Analyzing the External and Internal Environment of Tesco

This article analyzes the external and internal environment of Tesco, a well-recognized retail company. It includes a PESTLE analysis and SWOT analysis to understand the factors affecting the company's performance.

Running head: BUSINESS STRATEGY
Business Strategy
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Executive summary
The purpose is aimed to analyze the external as well as internal environment of Tesco. The
company is well recognized in both the global and UK retail industry. In order to anlyze the
external environment, PESTLE analysis of the organization will be conducted. The PESTLE
framework analyses the dynamic as well internal environment analysis of TESCO through which
the company operates the forces that have imposed or possess the potential to impose higher
impact on the performance of the organization. For analysis of the internal environment of the
organization,SWOT analysis will be conducted.

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Introduction
The Tesco Public Limited Company refers to a British multinational groceries as well as
general merchandise retailer that has their headquarters at HertfordShire, England, UK. The
company is considered to be one of the largest food retailer across the world with a yearly
revenue of 55.9 billion a pound as of in 2017 and more than 476,000 employees. The
organization possesses approximately 6,553 stores across the world in more than 14 countries
across the world. Across Asia and Europe, Tesco is present in 7 countries and is leading when it
comes to the groceries in the UK, Ireland, Hungry as well as Thailand. According to researcher,
Tesco offers the consumer with over 960 Express stores that sell nearly 7000 products including
fruits, vegetables and regular grocery items in suitable localities (Reilly 2015). Apart from that,
the company also possesses 170 Metro sores that offers consumers with a variety of food
products and are located in city centers or town. Along with this, Tesco currently has 450
superstores that sell both food as well as non food it that includes DVDs and books. When it
comes to online marketing, the organization possesses their own official website Tesco.com as
well as Tesco direct where online retailing service is provided to the consumers. Additionally, in
order to gain competitive advantage over its competitors the company also provides the
consumers with broadband internet connection and Financial service with the help of Tesco
personal Finance (Brannen, Piekkari and Tietze 2017). The company started its business as a
grocery store at Edgeware, London in the year 1929 and gradually grew to be the leader of the
UK retail Industry with the help of efficient managerial skills and tactics. However considering
the fact that in this era of modernization, the competition in both UK as well as global retail
industry is gradually increasing, the management of the organization needs to keep in track of
both their Micro as well as macro environment in order to maintain as well as enhance their

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brand equity, revenue and competitive advantage both in national as well as international level.
in order to analyze and evaluate the macro as well as micro environment of the organization, in
the following paragraphs PESTLE Analysis, SWOT analysis and Porter’s Five Forces Analysis
of Tesco will be performed.
Discussion
PESTLE Analysis
In order to further expand their business in the highly competitive market of UK, it is
highly crucial for the managers of the organization to understand the external environment of
their organization. The PESTLE analysis is the external environemtnal analysis that reviles the
factors through which TESCO is currently operateing while resisting the forces that have
imposed or possess the potential to impose higher impact on the performance of the organization.
Political Factor
Considering the fact that Tesco is operating across 14 countries across the world
including Asia and Europe, the organization is exposed to a good number of political factors that
possess the potential to affect its operations. These factors include tax rates, current as well as
impending legislation, political instability, economic conditions and unemployment rate of the
country. Considering the fact that the political stability of UK have deteriorated due to Brexit,
this factor has imposed negative impact on the performance of the organization. Another
example of the impact of politics on the business of the organization includes the impact of
import duties on goods that Tesco import from outside UK like China as well as East Asia.
According to researchers, the accession of China to the WTO has promoted free flow of foreign
trades by removing barriers which in turn, is encouraging Tesco to establish its business in the

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world’s most potential retail market that encompasses more than 1.3 billion consumers (Cantu et
al. 2014). In the year 2009, Tesco had signed a contract with the Chinese government to set up
joint ventures for the development of shopping malls in china. This decision of Tesco had lead to
a tremendous profit and has been accounted for one quarter of the profit of the organization
(Shrives and Brennan 2017).
Economic Factor
According to researchers, like a good number of developed countries, UK is suffering
from aging population (Wood, Coe and Wrigley 2016). The fact that Tesco is still depends on the
UK retail market with a 27.7 percent share is a mention worthy. As a result of this, labor cost is
a highly crucial economic factor that has negatively affected the retail industry of the nation. For
instance, the annual age bill of the company in the year 2017 was GBP 4.5 billion. In the year
2018, the minimum wage range in UK has got increased by 4.4 percent. This upward shift will
definitely cost millions of pounds to Tesco as well as other retail organizations in UK. In order to
deal with the issue, the mentioned organization is should currently focus on enhancing its
borrowing cost in UK. It can enhance its cost as well as prices while decreasing its profits.
Besides that diversification and presence in the international market are two other aspects that
can help the company to cope up the excess expenditure for increased labor costs. When it comes
to the buying power of the consumers, recession had highly affected the factor (Shrives and
Brennan 2017). However with the considerable declination of government interest in terms of
purchasing power of the UK consumers and gaining increase which in turn is imposing positive
impact on the business of the organization.
Social Factor

