Challenges to TESCOs Expansion into Malaysia

contests to TESCOs elaboration into MalaysiaExecutive SummaryFor any company to enter into the international grocery institutionaliseplace for the firstborn time, a proper re bet and analysis regarding the ch whollyenges and current marketing conditions prevailing in the targeted arena essential be undertaken. The project has been undertaken to analyse, actualise and steeplight the study challenges that TESCO offer face while entering into Malaysia for the first time. The report focuses on the Political and Legal, economic, Socio pagan Technological and environmental challenges that whitethorn create a difficulties for TESCO to start its blood line in Malaysia.Introduction to TESCOTesco PLC is a UK base supermarket drawstring. It is the largest British retailer, both by global sales and domesticated market share, and the fourth largest retailer in the world behind Wal-Mart of the USA, crosswalk of France, and The Home Depot of the USA.Tesco has a long term s cheme for growth, base on four key split growth in the sum of money UK business, expand by growing internationally, be as strong in non-food as in food and to fol pitiful customers into unseasoned retailing serve.environmental abstract of MalaysiaPolitical Legal EnvironmentRising Political unstablenessselective informationIn new-made months, The political ruling party Barisan Nasional is set about the problem of fall in its strength in ruling the country. The contrary Party Pakatan Rakyat power influence on the Malaysians is increasing which has resulted into possibilities of undertaking of elections in the coming months. epitomeIt is predicted that the opposition party whitethorn emerge as victorious which lead to increased political misgiving turn away economic growth for 1-2 years. Sales whitethorn slow d let in the sign years which whitethorn be referable to increased political uncertainty and distur expelce on sp depoting of public during the handoer process . The handover process is generally a time consuming lengthy process. it whitethorn result into impaired business for the company. lower economic growth in the start years whitethorn affect the purchase power of consumers. The company whitethorn work to slash its damage to overcome lower sales in initial years. TESCO may clear to reduce its embody on marketing and advertising . The consumers may prefer toll and value over part brand.Political war among the two parties may besides result in the expiration of riots which may also result into physical damage of Tescos Property and buildings. take exceptionSlow economic growth at the time of change in government activity which may lead to slow business in the beginning of context its business in Malaysia.The consumers may prefer monetary value over quality.TESCO may need to subscribe strong control over its expenses.Riots may cause physical damage to TESCOs property if the Political war emerges.Restrictions on Press Advertising entropyThe Malaysian Government has a in truth(prenominal)(prenominal) tight control on media worry TV, radio, newspapers, outdoor advertising etc for s dying of commercials and advertisements. The advertising code code of ethics are to be followed by all the companies business in Malaysia.AnalysisThe government has kept ban on advertisement of ingatherings like alcohol, pork, carrefours with unacceptable images etc. Also, advertisement cerebrate to to exposure of body parts anti sociable content like foul lyric poem, uncompetitive practices, religious proportions etc are strictly prohibited. The advertisement moldiness be shot in Malaysia with Malaysian models in the advertisements. No international models from other countries are allowed. Also, the musicals of the ad must be done in Malaysia. Advertisements related to food drink wares must gameylight the importance unavoidableness of balanced diet to the viewers. Powerful emphasis on the speciality lifestyle of the country of origin of an imported product is not allowed in the advertisements. disputesTESCO lead switch to change its marketing and advertising st gradegy in Malaysia.The government control on advertising media may disallow advertisement commercials of legion(predicate) products of TESCO UK.The company may also energize to undergo the process of re publicity re labeling on their products.TESCO nurse have to create new ideas to advertise its product which could be expensive and time consuming.Focus on many cultural groups entropyMalay, Chinese Indian community are the 3 major cultural groups in Malaysia. Chinese Indian community are the nonage communities in the country. The recent set upons against the Christian church has created political unstableness cordial unrest among the lot.AnalysisThe wealth gap in the midst of little richer Malays very rich Chinese and Indian ethinic group in Malaysia has always been a point of concern in Malaysian pol itics. There has been many caters regarding this issue in the past which created a tension in the Malaysian political environment. But currently, the government is taking efficient measures to reduce the tension between the cultural groups.Christianity is also a minority piety in Malaysia on which government has to keep its attention. However, in the beginning of 2010, there were a serial of attacks against Christian church because of some high court decisions. All these factors may lead to political instability in the near future. Political instability may result into the change in government. Christianity is the major religion in UK. Malaysians may tend to emotionally link the products of TESCO with Christianity as TESCO is a UK based company. This may initially led to the unacceptance of the products by Malaysians overdue current social unrest which may affect the sales and brand image of TESCO in Malaysian market.This may also affect the marketing and advertising strategy of TESCO. The company may have to frequently and carefully advertise its product to the consumers to change their perception about the link between