Analyzing Tesco's Business Environment and Strategy

The assignment requires students to analyze Tesco's business environment using the PESTLE framework and identify opportunities for growth. Additionally, students must conduct a SWOT analysis to determine the company's strengths, weaknesses, opportunities, and threats. The final section of the assignment involves developing a strategic management plan to help Tesco implement its strategy effectively.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Impact and Influence of Macro Environment of TESCO...........................................................1
Analysis of Internal Environment of TESCO.............................................................................3
Analysis of Competitive Market of TESCO...............................................................................7
PART B............................................................................................................................................8
Evaluation of different types of strategic directions available to TESCO and recommendation
of appropriate growth platform...................................................................................................8
Strategic Management Plan.......................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business Strategy refers to an accumulation of all the actions as well as decisions taken
by an organisation to effectively attain all the business objectives which helps an organisation in
effectively and essentially gain a competitive and sustainable position in the market. It is one of
the most crucial aspects for a company to secure a safe and effective place within the
marketplace (Scholes, 2015). The following report is based on TESCO Plc, which is one of the
biggest supermarket chains in the world, situated in UK. It covers a brief analysis of internal and
external business environment, along with analysis of the competitive environment of the
company. Moreover, the report also includes evaluation of various strategic decisions available
to the firm and most appropriate growth platform and strategies which could help the
organisation in achieving maximum effectiveness.
PART A
Impact and Influence of Macro Environment of TESCO
Macro-environment refers to all the external factors of an organisation which influences
the operations as well as strategies of an organisation. TESCO is a global organisation which has
several external factors that have a wide impact on the firm and its strategies. Furthermore, to
appropriately analyse impact on these factors, PESTLE analysis could be used as a methodology,
which is a framework that helps in evaluating external pointers influencing the functioning of a
company. PESTLE analysis for TESCO Plc is mentioned below:
 Political Factors:
These factors reflect the political scenario of a country that has a direct impact on the
firm's operations. It includes political stability, tax rates, as well as the overall economic
conditions under which TESCO would be operating. For instance, the biggest market of this
company is in United Kingdom (Spender, 2014). However, after the EU referendum, the political
conditions of the country are quite unstable. It is creating quite a risk for the company as the
investors are experiencing quite a hard time due to such drastic change in the political scenario.
Such factors could affect its business strategies in the future. However, it becomes necessary for
the company to effectively propose certain strategy such as keeping the company policies
flexible as per that of the country, which could essentially help the organisation appropriately in
effectively operating in such drastically changing conditions.
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 Economical Factors:
Overall economic performance of a nation is reflected in this factor. This include the
poverty rate in the country, standard of living of individuals, unemployment rate, etc. As for
TESCO, with EU referendum in action, the value of pound has received a drastic fall, due to
which, it becomes a restriction for the organisation to deal its products at a higher price rate.
Furthermore, Minimum Wage Rate within the UK has enhanced by almost 4.4% in 2018 which
has cost the firm millions in that market (PESTLE Analysis of Tesco, 2019). Such depriving
conditions must encourage organisation in developing strategies to cope up with the situation
like provision of its product on reduced prices, which could appropriately help the firm in
enhancing its economic performance within the country.
 Social Factors:
In this factor, all the social trends prevailing in the country are determined, which have an
impact on the organisation (Veit and et. al., 2014). Currently, within the UK, the social trends
related to shopping has witnessed effective change. For example, “one-stop shopping” as well as
“bulk shopping “are being preferred by individuals within the UK, seeing the tough schedules
and constant need of faster service and delivery. Moreover, flexible return policies are also being
appropriately preferred by individuals. Another effective trend which is currently rising through
rising awareness about health is the rise in consumption of organic products. This could be an
opportunity for TESCO to increase the storage and distribution of such products.
 Technological Factors:
There is ongoing advancement in the country related to retail industry which are surely
changing the face of businesses like TESCO and have a strong impact on its strategies. One such
advancements in relation with the technology is the rise in online shopping. Customers
worldwide are quite inclined towards this trend. This could have quite a positive impact on the
strategies of the company as the firm could focus on online business to enhance its reach.
Another trend in terms of technology is Automation. This has a positive impact on the firm's
strategy such as RFID technology which was introduced by the company which automatically
counts all the stock availability with the firm and removes the same after sales.
 Legal Factors:
This aspect focuses on the legal factors that impact all the functions performed by the
organisation. For instance, the company did not comply with certain legislations such as Anti-
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Discrimination Act and provided low pay rates for employees during nights, bank holiday sifts
and weekends. Such non-compliance led to a legal action taken by their workers. Moreover,
another legislation which could have a wide impact on the company and its operations is the
code of practice led out by Food Retailing Commission (FRC). All these legal challenges require
the firm to develop strategies that are in alignment with these legal environment (Wheelen and
et. al., 2017).
