Tesco’s Operations and Policies in relation to Porter’s Diamond Model Essay Example
In 2009, supermarkets were the UK market leaders in terms of food retailing.
Founded by Jack Cohen in 1919, Tesco boasts of being the biggest retail chain in the UK with regard to the local market share as well as sales within the international markets of its operation. Tesco closes the list of the three top world retailers behind Wal-Mart and Carrefour (Mehta, 2009). Tesco’s success has been attributed to its online approaches and is considered as the largest online grocer with orders averaging a quarter a million every week. Tesco Plc has undergone several developmental stages and now operates successfully in three regions; Europe, Asia and in the US.
According to Mark (2005), the company heavily utilized acquisition option in expanding its operations in the global markets in the three regions of the world although in some countries the grocer adopted a combination...
of approaches. Porter's Diamond Model Quick MBA (2010) asserts that classical theorists dealing with international trade argue in favour of comparative advantage on the basis of a country’s factor endowment. Classical theorists think of land and natural resources, labour as well as a country’s total population as factor endowments that advantage countries over others.
Porter (1990) argued in favour of the possibility on the part of a nation to create innovative factor endowments that include skilled labour, sophisticated technology and a strong information base, creation of an enabling environment by the government and culture. According to Dong-Sung and Hwy-Chang (2000), Porter’s diamond model was a result of a comprehensive study of industries in both developed and newly industrialized countries (NICs). The four points that make up the diamond are the factor conditions, demand conditions
related and supporting industries and firm strategy, structure and rivalry (Porter, 1990).
Quick MBA (2010) states that each of the four points that make up the diamond individually and collectively shape the comparative advantage of nations by affecting the accessibility of both resources and skills, availability of relevant information to aid decision making in terms of the opportunities to pursue using the available resources, goals that are set by each company and the need for companies to be innovative in the course of investing. According to Gong (2013), companies are expected to utilize elements of their home country diamond to achieve and sustain a competitive advantage in foreign markets.
Countries create their essential factors including skilled personnel as well as the growth and expansion of strong technological advancements. It is important for nations to work on upgrading and deploying all the available factor endowments that are necessary in the realization of a competitive advantage over time. According to Quick MBA (2010), innovations usually result from shortages of the factors of production in countries across the globe. Demand Conditions Demand conditions compare the demand for a product within the local market with its demand in the foreign markets.
Gong (2013) asserts that more consideration is usually dedicated to specific products when their local demand is higher than their demand in foreign markets resulting in the realization of competitive advantage in the event that such a product is exported. Strong local conditions enhance innovation on the part of industry players making it possible for them to compete favourably on the global market. Related and Supporting Industries Firms do not operate in isolation they operate in environments that have among
other players such as buyers and suppliers of raw materials.
Industries work along with those that offer related products and/or services as well as those that offer supportive services such as the supply of raw materials. Firms usually take advantage of innovative and cost effective inputs especially when the supporting industries are competitive. According to Porter (1990), firms that are served by globally competitive suppliers are able to compete more strongly on the international market than those whose suppliers are weak globally. Firm Strategy, Structure and Rivalry
The final point on Porter’s 1990 diamond is the firm’s strategy, its structure and the rival companies within the local setting. The existing conditions within a country play a role in shaping a firm’s strategy and structure. The type of industries within the global market in which a firm is able to compete satisfactorily depends so much on its strategy and structure. High levels of domestic rivalry encourage innovation leading to the production of goods that meet and exceed international consumer expectations thereby lowering the level of global rivalry.
Tesco’s Historical Expansion and Current Position In Relation To Porter’s Diamond Model
This section delves into the extent to which Porter’s diamond model explains the historical expansion and the current position of Tesco Plc across Europe, Asia and the US. Factor Conditions Vs Tesco’s Historical Expansion and Current Position The US Bureau of Labor Statistics (2010) as cited by the Gong (2013) asserts that by April 2010, about 14 million people were actively involved in the operations of the country’s retail sector.
Companies targeting the US market would therefore benefit from readily available labor within the US retail industry. The well developed infrastructure that
defines the US transport network is important in aiding the movement of raw materials from suppliers within the relatively shorter periods of time. Tesco Plc deals in food products that need to be moved within shorter durations of time necessitating the need for modern infrastructural facilities that are available in the US.
The company’s policy that utilizes the local talent also made the US a potential foreign market due to the availability of ready workforce in the country over a long period of time. According to the Gong (2013), the Asian Markets such as China have high populations that offer affordable labor as well as a ready market to players within the retail industry. The major challenge that investors in the global retail industry face relates to the high costs required in setting up all the necessary facilities.