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The shopping trends of the consumers are constantly changing with time. People have
tough schedules and hence prioritize fast delivery and flexible good return policy when it comes
to online shopping. When it comes to offline shopping, one-shop shopping in supermarkets is
referred over street shopping. Considering the fact that obesity is a burning issue in UK,
consumers are getting inclined towards food that contains a limited amount of fat or are fat free
(Wood, Wrigley and Coe 2016). For instance, peanut butter is more preferred in UK compared to
normal butter. Another social aspect associated with the Consumers of UK as well as a good
number of developed country, the organization has its outlets in, is the preference of the
consumers towards online shopping (Brannen et al. 2017). Considering the fact that UK has an
aging population, the number of Pensioners are more in the nation compared to the number of
children. This population is less inclined towards travelling to the stores and instead prefers
buying groceries online. Besides that, due to high health consciousness, the demand for organic
food is also increasing with time. Hence in order to maintain its consumer loyalty, it is highly
crucial for Tesco to understand the changing behavior of its consumers.
Technological Factor
The technological factor is considered to be one of the most crucial macro-environment
elements that have direct influence on the supply chain and operations. Being a highly developed
country, UK provides excellent transportation service along with 24 hours availability of internet
to its citizens. This does impose positive impact on the business of Tesco as well. The constant
growth in the internet facilities is positively affecting the supply chain of Tesco as well as other
organizations that are established in the UK retail industry. The mobile technology develops the
platfor allowing distribution even in case of selling operation of the food retail. In order to make
use of the internet facilities, they introduced RFID technology for increasing in-store experience

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for the consumers (Wood et al. 2016). The mentioned technology is able to count stock
automatically along with removing it after sell. The information helps the suppliers of the store
to replenish whenever it is required. The technological development of UK is also helping the
organization to cope up with the shrinking workforce. Since more than 86.7 percent of the
population of UK are found to have social media account, the management of Tesco should
consider the Social media platforms as a promotional and marketing tool in order to enhance
their brand value in the following years.
Legal Factor
Legislation change possesses the capacity to impose high impact on organizational
performance. For instance, in the year 2016, 17 employees of Tesco had taken legal action
against one of the employer on the basis of gender and age discrimination. The employees were
frustrated for the lack of action taken by the employer against low pay raters at night, bank
holidays and weekend shifts. Not only this, the company has also faced legal allegation for
accounting fraud for misleading the investors and have recently agreed to pay 12 billion GDP in
order to settle the legal action. In order to prevent further legal allegations that can eventually
ruin the reputation of the organization, Tesco must conduct its operations keeping accordance
with the strict code and practice of the Food Retailing Commission.
Environmental Factor
The consumers of the UK retail industry have become highly conscious of the
environmental impact of organizations on the environment of the nation. Not only this, a good
number of the competitors of Tesco is facing immense pressure from the government agencies
for appropriately addressing environmental issues. Al the organizations are liable to respond

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these issues for benefit f the society as well as to sustain their business in UK (López and
Ferrándiz 2016). As a part of their corporate social responsibility and for obtaining goodwill of
the consumers, the management of Tesco should encourage online marketing. Not only this, the
van drivers of Tesco are trained to use fuel saving routs and are also provided additional
remuneration for collecting unwanted plastic bags for recycling purpose. Not only is this, as a
leading retail organization, Tesco committed to use reusable sources for generating100percent
off their electricity by the year 2030. Along with this, by 2020, the management have promised
to minimize the carbon footprint generated by the company by at least 50 percent.
SWOT Analysis
SWOT analysis is defined as the framework for identifying as well analyzes the internal
factors that possess the potential to impose impact on the viability of the revenue and reputation
of the organization. In order to understand the strengths, weaknesses, opportunities and potential
threats that is experienced or can be experienced in near future.
Strengths
Wide and diverse Consumer Base
The organizations serve a huge number of consumers across the world. Not only this, the
diversified consumer base of Tesco includes drilling contractors, oil and gas companies and
equipment brokers. This has imposed a positive impact on the organization since it is not overly
dependent on a any single segment of the consumers.
Strong product portfolio

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Tesco is popularly known as the organizations that offer value for money, convenience, offers a
varity of product as well as a locally sensitive management. Both the food items as well as non-
food items offered by the company is known for its high quality.
Patents and patent license Agreements
The company holds diverse patents as well as patent license agreements for developed
technologies that the management believe to be beneficial for its core business. effective
portfolio along with original equipments help Tesco for attracting organizations for
several projects.
Weaknesses
Infringement Controversies:
As being discussed earlier the company has gone through two major legal allegations in
the near future. Tesco has faced its share of controversies with companies such as Varco and
Weatherford for bretching patents (Grundy 2017). The legal cost of Tesco has got enhanced for
defending the infringement claims.
Concentrated operations
Tesco also operates their businesses within the northern part of American continent
where more than 45 percent of its revenues are dedicated to the United States, Canada and
Mexico. In case of economic slowdown, this intense concentration may impose negative impact
on the organization.
Opportunities

