A PROJECT REPORT ON BUSINESS LEADER AND BUSINESS STRATEGY OF TESCO

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION BY DARSHAN PARIKH (ROLL NO 36) (9723886464) MBA (3nd SEMESTER)

MS. VARSHA KUCHARA FACULTY MEMBER, KSMCS

SUBMITTED TO K.P.PATEL SCHOOL OF MANAGEMENT AND COMPUTER STUDIED JEEVANSHILP EDUCATION CAMPUS, MBA

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Topics Introduction Early life Wealth creater Career Diversifide intrest Great leader Ramlinga raju quotes Award COMPANY STRATEGY Company introduction Porters five force Core Competence Market Development Strategy Pestel framework value chain analysis Swot analysis: tesco Tesco's strategic options: generic strategies

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INTRODUCTION When Ramalinga Raju (born September 16, 1954, Andhra Pradesh) was born to a wealthy agricultural family. He took over the family business consisting of construction besides agriculture when his grandfather died. He is the founder of Satyam group which has become a multinational company. His net worth is estimated to be $650 million according to Forbes. EARLY LIFE He is born to a farmer B. Satyanarayana Raju in Garagaparru village in West Godavari district of coastal Andhra Pradesh Sep 16, 1954. Satyanarayana Raju moved to Hyderabad in the 1960s. Ramalinga Raju did his B.Com from Andhra Loyola College in Vijayawada and went to the US in 1975 for MBA degree from Ohio University. He is also an alumnus of Harvard Business School. he had been a carefree young man, from a well-to-do farming family, with not a worry in the World. To begin, when Ramalinga Raju came back from the US in 1977 armed with ambition and new ideas, he tried to build new business for the family. He went into cotton-spinning and construction. This earned him his bread and butter. Out of curiosity he had brought a small computer back with him from the US Ramalinga Raju, married to Nandini, has two sons and a daughter. His sons Teja B. Raju and Rama B. Raju are running Maytas Infrastructure and Maytas Properties. In the year 1977, Raju returned to India and started a textile business. His company was named Sri Satyam. After this, he forayed into real estate sector with introducing Satyam Constructions. His capabilities and intelligence got him going and enabled him to come up with yet another venture - this time in IT sector. He founded Satyam in 1987 and was so influenced by his father that he named the company after him. It was a humble beginning for Satyam with only 20 employees. Satyam Computer Services Ltd was incorporated in 1989 and it went public in 1992. He opened Satyam Infoway or Sify. Established in the year 1992, Satyam later became one of the earliest companies to get a dedicated data link for offshore development. Through his managerial skills and quality leadership, Ramalinga Raju built Satyam into a multinational company and bagged several key contracts, especially from the US.

Satyam began trading on New York Stock Exchange in 2001. With each passing year, Satyam strengthened its position and extended its operations to various locations. Ramalinga Rajus foray into corporate data and internet services too was path breaking. He founded Satyam Infoway or Sify and listed it on Nasdaq with great success. The business process outsourcing (BPO) wing of Satyam also made a remarkable beginning. The company, whose revenues crossed $2 billion in 2007-08, became the first Indian company to list its American Depository Shares (ADS) on Euronext, which is one single cross-border trading platform of NYSE Euronext Group. this venture soon took over the Indian IT market with surprise. Hyderabad, Jan 7 (IANS) Satyam was the brand image of Andhra Pradesh, Hyderabad was identified with this company, and its founder-chairman B. Ramalinga Raju was a hero to youngsters. The man who spent three decades in IT services and built Satyam into Indias fourth largest IT services firm described as a visionary, a global business leader and a thinker. Having made a humble beginning to rise to the dizzy heights of success and become one of the richest Indians, Ramalinga Raju was described as the pride of Andhra Pradesh and the pride of Telugus.

WEALTH CREATER Wealth Creators of India located and called it Little India. It put up a 64 Kbps connection Satyam Computers: 63between the two buildings and forbade its 50 odd engineers from ever physically going to the clients Contributing to Indias Software Success premises. It was an unusual beginning but it worked and worked well enough to become an - KenSource I idea that is the backbone of the whole software industry today. f there is one industry, which today one of the most respected Satyam today within a very short span has names in the software industry is What began, as a hobby is one covered a lot of space in the quite interesting. Satyam was set- of the most successful software Indian economy, it is the up by B Ramalinga Raju, a farmers companies in the world today. software industry. Though son who initially owned a spinning Satyam has converted itself into a Indian expertise in many other mill, then dabbled in real estate global consulting and IT Service fields also has been remarkable in business before settling down to Company offering a wide array of the recent past, the success of the his current profession as a software solutions across a range of key software industry far surpasses entrepreneur. Satyam initially did verticals and horizontals. The others when it comes to evaluating only body shopping and provided company has been a pioneer in the contribution of the sector to the contract services. One such story is that into agriculture and construction. provide IT solutions to its clients. of the Hyderabad-based Satyam The late 80s evoked his interest in Some time back the company Computer Services Limited. The IT, which prompted him to set up introduced a unique model called company has come a long way a company for that more as a the RightSourcing Model. This since its inception in 1987 and hobby rather than a profession. delivery model provides today boasts of a global client base Soon the visionary in Mr. Raju customers the optimum in excess of 350 customers with realised the high potential of the IT combination of onsite, offshore and over 100 of them from the Fortune business and thus began the offsite delivery. The company was 500 list. All along, its successful success story of Satyam. The solid Indias first private sector player in journey the company has forged background provided by his the ISP business (Internet Service alliances with nearly 50 business family went a long way in enabling Provider business) under its and technology leaders in the the entrepreneur in Raju at taking subsidiary company Satyam world and has a presence in almost big risks and still getting along just Infoway. Sify Broadband is now 45 countries worldwide. Ranked fine in life. Satyam was one of the among the leading broadband among the top 10 best companies

