collaborations with other companies so that Tesco can offer the best in the market for their

customers. It is a matter of keeping the interests of customers at heart. Easy by RHB @ Tesco is

a revolutionary banking concept that offers simple, fast and convenient banking. Customers just

BPMN 6023 Strategic Management Page 14

Page 15: Written Assignment

need to bring their MyKad for on-the-spot approval and instant cash or loans up to RM50, 000,

all without the need to fill-up any forms as details are captured electronically and a unique

biometric verification system is used. This concept of being the first and only hypermarket in

Malaysia to provide banking to their customers is exclusive to Tesco. The Easy by RHB @

Tesco kiosks are now available at 22 of Tesco's 33 stores nationwide daily, open from 10am to

10pm. The RHB Banking Group is appreciative to Tesco in bringing Easy into their stores, and

concern that this step will further strengthen our partnership and cooperation. There are 33

existing Easy outlets in operation, 26 standalone, 5 Easy by RHB @ Pos Malaysia, and 2 kiosks

at LRT stations and now with Tesco as the distribution channel, which will make the total

number of Easy by RHB outlets 55 hope to reach out to more customers and give them value-add

services that they do not get from other financial providers. In addition to that, this easy banking

concept, touted to be the first-of-its-kind, also empowers the people to take control of their

finances in a simple, convenient and affordable manner.

Competitor and Competitor Analysis

Competitor

In this retail industry there is stiff competition between hypermarkets. Name such as Giant,

Carrefour and Jusco are the biggest rival for Tesco Stores Malaysia to compete in the industry.

This report will explain further regarding the Tesco Stores Malaysia rival.

Giant Hypermarket

In Malaysia, the name Giant has become synonymous with everyday low prices, big variety and

great value. This has been underscored by few surveys conduct in Malaysia, which showed that

Giant was perceived as the cheapest place, in Malaysia, to shop for everyday groceries beside

Tesco. Giant holds second biggest share market in retail industry in Malaysia for the year of

2010 after Tesco.

Jusco

In order to be successful, it is vital for a shopping centre to have the right environment and tenant

mix. Only then will customers be willing to spend endless hours here in pursuit of activities that

BPMN 6023 Strategic Management Page 15

Page 16: Written Assignment

entertain and help them to relax. Jusco provide laid back environment in their shopping complex.

Customer feels free to shop not just that, they can also spend time with their family eating at the

food court provided by Jusco. Jusco holds 22% of market shares and the third biggest after Tesco

and Giant for the year of 2010.

Carrefour Malaysia

Carrefour's success is based on the talent and motivation of its staff. To increase efficiency and

competitiveness, and in order to improve as a retailer, the Carrefour Malaysia is about to

transform themselves and redesign its organization, enhance synergies between sales and

purchasing, and create new relationships between head offices, countries and stores. Carrefour

still sustains in the market in Malaysia and has 15% of market share in retail industry for the year

of 2010.

SWOT Analysis

The SWOT Analysis shows that Tesco Stores Malaysia currently has the resource capabilities to

successfully enter the market and is capable of implementing a market development strategy.

The report recommends that Tesco target the high-end market segment with a differentiation

strategy.

Success in any company that operates for marketing and profit acquisition lies on the ability of

the management in positioning and establishing the products or services being offered.

Furthermore, the ability of the company and its management to compete and maintain a

competitive edge among its competitor is another basis to say that it is successful. The constant

development and innovation on the product line and the growing number of clientele also define

the corporate standing of a company.

This report analyzes the strategic capability of TESCO Malaysia (Exhibit 1). In analyzing how

Tesco Stores Malaysia is competitive, the study utilized SWOT and value chain analyses for the

industry attractiveness. Practical and strategic recommendations are elicited in relation to some

pitfalls observed in this report.

Strengths Weaknesses

BPMN 6023 Strategic Management Page 16

Page 17: Written Assignment

Own brand value

Competitive pricing strategy

Customer loyalty/relationship

Acquisition of Makro

Strong hypermarket format

Dependable of UK business

Burden of higher advertisement cost

High turnover rate of employees

Opportunities

Have ready customers from low and mid-

income households

Explore into new location in Malaysia

Diversification to maintain UK business

Threats

Stiff competition within industry

Changing in customer tastes

Government policies

Exhibit 1: SWOT Analysis for Tesco Stores Malaysia Sdn Bhd.

