Analyzing TESCO's Business Environment

The provided report is an in-depth analysis of TESCO's business environment, focusing on macro environmental factors. The PESTLE (Political, Economical, Social, Technological, Legal, and Environmental) framework is used to examine the impact of these factors on the company. Additionally, SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is mentioned as a complementary approach for analyzing the business environment. The report emphasizes the importance of considering these external factors in business strategy implementation.

Business and business
environment
(Project - 2)

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P4 Positive and negative impact of macro environment.............................................................1
TASK 2............................................................................................................................................3
P5 Internal and external analysis of a business organisation......................................................3
P6 How strength and weaknesses can affect macro environmental factors................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business environment plays an imperative role in growth and success of every business
organisation. It also helps managers to gain high competitive advantage from target market.
Business environment is an amalgamation of internal and external factors of the company. These
factors can be analysed through SWOT and PESTLE analysis of the company (Cronan and et.
al., 2011). Apart from this, the present assignment is based upon TESCO; it is one the largest
dealer of grocery products and services. The main objective of the firm is to provide healthy and
qualitative services to customers so as attain and retain them for long term period.
TASK 1
P4 Positive and negative impact of macro environment
In this over dynamic environment, there are different types of external factors which can
hamper firm's working activities and operations in an adverse manner. TESCO also put efforts in
analysing external aspects and how to utilise resource in order to gain high competitive
advantage. It helps firm to grow and survive effectively at marketplace. Along with this, this can
be analysed through PESTLE analysis, it has positive and negative impact on business operation
(De Jonge, 2011).
(Source: Tesco PESTEL analysis, 2017)
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Illustration 1: Macro environmental factors

PESTLE analysis of TESCO is stated as under: -
Political factors – These factors involves tax rates, political stability of the country, acts
of legislations etc. TESCO performs in several nations over the world, therefore it is necessary
for its analyse its political condition and other aspects. Business organisation fulfil all
government rules and regulations in order to perform at global level. Apart from this, UK has
strong financial stability; its government encourage retailers to create jobs. UK government has
adopted a tax which highly affected TESCO. For example – in 2011 the government raised the
tax rate from 17.5% to 20% so as to earn more government revenues, i.e. £15 billion per year. It
results, increasing VAT rates leads lower customers' spending. Thus, an enhancement on VAT
rates adversely affect the sales revenue and profitability. Apart from this, UK government also
adopt a fat tax rate which major aim is to control obesity and reduce medical problems that are
associated with it. These measures can also affect the sales revenue of TESCO. In order to
overcome this, the firm has launched new healthy food range in 2014.
Positive impact – Helps in reducing illegal activities
Negative impact – Increases tax rates or import export can affect a business in international
market.
Economical factors – The major negative aspect of economic factors is – due to
economic recession in 2008 UK economy is still facing various issues, such as- reduction in
interest rates, unemployment, reduces the purchasing power of customers etc. All these aspects
can also hamper the financial position of the country through which customers spend less amount
on premium products (Erving and et. al., 2011). Apart from this, positive impact of economic
factors are customers starts to eat more at home which provides opportunities to supermarket
retailers, like TESCO. Now UK is recovering from financial crisis; higher economic growth rate
was forecasted and the GDP was assumed to be 2.7% higher then the pre-crises. Therefore,
economic growth is the positive sign for TESCO in terms of increasing the demand of its
products and services.
Social factors – Now these days, British customers tend towards ‘one-stop’ and ‘bulk’
shopping, it occurs due to various social changes. Social cultural changes refers that the number
of ageing population is enhancing among female workers which generates reduction in home
meal preparation. It means, retailing firms have to focuses on producing added-value products
and services. Hence, the negative impact of social cultural factors are changing needs of
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population because TESCO is focused on ageing group of people. In UK, young generation less
prefer to visit grocery shops whereas positive impact of these elements is – customers behaviour
towards food is incessantly changing, now they are become more health and prefer to eat organic
and health foods (Fernando, 2011). It helps supermarket chains to improving their sales and
profitability.
Technological factors – Technology plays a critical role in supply chain management
process of TESCO. In addition, the firm's stores utilise the following technologies, such as-
Wireless devices, Intelligent scale, Electronic shelf labelling, Self check-out machine and Radio
Frequency Identification (RFID). Thus, the firm has effective techniques for its supply chain
which helps it to gain high competitive advantage and increases the cost efficiency as well. It can
also put a huge impact on core competencies of the company; this can treated as positive impact
of technological factors (Gebauer, Paiola and Edvardsson, 2010). On the other hand, there is
huge competition between organisations for this they are continuously changing its production
tools that can reduce the quality of products and services in an adverse manner.