first Indian companies if not the providers in the country. to work for in India in an industry first to experiment with the idea of The company serves customers survey by Business Today Mercer outsourcing when in 1991 its first across various verticals including TNS, Satyam has been among the Fortune 500 client John Deere & Co Automotive, Banking & Financial top 5 software players in the gave a go ahead to the idea of Services, Energy & Utility, country ever since the software initiating an offshore project. It Healthcare & Insurance, story began doing the rounds. hired a building on the outskirts of Manufacturing, Retail, The origin of a company that is Molin (Illinois) where JD & Co was Advanc'edge MBA December 2004 Read on Construction, etc. It provides crore) up 28% from the same Satyam has not enjoyed any customers with a wide range of period last year and 9% above the major margin expansion during services, which include; June quarter profit of Rs 173.48 the quarter. Operating profit was Application Services, Business crore. up by 33% over the year ago period Operational Income Intelligence & Data Warehousing, at Rs 220.80 crore (Rs 166.57 crore). Business Process Outsourcing, Operational revenue has shown Sequentially it rose by 11% over the Consulting & Enterprise Solutions, a remarkably good growth this June quarter profit of Rs 198.83 Embedded Systems, Engineering quarter. At Rs 848.10 crore (Rs crore. However, for the last 4 Solutions, ERP, Oracle, PeopleSoft, 598.49 crore), income from quarters OPM has stagnated at SAP, GIS, HiTech Solutions, operations was up 42% from the 26%. Other income, Interest and Managed IT Services, Microsoft year ago period. Sequentially it depreciation provisioning Solutions Group, Quality was up 10% from the June quarter Consulting, Silicon Design income of Rs 771.50 crore. Income Other income, which showed a Services, Enterprise Storage from Banking, Financial Services & remarkable growth during the Solutions etc.

CAREER Bangalore: Byrraju Ramalinga Raju, 54, chairman of Satyam Computer Services Ltd and lover of science fiction works by Isaac Asimov and Arthur C. Clarke, will be remembered in Indian business historynot the way he would have wanted, as a successful software entrepreneur, but as the perpetrator of the countrys biggest corporate fraud, one that saw his company resort to fiction to burnish its performance. It used to be said that Hyderabad had two major landmarks: the Charminar and Ramalinga Raju, who created the company, Satyam Computer Services. Satyam means truth, but Raju, who resigned as chairman on Wednesday, owned up to creating a tissue of lies. Ramalinga Raju belongs to a family of farmers from Bhimavaram near the Andhra Pradesh city of Vijayawada. His father, Satyanaryana, helped create the family fortune in a small way, shifting in the early 1960s to Hyderabad and starting a textile business even as he bought more land for farming. Ramalinga Raju has in the past said that it was his father who inspired him to start Satyam. Ramalinga Raju recently told Business Today magazine that after returning from the US with a masters in business administration (MBA) degree from Ohio University, I had all the enthusiasm and passion to do somethingof being an entrepreneur. A friend told me about a part-time teaching opportunity at the Administrative Staff College of India. This really appealed to me. But, in late 1977, over dinner one night, my father told me: It is always important to stay focused and to avoid distractions. Ramalinga Raju chose to enter the relatively new business of providing software services to international customers from India. Satyam, launched in 1987, started offering such services initially onsite to tractor maker John Deere and Co. In 1991, the company raised money through a share sale and listed on the Bombay Stock Exchange. It was in 1994 that Satyam got its big break when it allied with Dun and Bradstreet Corp. The partnership was short-lived, but by the time it ended, Satyam was well on its way to growth. What separated Satyam from rivals such as a Tata Consultancy Services Ltd or an Infosys Technologies Ltd was Rajus preference for executives and associates who spoke the same language he did: Telugu. For Raju, family, caste and those who could speak Telugu came first. I am not saying he was not a professional, but other things being equal, he would look at things in that order, said a former

employee of Satyam Infoway Ltd, the Internet firm Raju eventually sold to a non-resident Indian entrepreneur, Raju Vegesna. Rajus brother Rama Raju was managing director of Satyam and till 2000, his brother-in-law Chinta Srinivasa Raju used to head a key division. At one point of time there were so many Rajus (in the company) that it would be difficult to identify who was who, said an executive at a software firm, who did not want to be identified. Rajus food preferences were also localhe preferred spicy Andhra food, though he admitted to this writer once that he also liked hot Thai food.