Demand Conditions Vs Tesco’s Historical Expansion and Current Position
According to the Gong (2013), the demand conditions play a role in influencing specific factor conditions. These conditions particularly impact innovation with regard to the pace as well as the direction necessary in shaping the product development process. Porter (1990) argues that the demand for products in the home country is a product of the characteristics of a combination of customers’ needs and wants, their scope in addition to their growth rate and instruments that convey domestic likings to international markets.
The indication in clear terms of the demand trends towards the local suppliers as opposed to foreign competitors by the home demand can result to the realization of national competitive advantages within an industry. The production of high quality products by Tesco is therefore as a result of high demand for
quality products in the UK’s retail industry over the years (Gong, 2013). Related and Supporting Industries Vs Tesco’s Historical Expansion and Current Position International attractiveness of firms relies to a greater extent on the availability of well developed related and supporting industries.
Firms are able to utilize highly innovative products in the production of products that are meant to be exported to foreign markets resulting in the production of superior products that are reasonably priced (Quick MBA, 2010). Competitive local suppliers on the global level therefore play a critical role in enhancing competitiveness of firms in the international markets through the provision of superior inputs as well as through accurate coordination of the production value chain.
The growth of Tesco and its expansion into foreign markets over the last decade has been due to the presence of a well established local suppliers that include local industries, local farmers and local producers across the UK. Firm Strategy, Structure and Rivalry Vs Tesco’s Historical Expansion And The Current Position Companies strategies, structures as well as the existing level of rivalry within the local market plays an important role in shaping their competitive advantage in the context of international markets.
The existing local policies and regulations regarding the formation, organization and management together with the nature and level of rivalry are instrumental in determining the success of companies in the event that they expand their operations into foreign markets across the globe (Gong, 2013). According to the Gong (2013), Tesco Plc implements strategies that are meant to give it market cost leadership within the retail industry. This is advantageous to the company as it benefits, to a greater extent, from the
economies of scale.
The concentration on the establishment of a brand by the company has had a significant impact on the lowering of the company's production costs thereby increasing its profit margins both locally and in the foreign markets. The setting up of special formats allows customer to make choices among the various Tesco brand products at relatively lower prices. Tesco has been able to expand its operations over time through the utilization of the UK competitive advantage factors in facing challenges within the global market with specific reference to the European markets, the Asian markets and the US market.
Porter’s diamond model explains Tesco Plc’s historical expansion and its current position in the global market. Tesco utilizes the local talent also made the US a potential foreign market due to the availability of ready workforce in the country over a long period of time. The Asian Markets such as China have high populations that offer affordable labour as well as a ready market to players within the retail industry. The major challenge that investors in the global retail industry face relates to the high costs required in setting up all the necessary facilities.
The indication in clear terms of the demand trends towards the local suppliers as opposed to foreign competitors by the home demand can result to the realization of national competitive advantages within an industry. The production of high quality products by Tesco is therefore as a result of high demand for quality products in the UK’s retail industry over the years. Tesco’s competitive local suppliers on the global level play a critical role in enhancing competitiveness of firms on the international markets through the
provision of superior inputs and accurate coordination of the value chain.
The growth of Tesco and its expansion into foreign markets over the last decade has been due to the pesence of a well established local suppliers that include local industries, local farmers and local producers across the UK. The company further implements strategies that are meant to give it market cost leadership within the retail industry that is advantageous to the company as it benefits from the economies of scale. The concentration on the establishment of a brand by the company has had a significant impact on the lowering of the company's production costs thereby increasing its profit margins.
- Dong-Sung, C. , & Hwy-Chang, M. (2000). From Adam Smith to Michael Porter: Evolution of Competitiveness Theory.
- Singapore: World Scientific. Gong, Y. (2013). G
- lobal Operations Strategy: Fundamentals and Practice. Berlin: Springer-Verlag. Mark, P. (2005).
- Retail Multinational Learning: A Case Study Of Tesco, Aston Business School, Aston University, Birmingham, UK, International Journal Of Retail & Distribution Management, (33)1, pp. 23-48.
- Mehta, J. (2009). Tesco – Every Little Helps. [Online] 6 January 2009. Available at: http://www. slideshare. net/j4g2r/tesco-presentation. [Accessed: 29 November 2013].
- Porter, M. E. (1990). The Competitive Advantage of Nations. New York: Free Press.
- Quick MBA (2010). Porter’s Diamond of National Advantage. Available at: http://www. quickmba. com/strategy/global/diamond/. [Accessed: 29 November 2013].
- Tesco (2009). Value Travels: Annual Report and Financial Statements 2009. Available at: http://www. tescoplc. com/files/pdf/reports/annual_report_2009. pdf. [Accessed: 29 November 2013].
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