 Environmental Factors:
This factor quite influences TESCO as the supermarket chain, along with other
companies are under pressure to address the ongoing environmental issues within the country.
There are several issues such as preservation of fuels and reduction of carbon footprint, which is
essential for improving the condition of environment. As for TESCO, the impact of this factor is
quite severe on its strategies. For instance, the company has implemented certain tactics like
waste reduction in their supermarkets for its strategic goal of reducing carbon footprint by almost
50% till 2020 (PESTLE Analysis for Tesco discusses its Business Environment, 2019). Another
strategy implemented by the company for environmental concerns is that it encourages all of its
customers to buy its products online which would help in fuel preservations.
Analysis of Internal Environment of TESCO
Internal environment of an organisation includes all its internal capabilities, resources and
factors which influences and impacts a company internally. The internal environment of TESCO
is mentioned below:
Strengths: Market Share: One of the most effective strengths of TESCO is its increasing market
share. As an example, within the UK market, the firm reigns the retail market in terms of
grocery with market share of almost 4% (TESCO SWOT Analysis 2019, 2019). Moreover,
this market share is likely to increase seeing its immense popularity within the UK.
 Increasing Outlets: Another quite effective strength of the organisation is its increasing
number of stores in the last decade.
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Illustration 1: Tesco's number of stores worldwide from 2008 to 2018
§
(Source: Tesco's number of stores worldwide from 2008 to 2018)
As per the statistics above, the number of stores of TESCO have substantially increased
from 2008 to 2018. with almost 7000 stores, the company is likely to capture wider market share
in future.
Weaknesses: Accounting Controversy: One of the most impactful weaknesses of TESCO is its recent
controversy in 2017, which was regarding its false accounting and inappropriate
presentation of the company's profits (Jeston, 2014).
 Low- Cost Strategy: The company has started dealing all of its products at quite a lower
price rate. This could lead to a substantial reduction in the company's profits in the
coming future (Jocovic and et. al., 2014).
Opportunities:
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 Emerging Markets: A prominent opportunity prevailing for the organisation is that the
firm is expanding its operations in several countries such as Turkey, Indonesia, South
Korea, Etc. Entering these markets is surely an opportunity for the company as the
company could reach wider markets as well as enhance its customer base appropriately
(Brewster, 2017).
 Online Shopping: With enhancement in digitalisation and increasing access to
technology, majority of customers in today's date are now effectively using online portal
which is an opportunity for TESCO. This is because the company could appropriately
shift its operations online and create mobile applications and improve its website to
attract more customers.
Threats: Brexit: One of the biggest threats which TESCO is currently facing is EU Referendum.
Reason for the same is that with UK not being a part of European Union, the organisation
is facing threats in trade deals as well as increase in cost.
 Increasing Competition: There are various organisations which have effectively
positioned themselves quite appropriately within the UK market and beyond like
Carrefour, Aldi and WalMart. These companies, with their effective market position as
well as competitive strategies have risen the competition for TESCO (Cavusgil and et. al.,
2014).
However, to ensure analysis of its internal environment, it is important to apply a
framework which helps the organisation of analysing its internal capabilities. For this, VRIO
model is used which is discussed below:
Factors Valuable Rarity Inimitable Organized Result
Financial
Resources
Financial
Resources
- - - Non-
Competitive
Supply Chain Supply Chain Supply Chain - - Partially
Competitive
Brand
Awareness
Brand
Awareness
Brand
Awareness
Brand
Awareness
- Temporarily
Competitive
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Human
Resources
Human
Resources
Human
Resources
Human
Resources
Human
Resources
Competitive
advantage
To appropriately determine its capabilities, there are several resources which have been
analysed and are segregated as per the VRIO elements which are mentioned below:
Valuable: Financial Resources: These resources within the firm are quite valuable as they help the
company in conducting as well as managing each of its operations in a better and
effective manner (Lawton, 2017). Supply Chain: As for the supply chain, the company have effective suppliers with which,
the firm has appropriate and flexible relationship, thus, allowing the firm to acquire top
quality raw materials timely and with effective cost. Brand Awareness: With such high presence of the firm within UK and other markets, its
brand image is quite recognisable within these countries, thus, providing effective value
to the company. Human Resources: Skilled and talented employees of TESCO are effective in assisting
the firm in attaining higher profits through their appropriate customer service and
effective performance.
Rare: Supply Chain: It is quite rare that an organisation has a concrete and flexible supply
chain which is consistent enough for the firm to acquire high quality materials, thus, it is
quite rare in the industry. Brand Awareness: Firms require years of hard work and prominent strategies which
allow customers to be aware about its brand and products. Thus, it is very rare that
TESCO has such effective brand awareness in the market. Human Resources: It is very rare for the organisations to hire employees that contribute
so effectively in ensuring the firm's profitability and brand image. Thus, this consistency
of employees of TESCO makes them quite rare.