Strengths

Own brand value

Tesco has a strong own brand value which is becoming known throughout Malaysia due to

existing expansion programme.

Competitive Pricing Strategy

The targeted price cuts enabled Tesco to attract more shoppers from competitors and capture the

volume that supported the lower prices. Tesco has extended its low price positioning in core-

groceries across non-foods lines to undercut competition which actually Tesco selling with low

price but provide high volume.

Customer loyalty/relationship

BPMN 6023 Strategic Management Page 17

Page 18: Written Assignment

Tesco gained customer loyalty or relationship by launching Club Card scheme. Customers like

the Club card programme mainly due to the personalized treatment they receive and the

relevance of rewards.

Acquisition of Makro

Tesco acquire Makro and convert it to Tesco Extra. What Tesco do is they operate it similar to

Makro, but more flexible. For example, Makro do not allow customer to buy in small quantity,

but Tesco Extra allow but charge higher than those buy in bulk. By doing so, Tesco could earn

profit from those SME as well, besides individual customers or family type customers.

Strong hypermarket format

The expansion of new stores by adding space to existing locations has contributed to the growth

of Tesco supermarket. Besides that, Tesco runs two type of hypermarkets format which Tesco

Hypermarket and Tesco Extra Hypermarket.

Weaknesses

Dependable of UK business

Since Tesco Stores Malaysia is one of Tesco PLC UK market in Asia, all the business decision

has to follow UK. This could be the weaknesses for Tesco Malaysia to expand their business

widely. Since Tesco is foreign brand hypermarket in Malaysia, Tesco PLC has to adapt to local

business. Although international business is still growing, and is expected to contribute greater

amounts to Tesco's profits over the next few years, Tesco Stores Malaysia is still highly

dependent on the UK market (73.8% of 2003 revenues). Any changes in the UK supermarket

industry over the next year for example, will somehow affect the Asia market such as Malaysia.

Burden of higher advertisement cost

BPMN 6023 Strategic Management Page 18

Page 19: Written Assignment

Since Tesco Stores Malaysia launching Everyday Low Price campaign, all the cost including

papers, printing, people and distribution and marketing promotion has to be bare by Tesco.

High turnover rate of employees

Tesco experienced high turnover rate with their employees especially in the operation

department. Many of their employees resign after only working one or two months in their

supermarket, which is not good for them as they will need to find and employ new employees.

The cost of training and development for new staff will burden Tesco.

Opportunities

Have ready customers from low and mid-income households

Tesco have ready customer instantly which come from low and mid-income households.

Households now are increasing and everyone needs to buy household products, this creates a

good demand for them.

Explore new location in Malaysia

This is conjunction with their current strategic plan which is to open up more stores. Besides

that, they can try to increase the variety of their house brand, as well as introducing other

products for their house brand to compete with their competitors.

Diversification to maintain UK business

Tesco Stores Malaysia have discovered the potential to exploit weaker competition and higher

margins (cross-subsidize core groceries) and giving customer more alternative to choose variety

product and services instantly.

BPMN 6023 Strategic Management Page 19

Page 20: Written Assignment

Threats

Stiff competition within industry

There are other major supermarket chains, such as Giant, Carrefour and Jusco in Malaysia

competing alongside with Tesco Malaysia. To make sure Tesco successful in the industry is to

make sure Tesco sustain in the market and establish to be number hypermarket in Malaysia.

Changing in customer tastes

Customers’ tastes and preferences would change according time. Tesco Stores Malaysia has to

make sure they maintain their images and create more value for customer. Sometimes, customers

would assume that by buying low price product, it will reflect the bad images of the products.

Government policies

Government rules and policies sometimes will pose great threats to small and medium-size

retailers in Malaysia especially to foreign own hypermarket like Tesco. Tesco Stores Malaysia

needs to follow

Value Chain Analysis

Another analysis that would be discuss in this report is Value Chain Analysis (Exhibit 2)

Primary Activities

[Adds value (+), Losses value (-), Potential to add value (P+)]

BPMN 6023 Strategic Management Page 20

Page 21: Written Assignment

Exhibit 2: Porter’s Generic Value Chain for Tesco Stores Malaysia Sdn Bhd

Inbound logistics

Inbound logistics are placed at the first stage of the value chain as they possess the earliest

opportunity to create value. Therefore, the elements of this stage are considered to be upstream

activities. The logistical tasks, in this case, include the receipt of goods from suppliers, storage of

goods, handling & transportation of goods internally and placing the products on the shelves.

