INTERNATIONAL BUS - Marketing Presentation
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josonr_m3_a2.docxInternational Marketing
Romeo Joson:
Module 3 A2
Introduction
Every market treats products differently when they are being introduced. Market penetration is thus an important factor that a firm has to consider when globalizing. This paper has specific focus on Tesco and its venture into the American market. Tesco is a United Kingdom firm that was initiated in 1919. The company has since growth to have over 2500 stores across the world. The largest share of Tesco’s market is in Europe and Asia.
The company has grown in revenue as well as in market capitalization. As a retail for households, Tesco is the third largest company in the world. In market capitalization, the company is second in its category. The company is listed in the London Stock exchange and part of FTSE 100 Index. Measured among all categories, Tesco is ranked 28th in market capitalization among the London Stock Exchange listed companies. This is a good ranking considering the expanse of the United Kingdom market and the competition globally, the ranking is a prove on the success of the management at Tesco.
Preliminary International Marketing Report You will be creating an international marketing report for an international brand/product. You will serve as a consultant to an international company breaking into the US market. Research and analyse at least two (2) current articles on an international brands’ effort to penetrate the U.S. market.
Case summary
Tesco declared its intentions to enter the American market in 2006 and started its first stores in 2007. Between 2008 and 2012, the company opened 200 chain stores in three western states. In 2014, the company sold the outlets in America to Ronald Burble’s Yucaipa Companies. The cost of disposing the branches was 1.2 billion dollars. However, the company retained the pen name fresh and Esay that was used in America for other products in UK.
Identify the relevant and applicable concepts and theories presented in the articles, compare, and contrast these concepts and theories to those from the text and other sources into your analysis.
Ryu, J. S., & Simpson, J. J. (2011). Retail internationalization: Lessons from" Big Three" global retailers' failure cases. Journal of Business & Retail Management Research, 6(1).
The above article identifies the challenges that have led to failure of some multinational companies’ failure in certain international markets. The article uses the case study of Wal-Mart, Carrefour, and Tesco to analyse the organizational needs, penetration methods and the importance of market perception in ensuring that a company’s brand is established in a new market. The authors identify three main causes of globalization failure in some countries by the case study organizations;
(1) Adapting to host culture and market;
(2) Attaining competitive advantages in the new market; and
(3) Achieving global mind set and strategy
While each of the three identified areas is important, the main challenge that Tesco had in entering the American market was achievement of global mind-set and strategy.
Lowe, M., George, G., & Alexy, O. (2012). Organizational identity and capability development in internationalization: transference, splicing and enhanced imitation in Tesco’s US market entry. Journal of Economic Geography, lbs016.
Lowe, George and Alexy specifically examine the failures that Tesco made on market entry in the American market. The authors identify the strongholds that Tesco had and why these strongholds were not enough to stabilize the global strategy that had been created with high hopes. As the title suggest, the authors draw a line between the identity of a company and its ability to globalize. Judging by the preliminary analysis of Tesco in the introduction (previous sections), it would be expected that Tesco would have had a smooth sail in establishing itself in America. However, there were some bottle necks that the management either ignored, were not aware of or were not able to overcome leading to failure of the American project.
Research current International marketing topics and issues
In the development of the American market that started in 2001 and ended in 2013, there are some international marketing topics that Tesco should have keenly observed;
· Market needs: the market needs are sometimes not the same as the population’s perceived needs. The Fresh and easy band that Tesco had used to penetrate to the American market mainly promoted Groceries. While health experts for the ageing American population hugely advocate for the product, the demand does not reciprocate the campaign. This is a factor that was overlooked by the marketing team at Tesco.
· Market differentiation:each market has its structures, communication channels, common bond and the impact by political class. As noted in the introduction part, Tesco has established markets at the European and Asian markets. For success in the American market, there was a need for the management to conduct a survey aimed at seeking at salient features that define the market.
Identify the relevant and applicable concepts and theories for your client.
The entry and exit of Tesco in the American market is a good ground to base a contract between the world-systems theory and globalization. World systems theory addresses the need to approach nations as a unit as opposed to different units. The theory explains how its possible to develop a concept that is applicable across different cultures, races and economies. The theory can be captured well in the analysis that is given by Ryu, & Simpson in their article Lessons from" Big Three" global retailers' failure cases. The authors explain the failure of large multinationals not because they lack good leadership but because most of their policies are global as opposed to being local in nature.
The image below is a summary of the world systems theory
The above image assumes the natural movement of goods and services in the production cycle. Urban manufacturing is a key component of the theory that identifies the factors that create dependent variables. For example, the theory assumes that all the countries will adopt the digital transmissions technology by 2015. Using this assumption, an electronic company may manufacture goods and open a store in a developing company anticipating high sales. However, the efficiency of the production cycle above is dependent on a variety of factors most of which may not be captured in the figure above.
Two concepts are developed by Lowe, George and Alexy; interdependence of the marketing and globalization tools and leadership development. The concept of interdependence is based on the insatiability of any tool in delivering the objective of an organization. In this case, the revenue collection level of Tesco at the former markets was a historical financial stronghold depended upon in entering the global market. However, this was not enough to satisfy the needs of the market. Leadership development concept defines the need for leaders to have new ideas for new projects as well for the existing ones. The authors explain how the market entry strategy by Tesco was an imitation of other companies and this did not guarantee automatic success to Tesco.
