Challenges to TESCO's Extension into Malaysia

Executive Summary

For any business to enter the international market for the first time, a proper research and research regarding the obstacles and current marketing conditions prevailing in the targeted country must be carried out. The project has been carried out to analyse, understand and point out the major difficulties that TESCO can face while getting into Malaysia for the very first time. The report focuses on the Political and Legal, Economical, Socio cultural & Technological and environmental issues that may make a troubles for TESCO to get started on its business in Malaysia.

Introduction to TESCO

Tesco PLC is a UK centered supermarket chain. It's the largest British store, both by global sales and home market talk about, and the fourth major retailer on the globe behind Wal-Mart of the USA, Carrefour of France, and THE HOUSE Depot of the USA.

Tesco has a long-term strategy for growth, predicated on four key parts: progress in the Key UK business, increase by growing internationally, be as strong in non-food as with food also to follow customers into new retailing services.

Environmental Evaluation of Malaysia

Political & Legal Environment

Rising Political instability

Data

In recent a few months, The politics ruling party 'Barisan Nasional' is facing the challenge of semester in its strength in ruling the country. The opposition Get together 'Pakatan Rakyat' power & effect on the Malaysians is increasing which includes resulted into possibilities of undertaking of elections in the coming months.

Analysis

It is forecasted that the opposition party may emerge as victorious which lead to increased political uncertainty & lower economical growth for 1-2 years. Sales may slow down in the original years which might be scheduled to increased politics uncertainty and disturbance on spending of open public during the handover process. The handover process is generally a time consuming & lengthy process. it could end result into impaired business for the company. lower economic development initially years may have an impact on the purchasing electric power of consumers. The company may have to reduce its cost to defeat lower sales in original years. TESCO may need to reduce its cost on marketing and advertising. The consumers may prefer price and value over quality & brand.

Political war between your two parties may also result in the results of riots which may also direct result into physical destruction of Tesco's Property and buildings.

Challenge

Slow economic progress at the time of change in administration which might lead to sluggish business initially of placing its business in Malaysia.

The consumers may choose price over quality.

TESCO may need to have strong control over its expenditures.

Riots may cause physical damage to TESCO's property if the Political war emerges.

Restrictions on Press & Advertising

Data

The Malaysian Federal government has a very limited control on marketing like Television, radio, newspapers, outdoor advertising etc for broadcasting of advertisements and advertisements. The advertising code & code of ethics are to be accompanied by all the firms & business in Malaysia.

Analysis

The administration has placed ban on advert of products like alcohol, pork, products with undesirable images etc. Also, ad related to publicity of areas of the body & anti sociable content like bad language, uncompetitive techniques, religious evaluations etc are strictly prohibited. The advert must be taken in Malaysia with Malaysian models in the advertisements. No international models from other countries are allowed. Also, the musicals of the advertising must be achieved in Malaysia. Adverts related to food & drink products must identify the importance & necessity of balanced diet to the visitors. Powerful emphasis on the speciality & lifestyle of the country of origin associated with an imported product is prohibited in the advertising.

Challenges

TESCO will have to change its advertising strategy in Malaysia.

The administration control on advertising & media may disallow ad & commercials of many products of TESCO UK.

The company could also have to endure the procedure of repackaging & re labeling on the products.

TESCO must create new ideas to advertise its product which could be expensive and frustrating.

Focus on many cultural groups

Data

Malay, Chinese language & Indian community will be the 3 major ethnic groupings in Malaysia. Chinese language & Indian community will be the minority communities in the united states. The recent episodes against the Religious church has created politics instability & sociable unrest on the list of people.

Analysis

The wealth space between less richer Malays & very wealthy Chinese and Indian ethinic group in Malaysia has always been a spot of matter in Malaysian politics. There has been many issues regarding this issue in the past which created a tension in the Malaysian political environment. But currently, the federal government is taking useful measures to reduce the tension between the cultural groupings.

Christianity is also a minority religious beliefs in Malaysia which government has to keep its attention. However, initially of 2010, there were a series of attacks against Religious chapel because of some high judge decisions. Each one of these factors may lead to political instability soon. Politics instability may direct result into the change in administration. Christianity is the major religious beliefs in UK. Malaysians may have a tendency to emotionally link the merchandise of TESCO with Christianity as TESCO is a UK centered company. This might initially led to the unacceptance of the merchandise by Malaysians credited current social unrest which might influence the sales and brand image of TESCO in Malaysian market.

This may also affect the advertising strategy of TESCO. The company may have to frequently and carefully advertise its product to the consumers to change their notion about the link between Christianity and the Company's product offering. This may end result into heavy expenses resulting in to the rise in cost of the business.