Tesco tries to maintain the level of consumer choice in store (+), whilst improving the efficiency

of its distribution system (+). In applying a quality control procedure concerning damaged goods

and products, it provides an excellent opportunity to reduce costs unfairly incurred by the

company, therefore preventing these costs being passed on to the consumer (P+).

Operations

The production element of Tesco’ activities are service orientated. Hence, operations could be

the second upstream opportunities that enable services and products to be provided, tasks such as

opening every day in accordance with trading hours, maintaining the shelves, and the stock (+).

In order to obtain future competitive advantage Tesco has to consider expanding further in terms

of operating hours in those places, where it does not occur or opening new Metro and Express

BPMN 6023 Strategic Management Page 21

Page 22: Written Assignment

stores (P+). However, this might be restricted by law or planning councils, which is essentially

takes away competitive advantage (-).

Outbound logistics

The third stage of the value chain is the outbound logistics that is concerned with delivering the

product to the customer. Tesco currently adds value in its home delivery service (+). However,

other tangibles that have to be improved are those of parking facilities, trolley collectors, till staff

and systems to gain competitive advantage, if executed more efficiently than competitors, they

will add value by saving the customer time (+), whilst increasing the turnaround (+). Adding

value could be achieved through the implementation of a trolley deposit system, keeping them

tidy and enabling customers to get to and from the premises quicker, as well as making these

facilities readily available and quicker to obtain (P+).

Marketing and sales

Marketing and sales are placed under downstream elements of the value chain. Club card gives

further discounts and loyalty for the customers (+). However, Tesco may also decide to attract

more customers by advertising “lower prices” advertising campaign or more discounts offers (+).

With a more customer sophistication and their awareness of ethical business practices, it may

give the company some constraints in terms of selling environmentally friendly products (-). In

return, Tesco can take it as an advantage and provide customers with more of the recycling

points and include information in their advertisements, adding value for customers who will

believe that by choosing to shop at Tesco, people are helping the environment (P+).

Support Activities

Company Infrastructure

Planning and control functions are the ones that account to provide the continued focus on the

costs and cash control of the company’s operations (+).

And departments such as profit protection whose main jobs are to reduce shrink. The company

has now increased its staff count who are involved in upgrading its anti-fraud software

BPMN 6023 Strategic Management Page 22

Page 23: Written Assignment

(infrastructure/technology interdependence), and installing new security systems which aim to

reduce internal theft, an expense the customer will now not have to cover in the price of their

purchases (+).

Human resource management

HRM is regarded as up and downstream activity, covering everything from recruitment to

management development. The company aims to increase the number of training schemes and

further develop its recruitment programmes so to pass on to the customer the benefits of a well

recruited, well trained staff, not the costs (+). Tesco continues to invest in customer service (+),

where training is also linked directly to pay, so the staff are motivated to learn, and are

encouraged to improve their approach to customers and service provision quality (P+).

Technology development

It is a downstream activity and is the ability to provide new innovative product ranges/ solutions

that anticipate customer needs. It also remains a key competitive advantage, adding value, as

Tesco’s brand name gives the product vitality (+). However, installation and capital investment

is a long term process and needs total commitment of the staff. But who will be responsible for

the service provision and the floor personnel? (-)

Financial Performance Analysis.