Inimitable: Brand Awareness: Each firm has their own effective position in the market and thus, it is
very complex and almost impossible for other companies to imitate the same.
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 Human Resources: Copying an individual's skills an calibre is again an impossible for
other individuals as these attributes are quite unique, thus, could not be imitated by the
competition.
Organised:
 Human Resources: During changes in the structure and functioning of the firm,
TESCO's employees are required to be organised (Peng, 2017).
Analysis of Competitive Market of TESCO
For an organisation as big as TESCO, it is very important for the firm to keep a tab on its
competitive environment. Furthermore, it is very important that the company effectively analyse
its industrial attractiveness because this would allow the firm to develop appropriate strategies.
These strategies would further allow TESCO in securing quite an effective and competitive
position in the marketplace. For this purpose, Porter's Five Force Analysis is utilised which is
mentioned below:
 Suppliers' Bargaining Power:
Suppliers refer to entities or business organisations, which supply companies with raw
materials which are further developed into finished commodities. As for TESCO, there are
several suppliers which are associated with the company from which, the firm buys its raw
materials. With such large number of suppliers, it is highly likely that these entities decrease
profit margins for TESCO. Reason for this is that suppliers being in dominant position could
negotiate a better deal with the firm to extract higher prices. Thus, the bargaining power of the
suppliers is quite high. This impacts the strategy of TESCO as the firm, to deal with the situation,
is required to adopt new strategy like constructing effective supply chain with several multiple
suppliers to get a better deal.
 Buyers' Bargaining Power:
There are various buyers associated with TESCO as it operates worldwide and has one of
the highest market share in countries like UK. However, buyers tend to have diverse demands,
moreover, they wish to negotiate effective offers from the company and prefer to pay as least as
possible for the commodities they buy from the company. This increases their bargaining power.
Moreover, with companies like Aldi and Sainsbury's, the switching cost too would not be too
much, which further enhances this risk for the company. Thus, in this context, bargaining power
of buyers is also high for TESCO. To deal with the same, it is very important for the organisation
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to innovate its products and introduce new offerings which helps the company in limiting this
bargaining power.
 Threat of New Entrants:
To enter in retail sector, an organisation requires to have immense capital, along with
inventory management on a high scale to compete with an organisation like TESCO. This task is
quite complex which creates a strong barrier for an organisation to enter this industry, thus,
reducing the threat for TESCO. However, new entrants are tending to bring innovative products
and processes along with them along with strategies such as lower costs as well as new value
propositions. All these aspects make this threat moderate for TESCO. To deal with it, the
company must adopt strategy like developing economies of scale which would help the firm in
reducing the fixed cost per unit.
 Threat of Substitutes:
Substitutes are the commodities which could be utilised in the place of existing ones. For
TESCO, there are various online services such as Google Drive as well as Dropbox which are
substitutes for storage devices such as hardware drives. Such substitutes increase the threat for
TESCO. To deal with the sane, firm must apply strategies like enhancing switching cost for
customers and being more service oriented (Laudon and Traver, 2016).
 Existing Competition:
There are various companies within the UK market which are quite effective as well as
strong competitors of this organisation. Furthermore, with similar offerings, competitive
strategies and pricing encourage customers to switch to other firms like Sainsbury's and Aldi. To
tackle competition, TESCO could work towards differentiating their products, which would help
the company in building a more firm and better competitive position within the market.
PART B
Evaluation of different types of strategic directions available to TESCO and recommendation of
appropriate growth platform
It is very important for the company to choose an effective strategic direction, which
allows the organisation in gaining a firm competitive image in the market, enhance its customer
base as well as increase its profitability. For this purpose, TESCO must apply a framework
which assists the firm in choosing the best direction as a strategy. For this purpose, Ansoff
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Matrix is utilised which would allow TESCO in opting out the best strategy towards attaining
growth. This matrix is described below:
 Market Penetration:
This strategy is focused upon providing existing commodities in existing markets.
TESCO could apply this growth strategy through approaching new customers in their existing
market place (Klettner, Clarke and Boersma, 2014). The benefit of this factor would be that the
company could ensure profit maximisation by approaching potential customers within the same
marketplace. Alongside this factor, it is fairly convenient for the company, as certain aspects
related to market are quite familiar to the company, such as customers' buying behaviour as well
as market conditions.
 Market Expansion:
This strategy is also referred as market development. It effectively focuses on providing
existing commodities in new marketplace. The biggest advantage of this strategy is that it would
assist the company in enhancing their customer count as they approach a completely new market.