DIVERSIFIDE INTREST Raju was always keen on other businesses, and the controversy over Satyams attempt to buy two Maytas companies wasnt the first such he faced. In 1998, the publicly listed Satyam Computer Services had to declare that it would not invest in Satyam Constructions Ltd, a family-owned company, after news reports to that effect roused investor ire. Satyam had also floated a clutch of companies, including one for the Internet (Satyam Infoway) and to address large customers (Satyam Enterprises). At various points of time, these were either merged back into the parent or spun off and sold.and 2000, at the height of the dot-com bubble, Satyam Infoway paid Rs500 crore to Rajesh Jainowned IndiaWorld, which was essentially a clutch of websites. In 2001, Satyam Computer Services listed on the New York Stock Exchange (Satyam Infoway did so on Nasdaq in 1999). With the real estate sector booming, the Rajus re-entered the business. Maytas Properties Ltd (Maytas is a palindrome for Satyam) and Maytas Infra Ltd were looked after by Rajus sons Teja Raju and Rama Raju. Maytas Infra even won the Hyderabad Metro rail project. Satyam, however, had to cope with tough competition and a tougher business environment. The company also had to meet analyst and investor expectations. In a letter to Satyams board on Wednesday, Raju confessed to having cooked the companys books and overstated revenue and profits. He added that Rs5,040 crore of the cash that is supposed to be on Satyams books simply doesnt exist. rini Raju, who stepped down as executive director of Satyam in 2000, said Rajus revelations came as a surprise to him. He now runs Peepul Capital Llc., which has $325 million (Rs1,580 crore) of funds under management. He also runs news channels in several languages under the TV9 brand. I am shocked and yet to digest what has happened, Srini Raju said. Satyam Computer is one of the iconic companies of Indian software industry and fudging of accounts by such a company will have a very high impact on the industry as a whole. Raju must have known this as his letter indicates. His letter refers to the tremendous burden on my conscience and likens Satyams descent into financial purgatory to riding a tiger.

GREAT LEADER Amid of Economic Recession, Biggest news of 2009 start was, When Mr. Raju announced, Satyams Financial statements are based on lies. Raju resigned as chairman, revealing profits had been falsified for years and that $1 billion of cash on the books did not exist. With this news, Satyam badly damaged on Stock Exchange and a big question mark raised on Indians largest IT Company and its 53,000 Employees. Ramalinga Raju resigned after revealing that he had systematically falsified the companys accounts as it expanded from a handful of employees into a back office giant with a workforce of 53,000 and operations in 66 countries. Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed in assets at the end of its second quarter that ended in September were nonexistent.Revenues for the quarter ending September 30 were 20 percent lower than the 27 billion rupees reported, and the companys operating margin for the quarter was a fraction of what it declared, he said in a letter to the Bombay stock exchange authorities. Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestle and the United States government. In some cases, Satyam is even responsible for clients finances and accounting. The revelations will spark a major shake-up in Indias outsourcing industry, analysts say, and may force many of the worlds largest companies to investigate and completely revamp their back offices. This development is going to have a major impact on Satyams business with its clients, said analysts with Religare Hichens Harrison on Wednesday. In the short term we will see lot of Satyams clients migrating to competition like Infosys, TCS and Wipro, they said. Satyam is the fourth largest outsourcing firm after the three named. In a four-and-a-half page statement to the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew, he said. It was like riding a tiger

RAMLINGA RAJU QUOTES 1-"There was no dialogue. There is no intent, The question is, what companies are willing to be acquired?" 2-"The cost advantage got our foot in the door. Then we added quality. Now we need innovation. Ten to 15 years ago, it was about how many lines of code and at what cost. Now, it's no longer about technology but about business value." 3-We believe that demand will remain buoyant in fiscal 2007 due to increased IT spending by organizations 4 -Being the youngest in the IT services segment, to achieve the billion-dollar landmark is a significant mile 5-"Our salary packages are fairly competitive." 6-"Our marketing expenses will go down too. We are taking a stand where we would be guided by what opportunities it brings, whether it preserves our margins or whether it ensures higher growth. There is a range of things that we can do to structure these deals." 7-"As we step into the new fiscal year, we believe that the demand environment will continue to remain buoyant and there is an increasing acceptance in the market towards the global delivery model."