Market segmentation
Market segmentation refers to identification of a certain population as a consumer for certain products. As noted previously in the paper, the management at Tesco had identified the American market for consumption of the Fresh and Esay brand which wqas largely groceries product line. The image below analyses the correctness of the market segmentation done by Tesco.
From the above image, the lowest 20% in income are the most consumers of groceries (assuming that groceries are more used at homes than restaurants) while this number bends downwards as income, level rises. This means that the bargain power of the buyers is high and the expected sales low. A comparative survey of the electronics market shows that the demands for electronics increase with increase in income. If the management at Tesco had identified America for the electronics product-line, the company would have a lower bargain power by customers and high expected revenue.
Target markets
The target market was spread across three western States: Arizona, California and Nevada. This was one of the areas that the company had done enough research on. The income level of population at the three states is almost evenly spread between low-income earners and high-income earners. This meant that the projected revenue for the target market was high in the three states.
Cultural issues and barriers
One of the cultural issues between America and United Kingdom is the issue of colonization. Being the leading economy, the American population may decide to show off to their colonizers that they are self-sufficient. Due to this, it is easier to enter into the United Kingdom market for an American company than it is for a United Kingdomcompany to enter the American market.
Competition
The market structure in America does not support groceries that stand on their own. Thus, the competition that Tesco had in its management of Fresh and Easy products came from supermarkets. The supermarkets competing with Tesco had relative advantage in that most of them offered other household goods. This meant that the customer would make more sales for different commodities at the supermarkets as opposed to what the customer would get at Tesco’s Fresh and Easy outlets.
Legal issues, and ethical issues.
Dave Lewis took over the management at Tesco in 2014 and one of his first goals was to close 43 existing branches including company's head office in Cheshunt and stopping 49 proposed branches from being opened. This would lead to over 2000 employees who would become redundant. The obligation that the company had with these workers was not based on the decisions made after but prior to the recruitment. Thus, the company had a legally abiding role of meeting the obligations that it had with employees.
Analyze relevant components of trade agreements between your company's home country and the U.S.
Transatlantic Trade and Investment Partnershipcomprises of a variety of trade agreements between the United Kingdom and the United States. The proposed agreement will regulate trade between the members of the European Union and the United States. This would help in reducing barriers for members of these countries. When it comes to law, the agreement will create freer markets where the governments will have minimal subsidy forproduction.
Analyze U.S. culture and provide data on laws, trade issues, economic issues and other relevant background information.
The United States operates in a devolved model of government. Thus, development of trade ventures may lead to communication and regulation by both the federal government and the state and other local government. A company wishing to invest in America would thus require advice for both international relationships and local trading requirements.
State the rationale for the selection strategy for entering U.S. market
Entering the American market by opening locations at Arizona, California and Nevada was informed by the presence of the target market in the three states. In addition, the company had used the most common method of globalization: acquisition. While acquisition is viable in different times, it is more prudent to use acquisition for a product that is fast moving. In a such a case, the investor would be more able to pay back investment and make more profits.
Analyse the positioning of your company's product in the U.S.
Closure of Tesco’s Fresh and Easy outlets may become a stumbling block in case the company decides to re-enter the American market albeit with a different product-line. The fact that the company was unable to use their economies of scale and vast international experience was a position that portrays the management negatively among the American citizens. Re-entering the market however would be easy in the future should the company develop a globalization program in other nations in America first. For example, entering U.S.A would be easy if it is done through the Canadian market.
The other product line that the company is popular with is electronics. The figure below shows how the current players in the electronic industry share the market
From the above figure, the four largest electronics companies globally share 88% of the market amongst themselves. The four companies are Samsung, Apple, HTC and LG. this means that the effect of the new entrant on the market of the dominant companies is minimal.
Compare and contrast branding strategies for the U.S. market and make a recommendation for your client.
Banding in the United States highly appreciates the issues that bind the Americans as a people and a nation. Due to this, most companies use courses that are perceived to be of community purposes to market themselves. This is crucial in making the customer to own the product and to feel indebted to the company. One of the companies that have been consistent and efficient in this area is McDonalds. The company uses courses like baking competitions to bring the customers closer to the company.
There are different courses that Tesco would have used to brand itself. One of the courses is healthy eating among the millennium generation. However, this would not be an advisable course as it would portray the company pointing a finger towards the americans that they are not healthy eaters. However, courses like support for intercultural integration would be welcome to the company. The company may for example create events where families from different racial descent prepare food together using the same groceries but with different traditional menus. This would help in appreciating one another and also increasing the perception of the customer about the products of the organization.
Develop a conclusion and make a summary of recommendations. Include graphics where appropriate.
The case study of Tesco is unique since most multinational corporations rarely fail in an entire market. The factors that have been identified in this paper show that just like the medium and small enterprises, multinational corporations are also not immune of economic, leadership and change challenges. The entry and exit of Tesco in the American market however has lessons that would be good in globalization. First, it is paramount for management to conduct specific survey for the target market, which the management should not assume the impact created by perception of the population and that management of each region should not be used to measure to be affected by the failure in another branch/ region.
Lowe, M., George, G., & Alexy, O. (2012). Organizational identity and capability development in internationalization: transference, splicing and enhanced imitation in Tesco’s US market entry. Journal of Economic Geography, lbs016.
Ryu, J. S., & Simpson, J. J. (2011). Retail internationalization: Lessons from" Big Three" global retailers' failure cases. Journal of Business & Retail Management Research, 6(1).
