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Strategic Management of Tesco China

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The strategic leadership team will first look at economies of scale, the “decline in per-unit product costs as the absolute volume of production per period increases” (Keegan &amp. Green, p.504). This determines entry barriers for competition and usually applies to cost, marketing, and general business administration. The ability to differentiate products is also part of assessing the threat of new entrants, based on the current level of brand loyalty that exists with the competition. In reference to Tesco, the environment is already saturated with many large-scale competitors such as Wal-Mart and thus Tesco must consider its branding strategies and also whether or not competition will find success with their own differentiation strategies through marketing and promotion. Capital requirements for the new entrants are also assessed through basic revenue analysis and needs for working capital (inventories) as well as advertising costs, customer credit, and information systems technologies. Assessing distribution methodologies and capacity is also measured with this analytical tool when considering potential competitor barriers to entry and then measured against Tesco capacity opportunities.

When considering supplier power, supermarkets like Tesco operate in an oligopoly, where there is competition, however, businesses maintain the ability to exert control over market pricing and supplier bargaining power (investorwords.com, 2011). Thus, the Five Forces analysis tool shows that suppliers are made weak by their absolute reliance on grocery store successes related to consumer-based commodity products (Porter, 2011). However, as the case study has identified that traditionalist consumer diets are constantly changing in China, the Five Forces analysis tool has limitations as suppliers could regain power when Tesco is forced to utilize localized distribution and purchasing strategies for unique products catered to Chinese lifestyle instead of using its current Westernized global buying strategies.