AWARD 1- Ernst and Young Entrepreneur of the Year Services Award in the year 1999 2-Dataquest IT Man of the Year Award in the year 2000 3-CNBC's Asian Business Leader - Corporate Citizen of the Year Award in the year 2002 4-Lifetime Achievement Award conferred upon by Hyderabad Management Association (HMA) in .the year 2005 5- Asia Business Leader Award 2002. 6- E&Y Entrepreneur of the Year 2007 A soft-spoken Ramalinga Raju received several awards during his career, including Ernst & Young entrepreneur of the years 1999 and 2007, Andhra Pradesh Academy of Sciences medal 1999, Dataquest IT man of the year 2000, CNBC Asian Business leader - corporate citizen of the year award 2002, Hyderabad Management Association life time achievement award 2006, and honorary doctorate by Jawaharlal Nehru Technological University 2006. He was elected to several organisations, including the National Asso ciation of Software and Services Companies (Nasscom), the apex forum of the Indian IT industry. Awards and Achievements for Ramalinga Raju Ramalinga Raju received several awards and honors including E&Y Entrepreneur of the Year (2007); Asia Business Leader Award by CNBC (2002); Dataquest IT Man of the Year Award (2000) and Ernst & Young Entrepreneur of the Year Services award (1999). Hyderabad: Satyam Chairman B. Ramalinga Raju was awarded the Asia Business Leader Award 2002 (ABLA) for Corporate Citizen of the Year in the Asia Business Leader Awards 2002 ceremony held in Hong Kong.

The Asia Business Leader Awards 2002 recognize excellence in business leadership in Asia. This years awards were presented by CNBC Asia Pacific and TNT Asia, and sponsored by Citigroup Private Bank.The Awards embody the spirit of the new corporate Asia and serve to identify exceptional examples of outstanding business leadership.

COMPANY INTRODUCTION The food and drink retail sector represents the largest industry in the UK, providing employment for over three million people in primary production, manufacturing and retailing. In 2003 retail accounted for 9% of gross domestic product (Datamonitor, 2003). In recent years UK supermarkets have come under increased scrutiny over their treatment of suppliers, particularly of own-label products, yet the development of strategic supply networks has been an integral part of most supermarket strategies for the past decade. The report below provides an insight into the supermarket company, Tesco, with emphasis on its external environment analysis and company's analysis of resources, competence and culture. Two future strategic options are suggested in regards to the resources based strategies. Tesco is one of the largest food retailers in the world, operating around 2,318 stores and employing over 326,000 people. It provides online services through its subsidiary, Tesco.com. The UK is the company's largest market, where it operates under four banners of Extra, Superstore, Metro and Express. The company sells almost 40,000 food products, including clothing and other non-food lines. The company's own-label products (50 percent of sales) are at three levels, value, normal and finest. As well as convenience produce, many stores have gas stations, becoming one of Britain's largest independent petrol retailers. Other retailing services offered include Tesco Personal Finance.

PORTERS FIVE FORCE 1-Threat of new Entrants The UK grocery market is primary dominated by few competitors, including four major brands of Tesco, Asda, Sainsbury's and Safeway that possess a market share of 70% and small chains of Somerfield, Waitrose and Budgens with a further 10%. Over the last 30 years, according to Ritz (2005), the grocery market has been transformed into the supermarket-dominated business. Majority of large chains have built their power due to operating efficiency, one-stop shopping and major marketing-mix expenditure. This powerful force had a great impact on the small traditional shops, such as butchers, bakers and etc. Hence, nowadays it possesses a strong barrier for new companies who desire to enter the grocery market. For instance, it becomes rather difficult for new entrants to raise sufficient capital because of large fixed costs and highly developed supply chains. This is also evident in huge investments done by large chains, such as Tesco, in advanced technology for checkouts and stock control systems that impact new entrants and the existing ones. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Tesco and Asda seen in their aggressive operational tactics in product development, promotional activity and better distribution 2-Bargaining Power of suppliers Bargaining This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. Therefore, this consolidates further leading positions of stores like Tesco and Asda in negotiating better promotional prices from suppliers that small individual chains are unable to match Ritz (2005). In return, UK based suppliers are also threatened by the growing ability of large retailers to source their products from abroad at cheaper deals. The relationship with sellers can have similar effects in constraining the strategic freedom of the company and in influencing its margins. The forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers. 3-Bargaining Power 0f Customers Porter theorized that the more products that become standardized or undifferentiated, the lower the switching cost, and hence, more power is yielded to buyers Porter M. (1980). Tesco's famous loyalty card - Clubcard remains the most successful customer retention strategy that significantly increases the profitability of Tesco's business. In meeting customer needs, customizing service, ensure low prices, better choices, constant flow of in-store promotions enables brands like Tesco to control and retain their customer base. In recent years a crucial change in food retailing has occurred due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a greater need for supermarkets to sell non-food items. It has also provided supermarkets with a new strategic expansion into new markets of banking, pharmacies, etc. Consumers also have become more aware of the issues

