It can be argued that Tesco have chosen a very good strategy for international expansion. This is normally done by small acquisition. Once Tesco have familiarised themselves with shopping habits, cultural factors and preferences of the new market, they expand further mostly by organic growth. Customers in different markets have different preferences. Local people are put in charge of newly opened stores, which increases the chances of success because of their know-how. Although this approach has a longer lead time it is also associated with a lower risk. Slovakia, Czech Republic, Hungary, Poland and Republic of Ireland were the first five countries Tesco expanded into internationally. In all of them they have now achieved market leadership. Tesco is currently operating in 12 countries outside the UK and is profitable in 10 of them. The retail industry is considered to be low cash-generating and in this respect it is suited for organic expansion. High capital requirements lead to low return on capital employed. Lead markets such as Korea and Thailand have reached a more profitable phase with high profits and are therefore able to compensate for possible acquisitions in other markets. Expansion in already established markets continues to make profit contributions even more substantial as extra sales can be added at lower incremental capital cost. Capital employed is increasing whilst profits being generated are still catching up so there is the expectation of further improvement in the returns as international expansion continues.

Retailing services
Tesco is currently offering 16 financial products. Their aim is to competitively position their products based on simplicity. Tesco Personal Finance, a joint venture with the Royal Bank of Scotland, was launched in 1997. One of its advantages is the ability of customers to deposit money at any Tesco store. This increased availability makes it more attractive for customers to use Tesco’s services and hence increase their profits. Many transactions can be made when conventional banks are closed. Since launched, Tesco’s Personal Finance services have developed into a business in its own right, making substantial profit.

Changes in the economy and business environment outlined in this report can be closely linked to the operations of Tesco Plc. It has been argued that the lack of international and cultural context of Porter’s concepts limits the extent to which Tesco strategy can be explained by them. Limits of Porter’s concepts include the lack of discussion of broader international context. In today’s world of highly volatile customer preferences, shortened product cycles and innovations, an externally focused orientation does not provide the full picture needed for the formulation of long-term strategy. It has also been shown that management moves in the past 5 years had a significant impact on additional profits made by Tesco. Although the UK grocery market is reaching saturation, Tesco have proved that by expanding in the non-food sector, retailing services and expansion abroad there is potential for long-term growth and profits.