Critical Analysis of Tesco's Business Environment

This report provides a critical analysis of the business environment of Tesco, focusing on the meso, micro, and macro factors. It includes tools such as SWOT analysis, PESTLE analysis, and Porter's Five Forces. The report examines Tesco's strengths, weaknesses, opportunities, and threats, as well as its competitive advantage and market positioning. It also analyzes the political, economic, social, technological, environmental, and legal factors affecting Tesco's business. The report concludes with insights on how Tesco can handle the bargaining power of consumers and suppliers, rivalry in the market, the threat of substitute products and services, and the threat of new competitors.

Assessment
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Table of Content
Introduction......................................................................................................................................3
Swot Analysis..............................................................................................................................3
Pestle Analysis.............................................................................................................................5
Porter five forces..........................................................................................................................6
CONCLUSION................................................................................................................................8
References........................................................................................................................................9
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Introduction
This report focuses on critical analyzing the meso, micro and macro business
environment of the Tesco. As it is consider as one of the largest grocery and food retailer within
the world. Operating around 4,331 stores. Report also focuses on the analyzing tools such as
Swot analysis, Pestle, Porter five forces, SWOT analysis.
Overview of Tesco
Tesco is one of largest food retailers within the world alongside revenue within excess of
£54 billion within Tesco in the year 2009 and employing around 477,000 employees from all
over the world. Firm operates 4,441 stores within 14 nations all over the world. The firm
operates primarily within Asia, Europe and United Nations of America and also their head office
is based within UK. Tesco compromises over 965 stores that have sell fresh foods at appropriate
localities. Around 170 stores also sell varieties of food products within city centers and towns
and also around 450 stores sells both non food and food items such as DVDs and books. Tesco
also gives online retailing services and also gives broadband internet connection as well as
financial services. Tesco was founded within the year 1919 as well as launched its first store
within London (Wood, Wrigley. and Coe, 2017). The comparative positioning of Tesco’s market
share alongside several other leading players within the marketplace that has been mention
below.
Swot Analysis
For every organization it is necessary to analyze its internal environment so that its internal
capabilities are identified. This helps in evaluating firm performance in the market and also
shows what its strength is (Si, Jiang. and Hu, Analysis of E-commerce Website—VANCL). In
addition, internal analysis is useful in finding out area by which competitive advantage can be
gained. Similarly for Tesco as well there are certain tools available for doing this analysis. Here,
SWOT and VRIO model will be used. It is as follows
Strengths
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Tesco is biggest retail store and super market in UK in terms of revenue and sales. As per
2018 its revenue increased up to 28% that was 63,911 million Euro. Moreover, company is
leading market share as well in retail sector with 27%.
The firm is having an effective network of suppliers. Thus, with that they are able to deliver
goods in time and gain customer satisfaction. There are 3751 stores of Tesco in UK
Weakness
The organization has failed in highly developed economies that are US and Japan. Due to
that they have to exit from that market.
In 2017 Tesco was involved in accounting fraud for presenting less profit in their ledger book.
Thus, it has highly resulted in creating bad impact on its brand image.
The operating profit of company is very less so it shows weak financial performance of firm in
industry.
There are many financial errors done in credit liability. Hence, its profits are affected.
Opportunity
Tesco can focus on emerging markets such as turkey, South Korea, etc where they can
expand and grow. It will lead to rise in profit and sales.
The company can make strategic alliance with other retail firms in order to expand at global level
(Williams, 2017).
Firm can emphasis on expanding of Jack stores that are performing well in UK market.
Threats
The Brexit deal may highly impact on Tesco growth and profits. It might be difficult for
them to trade with European countries.
Christmas ad controversy may result in boycotting Tesco products as they disrespected
Christianity faith. Covid 19 may highly affect on firms’ growth in other countries due to lock
down.