Christianity and the Companys product offering. This may result into heavy expenditures resulting into the rise in constitute of the company.ChallengesRecent attack on churches may create the perception of link between UK TESCO products and Christianity religion which may affect the sales of TESCO.TESCO leave alone need to advertise more(prenominal) frequently to change the consumers perception about the Christian religion and the topical anaesthetic products it sells to Malaysians.Impact of terrorismData AnalysisRising tension between Malay, Chinese Indian cultural groups in Malaysia in last a few(prenominal) years have created a threat of internal terrorism in Malaysia. The war between the ethnic Chinese terrorists Malaysian government came to end after 42 years. However, in the beginning of 2010, there were a serial of attacks against Christian church because the court said that the Christians screw refer divinity as ALLAH.ChallengeSales may become difficult due to religious unrest.TESCO many have to opt for an option of Public dealing on a fixture basis which may increase the expenses of the company.Economical EnvironmentLow buy PowerDataThe GDP per capita income of Malaysia and UK for 2008 was $14,215 $35,468 respectively.Malaysia can be classified as the country of people having upper midway income level whereas UK population can be classified under high income level.AnalysisThe purchasing power of UK is more the purchasing power of Malaysia. It clearly reflects that the disposable income of Malaysia is comparative low to that of Uk. The per capita income disposable income of Britishers is very high thereby increasing their purchasing power. Due to high purchasing power, normally people in UK prefer brands and are brand loyal are ordain to spend extra on the products. The per capita income o f Malaysians is comparatively very low to that compared with Britishers. lesser income signifies that the disposable income pull up stakes be lower thereby reducing purchasing power. This will directly result in the emergence of charge reasonable market condition in Malaysia where brand loyalty could be disposed(p) less priority by Malaysians. write down per capita income of Malaysians will result into low purchasing power making Malaysia a price sensitive market where buyers may be ready to buy any product with less or no brand importance. So the company sales aptitude get impact due to this. TESCO may have to change its products, lower the quality lower the price so that the products can be produced bell effectively consumers can afford to buy. TESCO may have to start its own manufacturing unit along with its own new tack chain caution and search for topical anaesthetic suppliers in Malaysia who can provide products of good quality at a lower price. This may help in pr oducing products at lower cost which the Malaysians can intend to buy. TESCO will have to search the place to set up their business to get proximity to the market which may help in lowering the distribution cost of its product.ChallengesLower consumer income will affect sales of the company.Uk products have high quality with high price. The company may have to rechange its quality of the products as per the price.TESCO will have to start its new furnish chain management distribution arranging to make the local products for cost efficiency.TESCO will need to find their place of setting business where Distribution cost is very low.The company will have to feel for local supply chain who can reach all above requirements.Foreign Currency Fluctuation RiskDataThe unusual exchange of 1GBP to 1Malaysian Ringett in recent months has fallen from 5.8RM to 4.7RM. The interest rate of Malaysia UK in the beginning of the year 2010 were 2.25% 0.5% respectively.AnalysisThe key factor for fl uctuations in currency exchange rates is the interest rate in various countries. Malaysia offers significantly higher interest rates than UK. Then investors will want to put money into Malaysia, therefrom increasing demand for the currency. The increase in currency demand may result into lowering value of prod thus creating Foreign currency fluctuation risk.Exchange Rates are very important for any country as they determine the level of imports and exports.ChallengeImporting products may become a costly option due to fluctuation in currency risk.The company may have to disembodied spirit for local suppliers and also may have to start new supply chain management to reduce the cost.Un function LevelDataThe recent orbicular financial crisis is still having a major impact on employment level in all the countries of the world. The unemployment rate in UK has 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.Analy sisIncrease in unemployment of Skilled, Semiskilled Labourers has been a major concern for Malaysian government in last few years. The Malaysian Government may put some employment restrictions on all the Multinational companies in Malaysia to hire the local Malaysians for employment. The restrictions may include more hiring of Malaysians in equivalence to foreign employees irrelevant of their level of skills. Even though the higher unemployment in their home country, TESCO may undergo the pressure of hiring more Malaysians in comparison of foreign employees and provide training to them to cumulate the required skills for employment which may increase the overall expenses of the company. Also, employing foreign workers in Malaysia will be an expensive cost incurring idea thus increasing the operational cost of the firm affecting the product pricing.ChallengeEmploying foreign talent may not be possible to run the business.Providing training for Local lag would be expensive and tim e consuming process.Creating new supply chain managementDataLow purchasing power of Malaysians, high foreign currency fluctuation and price sensitive market in the country are becoming major factors for the companies to reduce their prices of the product.AnalysisLow Purchasing power of Malaysians in comparison with those of UK will create a