Profit & Loss

Year Ended 27 February 2010 2009 2008 2007 2006

£ millions

Turnover 56910.0 53898.0 47298.0 42641.0 39454.0

Operating Profit 3457.0 3169.0 2791.0 2673.0 2280.0

Net Interest -314.0 -362.0 -63.0 -126.0 -127.0

Profit Before Tax 3176.0 2917.0 2803.0 2653.0 2235.0

Profit After Tax 2336.0 2138.0 2130.0 1881.0 1586.0

BPMN 6023 Strategic Management Page 23

Page 24: Written Assignment

Balance Sheet

Year Ended 27 February 2010 2009 2008 2007 2006

£ millions

Intangible Assets 4177.0 4076.0 2336.0 2045.0 1525.0

Tangible Assets 24203.0 23152.0 19787.0 16976.0 15882.0

Fixed Investments 1015.0 321.0 309.0 322.0 480.0

Total Fixed Assets 34258.0 32085.0 23864.0 20231.0 18644.0

Stocks 2729.0 2669.0 2430.0 1931.0 1464.0

Cash at Bank and in Hand 2819.0 3509.0 1788.0 1042.0 1325.0

Total Assets 46023.0 45564.0 30164.0 24807.0 22563.0

Creditors Amount Within 1 year 23928.0 22789.0 8179.0 6598.0 5786.0

Creditors Amount After 1 year 2616.0 1796.0 1202.0 1378.0 1534.0

Total Liabilities 31342.0 32658.0 18262.0 14236.0 13119.0

Key Figures

Year Ended 27 February 2010 2009 2008 2007 2006

Earings Per Share Basic (p) 29.33 27.14 26.95 23.61 20.20

Earings Per Share Diluted (p) 29.19 26.96 26.61 23.31 19.92

Earings Per Share Adjusted (p) 31.82 29.06 27.37 22.36 20.30

Earnings Per Share Growth (%) 10 6 22 10 16

Total Dividend (p) 13.05 11.96 10.90 9.64 8.63

Operating Margin (%) 6 6 6 6 6

ROCE (%) 15 13 17 19 20

Dividend Cover 2.44 2.43 2.51 2.32 2.35

Dividend Yield 3.10 3.60 2.70 2.20 2.60

Price / Earnings Ratio 13.20 11.50 14.60 19.90 16.50

Tesco must also have in place both financial and strategic controls. Financial controls are in

terms of profit targets, capital bids and performance appraisal. Strategic controls in terms of

overall strategic balance, agreed business plan, optional services and infrastructure and any

short-term constraints such as human resources.

BPMN 6023 Strategic Management Page 24

Page 25: Written Assignment

Recommendation

In this report, we find that the use of strong identities of the Value and Finest ranges (own brand

value) to transfer across the store could create a better customer experience. Tesco Stores

Malaysia needs to improve in term of quality of brand appearance. If they could create more

exclusive brand image of Tesco, customer might have good minded set of Tesco. Besides that,

Tesco Stores Malaysia should applied or adopt TESCO PLC strategy which to have an online

transaction such as Tesco.com. Customer could access to any of Tesco product online and have

more information about the product before buying it. This will totally increase the demand to

shop at Tesco.

Conclusion

The success of the Tesco Stores Malaysia shows how far the branding and effective service

delivery can come in moving beyond splashing one's logo on a billboard. It had fostered

powerful identities by making their retailing concept into a virus and spending it out into the

culture via a variety of channels which are cultural sponsorship, political controversy, consumer

experience and brand extensions.

In a rapidly changing business environment with a high competitors pressure Tesco have to

adopt new expansion strategies or diversified the existing in order to sustain its leading market

position in an already established retailing market. The company must constantly adapt to the

fast changing circumstances. Strategy formulation should therefore be regarded as a process of

continuous learning, which includes learning about the goals, the effect of possible actions

towards these goals and how to implement and execute these actions. The quality of a formulated

strategy and the speed of its implementation will therefore directly depend on the quality of

Tesco's cognitive and behavioral learning processes.

In large organizations as Tesco strategy should be analyzed and implemented at various levels

within the hierarchy. These different levels of strategy should be related and mutually

supporting. Tesco's strategy at a corporate level defines the businesses in which Tesco will

compete, in a way that focuses resources to convert distinctive competence into competitive

advantage.

BPMN 6023 Strategic Management Page 25

Page 26: Written Assignment

References

http://www.tesco.com.my

http://www.tesco.com.

Johnson, G., Scholes, K., Whittington, R., (2005) Exploring Corporate Strategy Text and Cases, 7th Edition, FT Prentice Hall

M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985

Jeannet, J., Hennessey, D.H, Global Marketing Strategies, 6th Edition, Houghton Mifflin

BPMN 6023 Strategic Management Page 26

Page 27: Written Assignment

BPMN 6023 Strategic Management Page 27

Page 28: Written Assignment

BPMN 6023 Strategic Management Page 28


Recommended