Legal factors – Several laws and legislations also put a direct impact on growth of
business organisation. In addition, the negative impact of legal factors are – some government’s
policies have control on overall business activities and code of practices. Thus, it becomes tough
for companies to perform at global level effectively which results reduction in buyers' purchasing
power. In 2003, UK government regulated a law in which all retailers have license of foreign
trades as well as access to raw materials. Apart from this, the positive impact of if government
follows all laws then it would help it to perform in legal or ethical manner properly
(Guglielmetti, 2011).
Environmental factors – Since past years, government put pressure on all business
organisations to fulfil their all roles and responsibilities towards society. UK government has
launched a strategy for sustainable consumption and production to eliminate waste, less
consumption of resources as well as minimise environmental damage. There should be high
taxes for those companies which produces high fatty products. The negative impact of
environmental aspects is the product ranges of the company goes down and it can also hamper
the relationship of the company with suppliers and customers as well. On the other hand, the
TESCO fulfils all of its CSR activities then it helps a firm to win customers hearts; it would
generate numerous loyal customers who were high liable for increasing sales or profitability.
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TASK 2
P5 Internal and external analysis of a business organisation
It is essential for every business organisation to conduct an internal and external analysis;
it aids firm to analyse those aspects which can affect its growth and survival. In macro
environment, there are several elements that can hamper working activities or operations of the
firm in direct and indirect manner. It can be done through SWOT analysis of TESCO which
signifies strength, weaknesses, opportunities and threats.
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STRENGTH
 In its past years, the firm has won
several awards for its excellence,
shopping experience as well as
customer services. TESCO is
considered as the leading and profitable
supermarket chain over the world.
 Another major strength of the company
is high cash revenue; it has a wide
range of property yet undeveloped that
helps in future to overcome with capital
risks (Robbins, Judge and Campbell,
2010).
 TESCO has wide range of product
portfolio which aids it to gain high
competitive advantage from
competitors.
 The supermarket retailer has long
standing history in UK: the firm has
strong brand equity with global
recognition. TESCO always maintains
its standards in terms of quality,
services and standards.
 TESCO always focuses on improving
the quality of its products and services,
for this it is used advance tools of
production, it makes its products
different from others. It also helps in
generating cost efficiencies as well as
service experiences.
 TESCO always focused on providing
WEAKNESSES
 Some of the subsidiaries of TESCO of
are not operating effectively; they are
vulnerable to compete with external
environment. For instance- due to credit
crisis, financial profits of the firm are
getting affected and have not cover up
yet.
 Competitive pressure also increases
price wars which erodes firm's profit
margin; it is the time when TESCO
require to focuses on achieving high
competitive advantage.
 Retail associations are not performing
as expected in some nations, lack of
market knowledge is the major reason
behind this.
 Due to lack of disposable income,
customers are not able to spend much
amount on purchasing luxury products
and TESCO deals in premium products.
It can affect the sales and productivity
of the company in adverse manner.
 At last, the another major weakness of
TESCO is as it highly depend upon UK
market for sales. Although the firm is
not spent its resources and time on
improving other markets. It also may be
trying to serve too many markets many
of which may not be financially
feasible or align with their strategic
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training and development assistance to
its employees for enhancing their skills
and capabilities. With this,
management will obtain well skilled
workforce for long term period.
 Due to its size and facilities, TESCO
can buy in bulk, benefiting from
economies of scale. This permits the
company to lower prices to keep prices
attractive and be competitive with UK
retailers such as Asda or Sainsbury's. The company has improved its
production process in order to carrying
out its operations. It creates high cost
efficiencies as well as raised service
experience.
intent.
 The retailing industry is highly
depended on Europe for its sales and
not spending its money and resources
on other areas where it operates. It
results, reduction of goodwill or
credibility of TESCO in such countries.
OPPORTUNITIES
 TESCO is now focusing on strategic
alliances and franchising with other
brands in order to expand its business
activities at international market. This
would be great opportunity for the
company by offering numerous
products and bring customers from
target market.
 Growing in online sector is one of the
biggest opportunity for the company; it
helps TESCO to achieve high market
share and growth.
 Opportunities in private label markets
 Due to emerging markets, retailing
THREATS
 Financial recessions and credit
crunches are continuously affecting the
market share as well as profitability of
the company; such threats reduces the
size and number of purchases by
customers (Siewiorek and et. al., 2012).
 Competitive threats be coming from
global market also affect TESCO's
activities and operations. ASDA,
WALMART, SAINSBURRY, Mark
and Spencer, LIDI etc. if competitors
can reduce their prices then cited
venture also have reduce its prices
through it cannot maximise its profits
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companies can easily provide
defectiveness access towards western
products these areas demand.
 Due to the impact of recession, where
people may be troubled financially,
they can get value added goods
through TESCO's finest branding. Strategic alliances, joint ventures and
franchising etc. are the new marketing
entry strategies would be good
opportunity for TESCO in which local
firms will help for in marketing
research as well as market intelligence
in order to enhance its performance in
such areas.
and sales.