Challenges

Recent strike on churches may create the conception of link between UK TESCO products and Christianity religious beliefs which may have an effect on the sales of TESCO.

TESCO should advertise more often to change the consumers conception about the Religious religion and the local products it offers to Malaysians.

Impact of terrorism

Data & Analysis

Rising tension between Malay, Chinese language & Indian ethnical groupings in Malaysia in last few years have created a risk of internal terrorism in Malaysia. The warfare between the cultural Chinese terrorists & Malaysian administration came to end after 42 years. However, initially of 2010, there have been a series of attacks against Religious church because the court said that the Christians can send "GOD" as "ALLAH".

Challenge

Sales may become difficult credited to religious unrest.

TESCO many have to select for an option of Public relations on a regular basis which may increase the expenses of the company.

Economical Environment

Low Purchasing Power

Data

The GDP per capita income of Malaysia and UK for 2008 was $14, 215 & $35, 468 respectively.

Malaysia can be categorized as the united states of people having upper middle income level whereas UK population can be categorized under high income level.

Analysis

The purchasing electricity of UK is more the purchasing ability of Malaysia. It evidently demonstrates that the disposable income of Malaysia is comparative low to that of Uk. The per capita income & throw-away income of Britishers is very high in so doing increasing their purchasing electricity. Because of high purchasing vitality, normally people in UK prefer brands and are brand loyal & are prepared to spend extra on the products. The per capita income of Malaysians is comparatively very low to that weighed against Britishers. Less income indicates that the disposable income will be lower in that way reducing purchasing electric power. This will immediately cause the emergence of price sensitive market condition in Malaysia where brand devotion could get less top priority by Malaysians.

Lower per capita income of Malaysians will effect into low purchasing electric power making Malaysia a price hypersensitive market where purchasers may be ready to buy any product with less or no brand importance. Therefore the company sales might get affected because of this. TESCO may have to change its products, lower the product quality & lower the price so the products can be produced cost effectively & consumers are able to buy. TESCO may have to start out its own manufacturing unit along with its own new source string management and search for local suppliers in Malaysia who can offer products of good quality at a lesser price. This may assist in producing products at less expensive that your Malaysians can plan to buy. TESCO will have to search the spot to set up their business to get closeness to the marketplace which may assist in lowering the syndication cost of its product.

Challenges

Lower consumer income will have an impact on sales of the company.

Uk products have high quality with high price. The company may need to rechange its quality of the products as per the price.

TESCO will have to begin its new source chain management & distribution system to help make the local products for cost efficiency.

TESCO should find their place of preparing business where Circulation cost is suprisingly low.

The company must look for local source chain that can meet all above requirements.

Foreign Currency Fluctuation Risk

Data

The foreign exchange of 1GBP to 1Malaysian Ringett in recent months has fallen from 5. 8RM to 4. 7RM. The interest of Malaysia & UK in the very beginning of the 12 months 2010 were 2. 25% & 0. 5% respectively.

Analysis

The main factor for fluctuations in forex rates is the interest rate in different countries. Malaysia offers significantly higher interest rates than UK. Then investors would want to put money into Malaysia, thus increasing demand for the money. The upsurge in money demand may result into bringing down value of Pound thus creating Forex fluctuation risk. Exchange Rates are incredibly very important to any country as they determine the amount of imports and exports.

Challenge

Importing products could become an expensive option scheduled to fluctuation in currency risk.

The company may have to look for local suppliers and also may have to get started on new supply chain management to lessen the price.

Unemployment Level

Data

The recent Global financial meltdown is still having a major impact on employment level in all the countries of the world. The unemployment rate in UK has already reached to 8% in march 2010. The unemployment rate has increased from 3. 2% in 2007 and has reached to 3. 7% in march 2010.

Analysis

Increase in unemployment of Skilled, Semiskilled & Labourers is a major matter for Malaysian government in last couple of years. The Malaysian Government may put some career limitations on all the Multinational companies in Malaysia to hire the local Malaysians for occupation. The restrictions may include more hiring of Malaysians compared to overseas employees irrelevant of their level of skills. Even though the bigger unemployment in their home country, TESCO may experience the pressure of selecting more Malaysians in comparison of overseas employees and provide training to these to meet the required skills for career which may increase the overall expenditures of the business. Also, employing overseas staff in Malaysia will be a pricey cost incurring idea thus increasing the operational cost of the firm affecting the merchandise pricing.

Challenge

Employing foreign expertise might not exactly be possible to perform the business.

Providing training for Local staff would be expensive and time consuming process.

Creating new resource chain management

Data

Low purchasing ability of Malaysians, high forex fluctuation and price sensitive market in the united states have become major factors for the firms to reduce their prices of the merchandise.