surrounding fairer trade and the influence of western consumers on the expectations and aspirations of Third World producers. Ecologically benign and ethically sound production of consumer produce such as tea, coffee and cocoa is viable, and such products are now widely available at the majority of large chains. 4-Threat of Substitites General substitution is able to reduce demand for a particular product, as there is a threat of consumers switching to the alternatives Porter M. (1980). In the grocery industry this can be seen in the form of product-for-product or the substitute of need and is further weakened by new trends, such as the way small chains of convenience stores are emerging in the industry. In this case Tesco, Asda and Sainsbury's are trying to acquire existing small-scale operations and opening Metro and Express stores in local towns and city centres Ritz (2005). 5- Bargaining Powerof Competitors The grocery environment has seen a very significant growth in the size and market dominance of the larger players, with greater store size, increased retailer concentration, and the utilisation of a range of formats, which are now prominent characteristics of the sector. As it was mentioned above, the purchasing power of the food-retailing industry is concentrated in the hands of a relatively small number of retail buyers. Operating in a mature, flat market where growth is difficult (a driver of the diversification into non-food areas), and consumers are increasingly demanding and sophisticated, large chains as Tesco are accruing large amounts of consumer information that can be used to communicate with the consumer Ritz (2005). This highly competitive market has fostered an accelerated level of development, resulting in a situation in which UK grocery retailers have had to be innovative to maintain and build market share. Such innovation can be seen in the development of a range of trading formats, in response to changes in consumer behaviour. The dominant market leaders have responded by refocusing on price and value, whilst reinforcing the added value elements of their service.

CORE COMPETENCE Superior performance, according to Johnson and Scholes (2003), has to be determined by the way in which company's resources are deployed to create competence in the organisational activities. Core competencies are activities or processes that critically underpin the company's competitive advantage. The primary target for the company is to recognize that competition between businesses is as much a race for competence as it is for market position and market power. Therefore, the goal for Tesco management is to focus the attention on competencies that really affect competitive advantage. The competence leads to levels of performance from an activity or process that is significantly better than competitors. Benchmarking may help in understanding performance standards and what constitutes good or bad performance. However, it will be crucial for Tesco to look at the generic level. Core competences may be embedded deep in Tesco at an operational level in the work routines. The framework developed by Prahalad and Hamel in the 1990s suggests that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth (Drejer, 2000; De Toni, and Tonchia, 2003). In the case of Tesco the areas of expertise are most likely to develop in the critical, central areas of the organisation where the most value is added to its service and its delivery. For example, trust in the Tesco brand lies at the heart of these services and in 2003 the number of retail service accounts rose by 36%. Some 50,000 new service accounts per week are being opened and Tesco sees these areas as long term businesses with the potential to build real scale. Financial services have also been launched internationally in for example Hungary and Korea (Datamonitor Report, 2003; MarketWatch, 2004). Through a long period of operations, core competencies of Tesco have to be rather fixed. Prahald's and Hamel's approach states that core competencies should change in response to changes in the company's environment and be flexible and evolve over time. Therefore, Tesco needs to adapt to new rapidly changing circumstances and opportunities, so its core competencies will have to adapt and change. The example of this was when the company has launched its loyalty card and went into banking. Core competences framework suggests three factors, which can help to identify core competences: Provide potential access to a wide variety of markets: enables the creation of new products and services. Fro instance, Tesco has established a strong leadership in food retailing industry. The core competence that enabled Tesco to enter retailing of food and non-food products was a clear distinctive brand proposition that had a focus on a properly define market segment. Tesco is recognized as the company, providing the most customized and efficient service, based on a good customer relationship management. Makes a significant contribution to the perceived customer benefits of the outcome: delivers a fundamental customer benefit. In order to identify core competences in a particular market, the question of - why is the customer willing to pay more or less for one product or service than another- needs to be

addressed. For example, Tesco have been very successful in capturing the leadership of the retailing market. This shows that Tesco designs and implements effective supply systems and deliver an efficient "customer interface". Tesco was the first UK grocer to launch a loyalty card and has been the most effective. Palmer (2004) claims that until recently, it was the only grocer to use the information to mail customers every month. Difficult for competitors to imitate highlights the need for a core competence to be competitively unique. This indicated the importance of product differentiation. For example, for many years up to 2003 (In 2003 Tesco has been recognised a leading UK food retailer) Tesco had a very strong position within the retailing industry. It had a different approach to the service concept, providing good corporate reputation and introducing new premium quality products (MarketWatch, 2004). Applying this framework to Tesco shows that the company in order to be successful has to base its business strategy on these capabilities. Capabilities result from Tesco's ability to combine and exploit these resources in uniquely different ways. In the external environment, the intensity of competition is not completely under the retailer's control, however, to compete effectively Tesco have to identify its core competences and use them for company's advantage.