TESCO could enhance its brand awareness through this strategy. Moreover, with covering more
geographical locations, the company could effectively enhance its profitability.
 Product Expansion:
Within this strategy, the firm emphasises on providing new commodities in existing
market. In case of TESCO, it could be determined that if the firm adopts this strategy and
develop new offerings as per customer preferences, this would help the firm in creating demand
of their products. Furthermore, this could be used by TESCO in expanding its grocery items,
which might lead to extra sales, hence, higher profits.
 Diversification:
Within this strategy, the firm is required to offer new commodities in new markets. This
is perhaps one of the riskiest strategy which could be adopted by a company. The reason for this
is because it is quite complex for the company to get support of customers in new geographical
locations with a completely new offering. In case this strategy is adopted by the firm, it would be
quite an expensive strategy for the firm. Reason for the same is that new strategies are adopted
and new relationships are developed,which would directly affect the profit because their
expenses might be more than revenues (Goffee and Scase, 2015).
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Out of all the strategies mentioned above, TESCO must adopt market penetration as their
strategy to grow. Adopting the same would help the company in increasing its market share in
their existing markets as it is very convenient for the company as they are aware about the
market conditions. Thus, the company could satisfy their customers easily which would help
them in earning higher profits and more sales.
Strategic Management Plan
It is very important for TESCO to adopt a detailed and effective strategic management
plan which would allow the firm in developing effective strategies and manage the same in the
market in case the firm wishes to grow. The Strategic Management Plan for TESCO is
mentioned below:
 Aim:
The aim of TESCO is to enhance its functions and operations through provision of its
commodities within its existing markets (Chen and Jermias, 2014).
 Vision:
Vision of TESCO is to be a business organisation which is highly valued within the
marketplace by customers which are served by the firm, communities in which the firm operates,
committed as well as loyal colleagues and by shareholders of the company.
 Mission Statement:
The mission statement of the company states to make whatever matters better, through
effective togetherness.
 Values:
As for the values by the firm, the company focuses effectively on giving customers the
best service as well as treating individuals within the company with utmost respect and
consideration.
 Strategies and Tactics:
TESCO would be utilising market penetration as an effective strategy which would help
the company in grabbing attention of large number of customers in the company's existing
markets. Furthermore, it would also help the company in gaining a competitive advantage within
the marketplace. As for tactics, the firm could work towards launching new products that are of
high quality and are offered at reasonable prices which will help the firm in influencing buyer
decisions effectively.
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CONCLUSION
Thus, it could be concluded by the information above that business strategy is very
crucial to be followed by the organisation. It is important for the firm to adopt internal and
external environmental analysis for which, SWOT and PESTLE analysis are used. As for
analysing the capabilities, VRIO analysis could effectively be utilised. Moreover, Porter's Five
Forces could assist the organisation in appropriately analyse its competitive position and Ansoff
could be used to choose an effective strategic decision. Lastly, it is very important for companies
to develop a strategic management plan which helps the firm in implementing the strategy
appropriately.
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REFERENCES
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Chang, J. F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
Chen, Y. and Jermias, J., 2014. Business strategy, executive compensation and firm
performance. Accounting & Finance. 54(1). pp.113-134.
Goffee, R. and Scase, R., 2015. The Real World of the Small Business Owner (Routledge
Revivals). Routledge.
Jeston, J., 2014. Business process management. Routledge.
Jocovic, M. and et. al., 2014. Modern business strategy Customer Relationship Management in
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Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
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business strategy. Journal of Business Ethics. 122(1). pp.145-165.
Laudon, K. C. and Traver, C. G., 2016. E-commerce: business, technology, society.
Lawton, T. C., 2017. Cleared for take-off: structure and strategy in the low fare airline business.
Routledge.
Peng, M. W., 2017. Cultures, institutions, and strategic choices: Toward an institutional
perspective on business strategy. The Blackwell handbook of cross
‐cultural
management, pp.52-66.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Spender, J. C., 2014. Business strategy: Managing uncertainty, opportunity, and enterprise.
Oxford University Press.
Veit, D. and et. al., 2014. Business models. Business & Information Systems Engineering. 6(1).
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Wheelen, T. L. and et. al., 2017. Strategic management and business policy. Pearson.
Online
PESTLE Analysis for Tesco discusses its Business Environment. 2019. [Online] Available
Through: <https://pestleanalysis.com/pestle-analysis-tesco/>
PESTLE Analysis of Tesco. 2019. [Online] Available Through:
<https://www.marketingtutor.net/tesco-pestle-analysis/>
TESCO SWOT Analysis 2019. 2019. [Online] Available Through:
<https://bstrategyhub.com/tesco-swot-analysis-2019swot-analysis-of-tesco/>
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