International Trading: Case of Tesco

2021-05-13 18:13:34
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To what extent would you argue that Porters Diamond is useful/not useful in explaining the companys internationalizing decisions? [50%]

Porters diamond of national advantage commonly known as just Porters diamond is a theory that tries to explain international trade. The Porters diamond was first developed by Michael Porter to describe international trade. The Porters diamond states that a countrys comparative advantage is brought about by the factors of endowment the country may have, this is inclusive of land, skilled labor, government policy and natural resources. Porter argues that a country can increase its endowment over time and hence increase international trade.

The theory helps to a level understand Tescos history in international trade. One of the points that is clearly explained by Porters diamond is Tescos market entrance into South Korea. Before 1996, there was little or no international trade in South Korea as a result of protectionist laws that restricted the entry of foreign retailer into the market. However on 1St January 1996 the South Korean regime abolished protectionist laws for more liberalistic laws. Shortly after the Asian economic crisis hit and lead to a drastic reduction of land prices in Asia which was another factor keeping foreign investors away. Samsung-Tesco was founded in May of 1999, this is just after government policy had changes and land prices gone down. The South Korean government increased the countrys endowment by changing policy towards trade which brought investors into the country, the sinking of land prices also acted as a platform for foreign investors to enter the market. Another factor that made South Korea an attractive market is a low competition, since the government had restricted foreign retailers before 1996 there were no foreign players in the market and hence very little competition in the market. The first Tesco attempt at expansion into Ireland can also be explained using the Porters diamond theory. Tesco bought 51% of Three Guys operation in the Republic of Ireland in 1979. The purchase eventually was seen as a bad purchase and failed at expanding into the market. The republic of Ireland already had a vibrant and competitive retail market by the time Tesco intended on expanding into it, this meant that the move was going to be made harder for the company. The republic of Ireland also not being a highly populated region and already highly competitive did not serve up Tesco with enough demand for their products to sustain an entrance into the market.

4) What would you propose the company should do strategically in the next ten years if they wish to continue their international expansion into the emerging market? What do you foresee as the potential barriers to their expansion strategy and what do you propose as the means to remove these barriers? Discuss and justify your answer by making reference to the case and international business theories. - [50%]

Tesco company has come a long way from its origins in Ireland and now is a global brand. The company has experienced a great amount of growth but along with it, Tesco has also had terrible moments and bought stores they ended up re-selling. In order for Tesco to keep on with a steady growth rate, the company has to adopt a growth and expansion strategy.In any business clear and effective communication with ones client and the businesss target market is a significant determiner of how the business will perform. For clear and effective communication to occur the business must understand the behavior of the target market and the models of communication that are most persuasive to the market. Tesco should then draft its target market and come up with a marketing strategy that communicates to the intended target. Tesco has previously suffered brand damage as a result of poor PR, the company should not let this happen again.

Tesco can also implement stretch goals so as to ensure continued growth. The stretch goals and targets must conform to the organizations vision and policy so as to produce maximum impact. Stretch should also be implemented alongside other strategies for performance and cannot be implemented as the sole strategy of a company. However stretch strategizing and coming up with stretch goals does not have only a good side to it. Stretch goals can at times lead to confusion and complication then eventually inefficiency as deadlines are passed and targets missed. The large size of the global retailer will also pose a challenge in implementing stretch goals.

Contagion risk is a major risk facing Tesco and any other expanding company in the world. Contagion risk in layman is the risk of falling into a financial problem as a result of another company associated with the company collapsing or falling into debt. Contagion risk is more pronounce in large multinationals such as Tesco because of their large networks. For instance, if Samsung a vital partner to Tesco falls into receivership or claims bankruptcy, Tesco will be affected as a result of contagion risk and the larger a companys network the higher the contagion risk associated. Tesco can diversify its product range as one of the measures to reduce contagion risk. Diversification means that even when one section of the market is experiencing problems the company can concentrate on the other products that seem to have the potential for growth. Tesco has previously made a significant loss with the purchase of controlling shares of companies such as the Three Guys operation in Dublin. By investing in a stronger Research and Development department Tesco will receive informative aspects that they would not receive without the department leading to more informed decision-making process.

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