MARKET DEVELOPMENT STRATEGY: Joint Developments and Strategic Alliances By entering new markets like China and Japan it can serve as a key growth driver of the company's revenues and expansion strategy. Tesco's interests in Japan are likely to continue growing in due course, as Asian markets are showing an increase in consumer spending and increased trend towards retailing. These new markets are also demographically high opportunity markets. In the case of Tesco, one of the suggested strategic options is in international alliances with the local retailers in Asian markets. It will be considered as a method of development and may be formed to exploit current resources and competence. By entering into joint ventures or partnerships, in order to gain a larger economy of scale and larger market presence, Tesco will draw on the extensive local knowledge and operating expertise of the partner whilst adding its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers. However, given the huge scale, potential and complexities of these markets, Tesco may feel that being the first mover is not necessarily an advantage. The success of the partnership will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability will be concerned with whether a strategy addresses the circumstances in which the company is operating. It is about the rationale of this expansion-market development strategy. The acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility will be regarded to whether Tesco has the resources and competence to deliver the strategy. Product Development: Diversification Johnson and Scholes (2003) believe that changes in the business environment may create demand for new products and services at the expense of established provision. Ansoff's matrix also suggests that if new products are developed for existing markets, then a product development strategy has to be considered by the management level of a company. In expanding and diversifying Tesco's product mix, it is also crucial to implement internal development when new products are developed. The nature and the extent of diversification should also be considered in relation to the rationale of the corporate strategy and the diversity of the portfolio. By following the changing needs of the customers Tesco can introduce new product lines. This may require more attention to R&D, leading to additional spending. The retailing industry is experiencing overcapacity and innovative services and products being the major competitive advantage. Therefore, innovation has to be a major driver for Tesco's product development. For example, Tesco can develop a portfolio of different store formats in the UK, each designed to provide a different shopping experience. While the majority of Eastern European and Far Eastern outlets are hypermarkets, Tesco can also develop different store types in these markets as well. This value added by the uniqueness will eventually lead Tesco to command a premium price. The management of technological innovation is

increasingly involved in strategic decision-making. Tesco have to exploit their internal strengths and minimise their internal weaknesses in order to achieve sustained competitive advantage (Although a competitive advantage is the goal innovators want to achieve, the ability to create platform(s) depends on how they could manage the innovation. Nevertheless, it does not mean that the innovator has to possess all requisite capabilities, the important thing is the ability to organise and use the capabilities of others in order to create a business platform).

PESTEL FRAMEWORK 1-Political Factors Operating in a globalized environment with stores around the globe (Tesco now operates in six countries in Europe in addition to the UK; the Republic of Ireland, Hungary, Czech Republic, Slovakia,

Turkey and Poland. It also operates in Asia: in South Korea, Thailand, Malaysia, Japan and Taiwan), Tesco's performance is highly influenced by the political and legislative conditions of these countries, including the European Union (EU). For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 1994). Also to meet the demand from population categories such as students, working parents and senior citizens. Tesco understands that retailing has a great impact on jobs and people factors (new store developments are often seen as destroying other jobs in the retail sector as traditional stores go out of business or are forced to cut costs to compete), being an inherently local and labour-intensive sector. Tesco employs large numbers of; student, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees. 2-Economical Factors Economic factors are of concern to Tesco, because they are likely to influence demand, costs, prices and profits. One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods. These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be profound. Although international business is still growing (Appendix A), and is expected to contribute greater amounts to Tesco's profits over the next few years, the company is still highly dependent on the UK market. Hence, Tesco would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks. 3-Social/Cultural Factors Current trends indicate that British customers have moved towards one-stop' and bulk' shopping, which is due to a variety of social changes. Tesco have, therefore, increased the amount of non-food items available for sale. Demographic changes such as the aging population, an increase in female workers and a decline in home meal preparation mean that UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the own-label share of the business mix, the supply chain and other operational improvements, which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers (Clarke, Bennison and Guy,1994; Datamonitor Report, 2003).

The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs. Consumers are becoming more and more aware of health issues, and their attitudes towards food are constantly changing. One example of Tesco adapting its product mix is to accommodate an increased demand for organic products. The company was also the first to allow customers to pay in cheques and cash at the checkout. 4-Technological Factor Technology is a major macro-environmental variable which has influenced the development of many of the Tesco products. The new technologies benefit both customers and the company: customer satisfaction rises because goods are readily available, services can become more personalised and shopping more convenient.The launch of the Efficient Consumer Response (ECR) initiative provided the shift that is now apparent in the management of food supply chains (Datamonitor Report, 2003). Tesco stores utilise the following technologies:

Wireless devices Intelligent scale Electronic shelf labelling Self check-out machine Radio Frequency Identification (RFID).

The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier (Finch, 2004). 5- Environmental Factors In 2003, there has been increased pressure on many companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall (Lindgreen and Hingley, 2003). The major societal issue threatening food retailers has been environmental issues, a key area for companies to act in a socially responsible way. Hence, by recognizing this trend within the broad ethical stance, Tesco's corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance. (Johnson and Scholes, 2003) Graiser and Scott (2004) state that in 2003 the government has intended to launch a new strategy for sustainable consumption and production to cut waste, reduce consumption of resources and minimise environmental damage. The latest legislation created a new tax on advertising highly processed and fatty foods. The so-called fat tax' directly affected the Tesco product ranges that have subsequently been adapted, affecting relationships with both suppliers and customers

6-Legislative Factors

Various government legislations and policies have a direct impact on the performance of Tesco. For instance, the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report, 2004). The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government's policies for monopoly controls and reduction of buyers' power can limit entry to this sector with such controls as license requirements and limits on access to raw materials (Mintel Report, 2004; Myers, 2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate.

