Factors influencing TESCOs decision to invest in Malaysia

Factors influencing TESCOs abateing to invest in MalaysiaFor every company to enter into the supranational food food market personate for the number 1 time, a proper re count and analysis regarding the ch each(prenominal)enges and current merchandising conditions prevailing in the targeted ground essentialiness be undertaken. The project has been undertaken to analyse, envision and elevatedlight the major(ip) challenges that TESCO rear face while entering into Malaysia for the first time. The report focuses on the Political and Legal, stinting, Socio heathen Technological and environmental challenges that whitethorn create a difficulties for TESCO to start its disdain in Malaysia.Introduction to TESCOTesco PLC is a UK found supermarket strand. It is the largest British retailer, both by global sales and interior(prenominal) market share, and the fourth largest retailer in the world behind Wal-Mart of the USA, point of intersection of France, and The Home Depot of the USA.Tesco has a long term dodge for growth, ground on four key part growth in the sum of money UK business, expand by growing internationally, be as strong in non-food as in food and to fol kickoff customers into forward-looking retailing operate.environmental epitome of MalaysiaPolitical Legal EnvironmentRising Political unbalance infoIn new-fangled months, The governmental ruling party Barisan Nasional is veneer the problem of fall in its strength in ruling the country. The ohmic resistance Party Pakatan Rakyat power influence on the Malayans is increasing which has resulted into possibilities of undertaking of elections in the coming months. digestIt is predicted that the opposition party whitethorn emerge as victorious which lead to increased political skepticism pass up frugal growth for 1-2 years. Sales whitethorn slow d take for birth in the sign years which whitethorn be collectable to increased political uncertainty and distur disposece on sp termin using of public during the hand e reallyplace 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 commence years whitethorn affect the purchase power of consumers. The company whitethorn commence to rationalize its equal to overcome lower sales in initial years. TESCO whitethorn stomach to reduce its salute on marketing and advertising . The consumers may prefer wrong and value over shade brand.Political war in the midst of the two parties may likewise result in the subject of riots which may also result into physical damage of Tescos Property and buildings. contendSlow economic growth at the time of change in brass which may lead to slow business in the beginning of scene its business in Malaysia.The consumers may prefer equipment casualty over quality.TESCO may need to fool strong control over its expenses.Riots may cause physical damage to TESCOs property if the Political war emerges.Restrictions on Press Advertising dataThe Malaysian Government has a in truth(prenominal) tight control on media equivalent TV, radio, newspapers, outdoor advertising etc for bare 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 carrefours like alcohol, pork, harvest-tides with unacceptable images etc. Also, advertisement cereb enumerate to exposure of body parts anti well-disposed content like foul lecture, uncompetitive practices, religious comparabilitys etc are strictly prohibited. The advertisement must 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 connect to food drink carrefours must elevatedlight the importance need of balanced diet to th e viewers. Powerful emphasis on the speciality life-style of the country of origin of an imported product is not allowed in the advertisements. disputesTESCO ordain contrive to change its marketing and advertising strategy in Malaysia.The government control on advertising media may disallow advertisement commercials of galore(postnominal) products of TESCO UK.The company may also catch to undergo the process of re promotion re labeling on their products.TESCO leave have to create new ideas to advertise its product which could be high-ticket(prenominal) and time consuming.Focus on many cultural groups dataMalay, Chinese Indian community are the 3 major cultural groups in Malaysia. Chinese Indian community are the minority communities in the country. The recent eruptions against the Christian church has created political imbalance accessible unrest among the great deal.AnalysisThe wealth gap mingled with slight richer Malays very rich Chinese and Indian ethinic g roup in Malaysia has always been a point of concern in Malaysian politics. There has been many let ons 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 religious belief in Malaysia on which government has to keep its attention. However, in the beginning of 2010, there were a serial publication 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 ascribable current social unrest which may affect the sales and brand ima ge 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 represent of the company. contestsRecent attack on churches may create the perception of link between UK TESCO products and Christianity religion which may affect the sales of TESCO.TESCO testament need to advertise to a greater extent frequently to change the consumers perception about the Christian religion and the topical anesthetic 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 series of attacks against Christian church because the court said that the Christians base refer deity as ALLAH.ChallengeSales may become difficult due to religious unrest.TESCO many have to opt for an option of Public dealings on a fix basis which may increase the expenses of the company.Economical EnvironmentLow buying 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 spunk 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 distinctly 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 a nd are brand loyal are unbidden to spend extra on the products. The per capita income of Malaysians is comparatively very low to that compared with Britishers. lesser income signifies that the disposable income result be lower thereby reducing purchasing power. This will directly result in the emergence of equipment casualty bare-ass market condition in Malaysia where brand loyalty could be wedded less priority by Malaysians. dismay 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 strength 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 represent effectively consumers can afford to buy. TESCO may have to start its own manufacturing unit along with its own new summate chain watchfulness and search for local anesthetic suppliers in Malaysia who can provide products of good quality at a lower price. This may help in producing 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 run chain management distribution formation 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 understand for local supply chain who can go steady all above requirements.Foreign Currency Fluctuation RiskDataThe overseas 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 fluctuations in currency exchange rates is the interest rate in distinct countries. Malaysia offers significantly higher interest rates than UK. Then investors will indispensability to put money into Malaysia, therefrom increasing demand for the currency. The increase in currency demand may result into lowering value of ram 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 vista for local suppliers and also may have to start new supply chain management to reduce the cost.Un engagement 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 201 0. The unemployment rate has increased from 3.2% in 2007 and has reached to 3.7% in march 2010.AnalysisIncrease 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 relation 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 take 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 time 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 expenditure 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 comsu mers expectation. Setting up the new supply chain along with new local suppliers will be a big challenge 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 wording 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 any case may also include translation in any other languages.Since the Government rules regulations is very strict in Malaysia, TESCO would have to salmagundi its labeling repack the products wit h descriptions in both English bahasa Malaysia Language. Also, the company will have to give more information on the product about its HALAL Certification, ingredients, conflict marking, Nutrition Labeling etc.The company will have to change its promotional material 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 squeeze 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 fixing 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 Muslim country. Islam is the official religion followed in Malaysia. The religion of Isl am demands that the product to be consumed must be HALAL. In Malaysia, The Muslim consumers look 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 every locally named or are international products attest 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 unless 1year. So, the company may have to incur these cost every year.ChallengeCertification of Halal on all products is costly and time consuming.The vali dity of certification is very less which results into occurrence of repetitive expenses every year.Advertising, packaging and labeling strategy would change which may increase the cost of the firm.Intense contest from local retailers will be a challenge.Technological Environmental Factors availability Updation of InformationData and AnalysisThe percentage of urban population to tot up population in the year 2008 was 70.4%. Most of the hypermarkets are located in the urban flying fields. 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 r egular update on timely basis about the availability of its products on its online purchasing website for its consumers.ChallengeTarget market may get speciate down due to low internet access in boorish 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 culture is also another factor affecting the country. The Malaysian government is right away becoming very strict for control over these environmental problems. every 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. G overnment may also disallow the companies in setting up of warehouses in the certain selected parts of the country. TESCO, being an multinational brand, will have to follow the strict visit rules laid by the Malaysian Government and may have to pass along 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.