Analysis

Low Purchasing power of Malaysians in comparison with those of UK will generate a price sensitiveness in the country where people may choose Price over quality. Foreign currency fluctuation between Malaysian Ringett and UK Pound has been unstable recently. In importing goods, TESCO may finish up in paying more than their common price thus increasing the entire cost of the merchandise. TESCO must reduce the price to meet up with the market price using its competitors product. The business will have to look for new resource chain management along with new suppliers who can offer the required quality at smaller price to meet the comsumers expectation. Setting up the new supply string along with new local suppliers will be a large challenge as TESCO is an International Company.

Challenges

Importing goods from UK will be costly for TESCO.

Tesco may need to compromise on the grade of the product in case there is price sensitive market.

TESCO will have to setup new supply chain management along with new local suppliers to meet both price and quality requirement of the consumers.

Socio Cultural Environment

Labeling & Packaging Requirements

Data & Analysis

The Malaysian government is very rigid about the labeling & terminology used on the products sold in the united states. The vocabulary on all the merchandise saleable, whether local or imported, must be written in Bahasa Malaysia or English. And in case there is imported goods, the terms used in either case could also include translation in any other languages.

Since the federal government rules & rules is very stringent in Malaysia, TESCO would have to Change its labeling & repack the products with information in both English & bahasa Malaysia Terms. Also, the business will have to give more info on the merchandise about its HALAL Documentation, ingredients, Particular date marking, Nourishment Labeling etc.

The company will have to change its presentation strategy for its products scheduled to hot & humid climatic conditions prevailing in Malaysia This will increase the cost of packaging & labeling of all products to be sold. So to get economies of level, TESCO may have to increase its sales volume level to cover up the expense of change in labeling & product packaging.

Challenge

Relabeling and repackaging the merchandise due to language barrier will be costly and frustrating.

TESCO may have to keep on advertising its product on a regular basis to triumph over the language hurdle.

Halal certification

Data & Analysis

The idea of Halal on food & non food category of product usage is a vital issue in any muslim country. Islam is the official religion followed in Malaysia. The religious beliefs of Islam needs that the merchandise to be consumed must be HALAL. In Malaysia, The Muslim consumers look for the HALAL recognition on the products which is concern by Malaysia's Division Of Islamic Development (JAKIM).

In modern times, the Muslim consumers in Malaysia are faced with broad collection of products & services which can be either locally named or are international products certified as HALAL. YOUR COMPETITION is strong in the Malaysian market where local vendors have an higher hand for the deal of products by projecting their products as Islamic brands by making use of creative presentation & labeling on their products.

TESCO will have to certify HALAL certification on all it products & must show the brand on each HALAL skilled product. This can result into rising of its operating cost. Also, The HALAL qualification is valid for only 1yhearing. So, the business may need to incur these cost every year.

Challenge

Certification of Halal on all products is costly and frustrating.

The validity of documentation is very less which results into incident of repetitive expenses each year.

Advertising, presentation and labeling strategy would change which might boost the cost of the organization.

Intense competition from local stores will be a challenge.

Technological & Environmental Factors

Accessibility & Updation of Information

Data and Analysis

The ratio of urban society to total human population in the year 2008 was 70. 4%. Most of the hypermarkets are located in the urban areas. Rural consumers may have little usage of either choose the product online or heading to the nearest hypermarket in their area. So, placing the business in metropolitan market will be a obstacle to TESCO to meet & get the market share & certain requirements of both rural & metropolitan population.

In recent years, in Malaysia, Online purchasing is becoming a straightforward, time, cost & energy preservation way to choose the products. This technique is more accompanied by the urban consumers to reserve an order. So, TESCO must keep a regular update on well-timed basis about the option of its products on its online purchasing website for its consumers.

Challenge

Target market gets narrow down anticipated to low access to the internet in rural areas.

Starting a business in rural area may boost the transport cost to the metropolitan consumers.

Regular revise on well-timed basis about the option of its products on its online purchasing website because of its consumers is a challenge.

Impact of global warming, deforestation & environmental factors

Data & Analysis

Water & polluting of the environment, impact of global warming has affected the health of people in Malaysia. Deforestation credited to regional development is also another factor impacting on the country. The Malaysian administration is currently becoming very rigid for control over these environmental problems. Any business, whether local or multinational business, has to adhere to all the set of rules and regulations related to the environmental issues laid by the Malaysian administration. Government could also disallow the firms in setting up of warehouses in the certain picked places. TESCO, being an multinational brand, must follow the strict prescribed rules laid by the Malaysian Administration and may have to submit regular accounts to the government regularly regarding the working of the business.

Challenge

Setting up of warehouses near TESCO's hypermart can be a major challenge.

Transportation cost gets increased due to problem in selecting area for warehouses.

Restriction on certain products can affect the business of TESCO.

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