VALUE CHAIN ANALYSIS [A] Primary Activitie 1- 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+). 2-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 stores (P+). However, this might be restricted by law or planning councils, which is essentially takes away competitive advantage (-). 3-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+). 4-Marketing and sales Marketing and sales are placed under downstream elements of the value chain. Clubcard gives further discounts and loyalty for the customers (+). However, Tesco may also decide to attract more customers by advertising via radio, local newspaper and national T.V. e.g. the 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+). [B]Support Activities 1-Company Infrastructure Planning and control functions are the ones that account to provide the continued focus on the costs and cash control of the companys 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 (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 (+). 2-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+). 3-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 Tescos 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? (-).

SWOT ANALYSIS: TESCO STRENGTHS 1-Increasing market share: Tesco holds a 13% share of the UK retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food. 2-Tesco's general rowth and ROI show no sign of abating: In the UK, Tesco's late 2002 investment into West-midlands based convenience store group T&S was billed as the most aggressive move into the neighborhood market by a big-name retailer so far. The deal has turned Tesco into the country's second biggest convenience store chain after the Co-operative Group, and the company also plans to open up 59 new stores in the UK this year. Tesco has grown its non-food division to the extent that its revenues now total 23% of total group earnings. Tesco's international business segment is growing steadily, and is predicted to contribute nearly a quarter of group profits over the next five years. If geographical spread continues to grow, this will ensure Tesco's continued regional strength. 3-Insurance: In fiscal 2003 Tesco Personal Finance reached the milestone of one million motor insurance policies, making it the fastest growing motor insurance provider ever. The group's instant travel insurance allows Clubcard holders to buy their holiday insurance conveniently at the checkout. Pet insurance now has over 330,000 cats and dogs covered, while the life insurance policy followed on from the success of last year, when it was voted The Most Competitive Life Insurance Provider in the MoneyFacts Awards 2003. 4-Tesco online: Tesco.com is the world's biggest online supermarket and this year the group had sales of over 577 million, an increase of 29% on last year. Tesco online now operates in over 270 stores around the country, covering 96% of the UK. With over a million households nationwide having used the company's online services, the company has a strong platform to further develop this revenue stream. 5-Brand value: Profits for Tesco's operations in Europe, Asia and Ireland increased by 78% during the last fiscal year. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. Tesco's innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalized on this.

6-UK market leadership reinforced: Since acquiring number one ranking in 1996, Tesco has developed a successful multiformat strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury's. Also the Competition Commission's report makes it very difficult for a competitor to challenge its scale and has effectively scuppered Wal-Mart's chances of stealing UK leadership. Therefore, Tesco is in an enormously strong position in its domestic market. WEAKNESSES 1-Reliance upon the UK market: Although international business is still growing, and is expected to contribute greater amounts to Tesco's profits over the next few years, the company is still highly dependent on the UK market (73.8% of 2003 revenues). While this isn't a major weakness in the short term, any changes in the UK supermarket industry over the next year for example, like the Morrison's group successfully purchasing the Safeway chain could alter the balance of UK supermarket power, and affect share. 2-Debt reduction: Tesco is not expected to reduce its debt until at least 2006. Tesco has a large capital expenditure program mainly due to its huge investment in space for new stores. Since its expansion is so aggressive, Tesco has little free cash for any other operations. 3-Signs point to serial acquisitions: With an enterprise value of 23 billion, Tesco clearly has enormous firepower. Also, its product range is vast and almost any acquisition can be justified, particularly in the UK. While 'fill the gap' strategy would be useful to the company, as has been the case with the UK convenience market, there is the danger of Tesco becoming a serial acquirer, as this tends to reduce earnings visibility and quality. OPPORTUNITIES 1-Non-food retail: The growth in Tesco's hypermarket format in the UK means that there are expectations of seeing its 13% share of retail sales climb sharply over the next few years. It can use its footfall and low cost structure together with improved merchandising skills to add another leg to growth. Equally, its growth overseas will further increase earnings and scale, taking Tesco onto the virtuous circle of growth. It is estimated that Tesco's non-food sales will double over the next four years.