price sensitiveness in the country where people may prefer scathe over quality. Foreign currency fluctuation between Malaysian Ringett and UK quid has been unstable in recent times. In importing goods, TESCO may end up in paying more than their usual price thus increasing the overall cost of the product. TESCO will have to reduce the price to meet the market price with its competitors product. The company will have to look for new supply chain management along with new suppliers who can provide the required quality at lesser price to meet the comsumers expectation. Setting up the new supply chain along with new local suppliers will be a big cha llenge as TESCO is an International Company.ChallengesImporting goods from UK will be expensive for TESCO.Tesco may have to compromise on the quality of the product in case of price sensitive market.TESCO will have to set up new supply chain management along with new local suppliers to meet both the price and quality requirement of the consumers.Socio Cultural EnvironmentLabeling Packaging RequirementsData AnalysisThe Malaysian government is very strict about the labeling linguistic communication used on the products sold in the country. The language on all the products saleable, whether local or imported, must be written in Bahasa Malaysia or English. And in case of imported goods, the language used in each case may also include translation in any other languages.Since the Government rules regulations is very strict in Malaysia, TESCO would have to spay its labeling repack the products with descriptions in both English bahasa Malaysia Language. Also, the company will have to give more information on the product about its HALAL Certification, ingredients, consider marking, Nutrition Labeling etc.The company will have to change its packaging strategy for its products due to hot humid climatic conditions prevailing in Malaysia This will increase the cost of packaging labeling of all the products to be sold. So to gain economies of scale, TESCO may have to increase its sales volume to dorsum up the cost of change in labeling packaging.ChallengeRelabeling and repackaging the products due to language barrier will be costly and time consuming.TESCO may have to keep on advertising its product on a perpetual basis to overcome the language barrier.Halal certificationData AnalysisThe concept of Halal on food non food category of product consumption is a vital issue in any Islamic country. Islam is the official religion followed in Malaysia. The religion of Islam demands that the product to be consumed must be HALAL. In Malaysia, The Muslim consumers lo ok for the HALAL certification on the products which is issue by Malaysias Department Of Islamic Development (JAKIM).In recent years, the Muslim consumers in Malaysia are faced with broad selection of products services which are all locally named or are international products demonstrate as HALAL. The Competition is intense in the Malaysian market where local retailers have an upper hand for the sale of products by projecting their products as Islamic brands with the help of creative packaging labeling on their products.TESCO will have to certify HALAL certification on all it products will have to show the logo on each HALAL certified product. This will result into rising of its operating cost. Also, The HALAL certificate is valid for exactly 1year. So, the company may have to incur these cost every year.ChallengeCertification of Halal on all products is costly and time consuming.The rigourousness of certification is very less which results into occurrence of repetitive expen ses every year.Advertising, packaging and labeling strategy would change which may increase the cost of the firm.Intense challenger from local retailers will be a challenge.Technological Environmental Factors approachability Updation of InformationData and AnalysisThe percentage of urban population to be population in the year 2008 was 70.4%. Most of the hypermarkets are located in the urban areas. Rural consumers may have little access to either buy the product online or going to the nearest hypermarket in their area. So, setting the business in urban market will be a challenge to TESCO to meet capture the market share the requirements of both artless urban population.In recent years, in Malaysia, Online purchasing has become an easy, time, cost energy saving way to buy the products. This method is more followed by the urban consumers to book an order. So, TESCO will have to keep a regular update on timely basis about the availability of its products on its online purchasi ng website for its consumers.ChallengeTarget market may get limit down due to low internet access in rude areas.Starting a business in rural area may increase the transportation cost to the urban consumers.Regular update on timely basis about the availability of its products on its online purchasing website for its consumers will be a challenge.Impact of global warming, deforestation environmental factorsData AnalysisWater air pollution, impact of global warming has affected the health of the people in Malaysia. Deforestation due to regional phylogenesis is also another factor affecting the country. The Malaysian government is nowadays becoming very strict for control over these environmental problems. any business, whether local or multinational business, has to comply with all the set of rules and regulations related to the environmental issues laid by the Malaysian government. Government may also disallow the companies in setting up of warehouses in the certain selected p arts of the country. TESCO, being an multinational brand, will have to follow the strict order rules laid by the Malaysian Government and may have to learn regular reports to the government regularly regarding the working of the company.ChallengeSetting up of warehouses near TESCOs hypermart can be a big challenge.Transportation cost may get increased due to problem in selecting area for warehouses.Restriction on certain products can affect the business of TESCO.