VRIO
Resources Valuable Rare Imitable Organization Competitive
advantage
Financial Yes Yes Yes Yes Long term
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competitive
advantage
Employees Yes Yes Yes Yes short term
competitive
advantage
Valuable – Tesco financial resources are highly value as it helps in investing in opportunities.
Also, its employees are valuable as they are highly trained and loyal towards firm
Rare- Tesco financial resources are only found by few companies in industry.
Employees of firm are trained and possess advance skill which is not in other firms.
Imitable- the firm financial resources can be easily imitated by other. Here, new firms can attain
profits if they survive for long term
Staff can be imitated as other organization can also train them. it will help in increasing their
efficiency and performing tasks in effective way.
Organization- financial resources of firm is organized as it is invested at right place. So, it has
enabled in gaining competitive advantage for Tesco
Employees of company are organized in properly as right people are placed at right job role.
Pestle Analysis
It is known as the framework that evaluates the key factors such as Political, social,
economical, legal, and sociological and environment impacting enterprises from the
outside. The evaluation is flexible, so firm can utilise within a range of several range of
scenarios. Senior managers and people professional can utilise the outcomes in order to
guide strategic decision making process.
Political environment- In order to deal with the political factors there is a huge need to focus on
the political rules as well as regulations. Tesco’s political environment is not so strict and
also government of UK also supports retail industry that can be consider as good
indication for cited firms. As Tesco has good reputation but also at the same time they
require strict towards the political aspects (Diderich, 2020).
Economical environment- It deals with the economic situation of a nation and its people both. It
includes both macro and micro level situation. It is also focuses that per capita income of
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the residents enhancing that ultimately supports Tesco’s business model as most of the
products in which the firms’ deals are within demand as well as gives chances for the
quick growth.
Social environment- It is basically within the favour of a firm at very large scale. Individuals
shows their interest within several shopping culture as Tesco has already focuses on the
benefit regarding the changing shopping habits of individuals. Therefore cultural aspects
also aid the Tesco’s business as consumers are highly satisfied through the Tesco’s
business Techniques.
Technological environment- Like other industries the change within the technology regarding
retail industry is quite low. According to the current technological advancement firm has
made appropriate alignment alongside the technical arrangements.
Environmental Factors- Tesco is quite concerned regarding the protection of the natural
resources as well as natural environment. Thus the enterprise has also adopted various
practices that can aid the initiative that can be taken through environmentalists.
Legal environment- It is more vital for the enterprise as till now Tesco has maintained its repo
because of its legal aspects. Therefore cited firms have also focuses on the major policies that are
associated with European Union as well as UL’S law. Thus there are various major external
factors that can be treated as favourable for the firm (Aithal, 2017).
Porter five forces
The porter five forces are known as a macro tool as it is an analysis of the structure that can be
undertaken so that finds the find the effective sources regarding competitive advantage. Five
forces analysis can be used through researchers are mention below.
Bargaining power of consumers
The Bargaining power of consumers is high as within the retail industry the switching
cost is low. Thus costumers can easily switch to the other retailer if they are not satisfied with the
product of Tesco, its consumer price or pricing policy and many more. Tesco also serves around
90 million consumers on weekly basis (Tran, 2017). This fact focuses decreases consumer’s
bargaining power. Consumers are often demanding as they want to purchase the best offerings
available through paying the minimum price. They needs to buy the best offering available
through paying minimum price as that’s put pressure on profitability within the long term.
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Tesco can deals with by quickly innovating new products as consumers often seek
discounts as well as providing goods so if the firm keeps on coming up new goods. It can also
tackle it by building the large base of consumers that can be aids within two ways as it will
decreases bargaining power of buyers plus at the same it will gives an opportunity to the
company to streamline its sales as well as process of production.