Worldwide it has sales of 7 billion in non-food, some 23% of the total. Its aim to be 'as strong in nonfood as we are in food', no longer sounds like the consultancy-speak that it once did, and they are getting there using the basic tenets of value, choice and convenience that have been so successful in food. Around half of new space opened in the UK last year was for non-food and the result has been to increase its market share from 5% to 6% and its overall share of UK retail sales has increased by 100 basis points to 12.8%. The company's telecoms venture is the latest stage in its strategy to develop popular retail services. It has repeated its approach in banking, by capitalizing on its brand. 2-Health and beauty: Tesco's UK health and beauty ranges continue to grow, and it is currently the fastest growing skincare retailer in the market. The company has a volume market-leading position in both toiletries and healthcare and is number one retailer in the baby goods markets. Across all health and beauty ranges Tesco continues to invest in price to deliver the value customers have come to expect and this year invested 27 million on health and beauty pricing alone. The company now has 19 stores with opticians and nearly 200 stores with pharmacies. 3-Further international growth: Tesco now operates in six countries in Europe in addition to the UK; the Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland. It also operates in Asia: in South Korea, Thailand, Malaysia, Japan and Taiwan. Seven years ago, its International sales were 770 million. Now, they are nearly 10 times larger, at almost 7 billion, with profits of 306 million. In the current year, Tesco will add 2.5 million square feet to sales area and could well enter another major market. Growing internationally has forced Tesco to become serious about hypermarkets and this has had seriously positive implications for growth in the UK. Tesco has formed a strategic relationship with US supermarket, Safeway Inc, to take the tesco.com home shopping model to the US. Telecoms are the latest stage in its strategy to develop popular retail services. It has repeated its approach in banking, by capitalizing on its brand. In 2004 the company plans to enter the Chinese market, as China is one of the largest economies in the world with tremendous forecast growth and will present many opportunities for Tesco. THREATS 1-UK structural change could spark a price war: The price followers in the UK market are about to become aggressive investors in price, Safeway because of new ownership and Sainsbury because of new management. Morrison is reducing Safeway's prices by up to 6% and Sainsbury is bound to see lower prices as one of the basic changes necessary to

drive its recovery. With both Asda and Tesco committed to price leadership, this could result in a step down in industry profitability.

2-Overseas returns could fall: The buy case for Tesco is predicated around investment overseas driving higher group returns as each country moves past critical mass. This might not happen, either because of economic conditions, competitor action, or failure in Tesco's business model. It also could come as a consequence of an aggressive move into a larger market, such as China or Japan. 3-Wal-Mart/Asda challenge: Since the US shopping giant Wal-mart purchased Asda, Tesco's rank as the top UK supermarket has been threatened. Asda can now compete extremely well on price and range of goods. For the moment, Asda is the third largest supermarket in the UK, just behind Sainsbury's and then Tesco. However, Asda closed the gap on Sainsbury's in 2003, leaving the company to directly challenge Tesco's dominance. Tesco is well aware of this, and has so far been quick to keep up with price cuts or special offers at Asda. Walmart may also decide to wield its buying power more heavily in the UK, and this could spell the end of Tesco's brand dominance in the future. 4-International expansion: International growth is expensive. Entering new markets with a new brand requires heavy investment and marketing, as well as land prices (which are currently low) and extra distribution and operation expense. Tesco's debt may increase before it begins to decline. Korea is contributing a good proportion of Tesco's international profit growth. If profits continue to grow in this way, Korea will probably represent one-third of Tesco's international profits in 2003. Korean consumer spending is currently quite low, and coupled with the country's current unrest, and Tesco's large investment, this represents a high risk area for Tesco to bank on.

TESCO'S STRATEGIC OPTIONS: GENERIC STRATEGIES Generic Strategies are characterised by an individual retailer's response to the industry structure. For a giant retailer, such as Tesco, to obtain a sustainable competitive advantage they should follow either one of three generic strategies, developed by Porter. The first strategy of COST LEADERSHIP is one in which Tesco can strive to have the lowest costs in the industry and offer its products and services to a broad market at the lowest prices. This strategy will be based on the Tesco's ability to control their operating costs so well that they are able to price their products competitively and be able to generate high profit margins, thus having a significant competitive advantage. If Tesco uses SECOND STRATEGY OF DIFFERENTIATION, than it has to try to offer services and products with unique features that customers value. Tesco will be able to create brand loyalty for their offerings, and thus, price inelasticity on the part of buyers. Breadth of product offerings, technology, special features, or customer service are popular approaches to differentiation. The THIRD STRATEGY OF FOCUS CAN BE EITHER A COST LEADERSHIP OR DIFFERENTIATION STRATEGY aimed toward a narrow, focused market. In pursuing a cost leadership strategy Tesco focuses on the creation of internal efficiencies that will help them withstand external pressures. Therefore, it appears reasonable to think that Tesco will have frequent interactions with the governmental/regulatory and supplier sectors of the environment. In accordance to this framework, while both overall cost leadership and differentiation strategies are aimed at the broad market, Tesco may also choose to confine their product to specific market areas or may choose to offer a smaller line of products to the broad market, thus pursuing a strategy of focus or niche (Porter, 1980). In other words, Tesco pursues a strategy of cost leadership or differentiation either in a specific market or with specific products.The danger some organisation face is that they try to do all three and become what is known as stuck in the middle. In case of Tesco it is not appropriate, as they do have a clear business strategy with a clearly defined market segment.