 Due to increasing wages, labour threats
are also generating, it put pressure on
pricing strategy as well as employee
turnover of the company.
 Stakeholders' pressure and government
regulations towards environmental and
social responsibilities is also a
significant threat for TESCO.
As per this discussion, it is evaluated that if TESCO find out its own weaknesses and
future threats which will affect its business activities and firm develop its strategies in order to
deal with them. It also helps business organisation to determine what are its major strength and
how they are assistive in getting high competitive advantage. In addition, if TESCO has proper
knowledge about future opportunities then it will expand its business functions accordingly.
P6 How strength and weaknesses can affect macro environmental factors
A company' strength and weaknesses is interrelated with macro environmental factors. It
can improves as well as reduces the market image of the firm. Below described a brief
description about the interrelationship between strength and weaknesses and macro
environmental factors: - Political factors – If UK's government reduces tax rates and make flexible laws and
legislations then it is beneficial for business organisations as they will easily perform at
global level. It results in increasing the market share and vitality of TESCO in a certain
time period. On the other hand, the organisation performs in different countries so that it
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too difficult for it to fulfil all of them in the best possible manner. Thus, TESCO's
performance is highly affected by political and legislative conditions of these nations in
European Union. Government encourages retailers to provide a mix of job opportunities
from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and
centrally-located jobs for employment legislations. Economical factors – If the economic condition of the country is good or balanced in
proper manner then it can improves purchasing power of customers. Therefore, results in
enhancing accomplishment of goals and objectives (Teece, 2010). Healthy economy also
aids in generating employment through which disposable income of the country would
raised. Apart from this, weak economy can increases poverty and financial instability
through which customers' cannot spend high amount on luxurious products. When there
is an economic recession, growth the rate of unemployment will be increase. It results in
lower disposable income in the hands of the British people. Therefore, customers will
decrease spending and will shift to products of a lower price through which firm cannot
achieve its goals and objectives in an effective manner. Social factors – If a firm produces products as per market trends then it can helps in
increasing the number of interest customers towards it; if it is not fulfil customers' needs
in satisfactory manner then TESCO cannot achieve its goals and objectives effectively.
Along with this, elderly people are increasing in UK due to the baby boom generation.
This led to a shift in the tastes of individuals which should be taken into account by
TESCO. For example, implementation of online shopping for grocery products is an
approach that takes into consideration the mobility issues that elderly people face.
Therefore, the firm will positively responded to these social change.
 Technological factors – Use of advance tools and techniques can become a great strength
for the company by differentiating its products from others. On the other hand, due to
lack of financial sources firms cannot spend high costs on implementation of new
techniques; it results company cannot stay for long term in market competition. The new
technologies become TESCO's strength; it is beneficial for both customers and company.
For example- innovative products are able to increase customers' satisfaction level
because goods are readily available through which services become more personalised.
Therefore, technologies makes shopping effective and convenient.
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CONCLUSION
From the above mentioned report, it has been summarised that business environment
plays a significant role in growth of an organisation; it affects directly and indirectly to all
working activities. In this relation, it is essential for TESCO to analyse macro environmental or
external factors of the company for effective implementation of business strategies. There are
two ways of analysing business environment, such as- PESTLE and SWOT. In which, PESTLE
analysis involves – political, economical, social, technological, legal and environmental aspects
whereas SWOT analysis determines strength, weaknesses, opportunities and threats of the firm.
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REFERENCES
Books and Journal
Cronan, T. P. and et. al., 2011. Decision making in an integrated business process context:
Learning using an ERP simulation game. Decision Sciences Journal of Innovative
Education. 9(2). pp.227-234.
De Jonge, A., 2011. Transnational corporations and international law: accountability in the
global business environment. Edward Elgar Publishing.
Erving, R. H. and et. al., 2011. Broadband network with enterprise wireless communication
system for residential and business environment. U.S. Patent 7.944.948.
Fernando, A. C., 2011. Business environment. Pearson Education India.
Gebauer, H., Paiola, M. and Edvardsson, B., 2010. Service business development in small and
medium capital goods manufacturing companies. Managing Service Quality: An
International Journal. 20(2). pp.123-139.
Guglielmetti, C., 2011. Measuring the business environment for entrepreneurship in fragile
states. In Entrepreneurship and Economic Development (pp. 124-143). Palgrave
Macmillan UK.
Robbins, S. P., Judge, T. and Campbell, T. T., 2010. Organizational behaviour. Financial Times
Prentice Hall.
Siewiorek, A. and et. al., 2012. Learning leadership skills in a simulated business environment.
Computers & Education. 58(1). pp.121-135.
Teece, D. J., 2010. Business models, business strategy and innovation. Long range planning,
43(2). pp.172-194.
Online
Tesco PESTEL analysis, 2017. [Online]. Available through:
<http://2pmkhunho.blogspot.in/2013/11/pestel-analysis-of-tesco.html>.
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