Bargaining power of suppliers
It is low as Tesco supplies non food and food items around more than 1100 people all
over the world. Therefore, Firm can also easily negotiate products prices, while choosing only
those suppliers that offer products regarding highest quality. Tesco can deal the tracking power
of the suppliers through experimenting with the product’s designs using various materials so that
if the product’s prices go up of one raw material then the firm can take the immediate actions and
shifts on the other options. Also tackle through building efficient supply chain alongside various
suppliers (Tran, 2017)
. Tesco can handle bargaining power of suppliers through developing dedicated suppliers whose
business relied upon the entity. Tesco can learn from Nike and Wal- Mart is how these firms
developed third party manufacturers, thus by creating a situation where third party manufacturers
have importantly less bargaining power continuously comparing to the Nike and Wal- Mart.
Rivalry
The United Kingdom market is also very competitive as there are various firms such as
Morrison, Aldi, Sainsbury’s that can operates within segment. There are several rivals compete
over prices, products as well as promotions that can makes level of their similarity quite is very
high. Tesco can deals with it by collaborating with rivalries in order to increase the market size
instead of just competing for the niche market.
Threat of substitute products and services
With the grocery retail market the threat of substitute for non food items is generally
medium to high while low for food items as well. Organic shops are not considered as a threat to
the supermarket such as Tesco that provides products of the high quality at low prices. Thus,
threat of similar products for non food items such as clothing is considerably high. Tesco can
handle this by enhancing the switching cost for the buyers and also understands the core
requirements of the consumer rather than what the consumer is purchasing.
Threat of entry of new competitors
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This is considerably low within the food retail industry since firms needs to invest
financial resources in order to establish their value and presence within the marketplace (retail).
Another factor is a high level of market saturation that prevents firms to take entry within such
market segments. Tesco can handle such threats by innovating new products as such products are
not only brings new consumers but also at the same time provides old consumer a reason to
purchase the products of Tesco (Peeroo, Samy, and Jones, 2016)
.
Conclusion
From the above study it has been summarised that various external environment factors
have affected working of an organisation. It has been analysed that for extending organisations
market share, they have been involved in following all the rules and regulations which has
implemented by government. They have also been involved in working on their employees
regularly so that their internal capabilities can be built up. Organisation has been engaged in
having strong brand reputation as they are involved in supplying high quality products and
services. This has assisted company in growing and also their productivity is being increased
because of it. From the report it can also be summarised that various type of competitive
strategies has been implemented by organisation in order to gain edge over their competitors.
They have also been working on their resources utilisation and corporate social responsibility is
also being followed by them. This has assisted them in enhancing their brand reputation and also,
they have been able to attract a large range of consumers. Technological factors have also
affected working of an organisation. In this company has started making use of artificial
intelligence and automation which has assisted them in increasing their productivity as well as
manual work has reduced down because of this. These factors have affected decision making of
company and they have been able to achieve their set target and mission. For the growth of
organisation, business managers are supplying products according to needs and demands of
consumers.
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References
Books and Journals
Aithal, P.S., 2017. An Effective Method of Developing Business Case Studies based on
Company Analysis. International Journal of Engineering Research and Modern Education
(IJERME), ISSN (Online), pp.2455-4200.
Diderich, C., 2020. Understanding the Industry Environment and Its Implications to Strategy.
In Design Thinking for Strategy (pp. 79-92). Springer, Cham.
Peeroo, S., Samy, M. and Jones, B., 2016, September. Generating Customer Engagement and
Customer Enragement on Facebook Pages of Tesco and Walmart. In Conference on e-
Business, e-Services and e-Society (pp. 146-156). Springer, Cham.
Si, T., Jiang, W. and Hu, X., Analysis of E-commerce Website--VANCL.
Tran, T.X., 2017. Analysis for the market potentiality of new entrant into Finnish nut market.
Williams, C., 2017. Complexity Of Modern Management.
Wood, S., Wrigley, N. and Coe, N.M., 2017. Capital discipline and financial market relations in
retail globalization: insights from the case of Tesco plc. Journal of Economic
Geography, 17(1), pp.31-57.
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