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Strategic Acquisitions:
The company has made substantial investment when it comes to tactical achievements
recently for enhancing its processes. Tesco should acquire companies in both national as well as
international levels in order to obtain a better access to technology as well as for saving time and
money for building technology itself.
Enhance and developing their online marketing strategy
Considering the fact that majority of the consumers of UK and other developed country
prefer online shopping over offline shopping, it is highly crucial for the organization to develop
innovative online marketing strategy to attract both the global as well as local consumers
(Haleem and Jehangir 2017). One of the best strategies that can be implemented by the company
includes promotion in social media platforms. Not only this strategy is highly cost effective, it
will provide the management to directly contact the consumers and understand their specific
requirements. Understanding the needs of the consumer will help the company to eradicate its
loopholes and develop an effective bonding with the consumers.
Continue investing in Research as well as Development
In order to gain competitive advantage over its competitors, it is highly crucial for the
organization to constantly innovate. This also allows the organization to enhance its existing
technologies as well as offer something new for the existing clients along with attracting new
clients.
Threats
Global Economic Environment

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In UK, a prominent uncertainty can be evidenced when it comes to international political
and economic environemtn of the country. Particularly allowing for unpredictability in oil and
gas prices caused majorly because of international political disorder. It can also have high impact
on the demand for Tesco.
Seasonal Variations
The company is vulnerable to difference in demands due to seasonality for drill operation
that can only be cnduct in several regions where being either frozen or in some places in hot
weather. Hence seasonal variation posses the potential to affect the planning and execution of
various projects.
Highly saturated market
Due to lowering of the barrier by the government, the market saturation in the retail industry of
UK has got increased to a tremendous level. A good number of globally renowned companies
from abroad are establishing their business in the UK market. This high competition is enhancing
the strengths of the consumers and thus decreasing the competitive advantage of the
organization.
Porter’s five forces
In order to understand the effective sources of competitive advantage of Tesco, an analysis of the
structure of the industry has been done in the following paragraphs.
 Threat from the substitute
The threat from the substitute, when it comes to Tesco, is comparatively low for food items.
However, when it comes to non-food items, the threat from substitute is pretty high. In the UK

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retail industry, the substitute of the major food retailers includes small chains of convenience
stores and organic shops (Sroka 2017). These are not major threat for the organizations since
majority of the consumers prefer one stop stores rather than street and traditional shops.
Moreover, Tesco is opening express stores in local towns as well as city centre which has farther
created hurdle for the traditional food stores. However, when it comes to the non food store,
there are several established stores that are highly popular among the consumers.
 Threat from the new entries
The threat of new competitors when it comes to the food retail industry of UK is really
low. It requires a huge amount of capital investments for establishing a brand name like Tesco
and be a firm competition of the same. In spite of lowering the barriers by the government, very
few numbers of organizations have started their venture in the mentioned market (Sarathe et al.
2018). In order to gain competitive advantages, new brands of the company needs the production
of something with exceptionally low price while keeping the quality high in order to establish
their market value.
 Threat from the existing competitors
The competitive rivalry is extremely high in the food and grocery retail industry. Tesco
faces high competition from its major competitors that includes Asda, Morrisons and Waitrose
and Sainsbury’s. A strong competition exists between the brands over price, products as well as
promotional intermittently. Therefore, it needs to be highlighted that Asda is one of the major
competitor of Tesco according to the market share (Felgate and Fearne 2015). The intensive
growth of the market share of the competitors can be considered as the chief reason behind the
slow market growth of the company.

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 Power of the Buyers
The power of the Buyers is definitely high in the UK retail market. Considering the fact that
that the mentioned retail industry is highly saturated, organizations are often found to lower the
price of the products in order to gain competitive advantage over its competitors (Jenkins and
Williamson 2015). The switching cost couold be very low when the products have minor
differentiation and more standardization. As a result the buyers can easily switch their preference
from one brand to another brand.
 Power of the suppliers
The bargaining power of the suppliers when it comes to the Tesco, is fairly low. According to
researchers suppliers are found to be inclined towards major food as well as grocer retailers and
as a result are losing their business contracts with supermarkets like Tesco (Oh et al. 2018).
Hence in order to maintain their position the suppliers provide the strength to the retailers like
Tesco, Asda and Sainsbury to negotiate for getting the lowest price possible from the suppliers.
Conclusion
From the above discussion, it can be clearly understood that Tesco is a leading grocery
superstore in both national as well as international level. While the company possesses effective
managerial skill and high brand equity, the managers of the organization needs to focus on the
new regulations in order to avoid deterioration of the reputation of the organization. Besides that
in order to deal with the high competition that prevails in the retail sector of UK the organization
must implement strategies like social media marketing and strategic acquisitions. While the
organization posses several threats from both its internal as well as external environment, the
core competencies of Tesco can be identified to be aligned with the internal and external

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business environment while promineting the potential growth and refershbursment of the
company.

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