Analyzing the Impact of Macro Environment on TESCO's Strategies

This report analyzes the impact of macro environment on TESCO's strategies and examines the internal environment and capabilities of the company. It includes a PESTEL analysis of TESCO, SWOT analysis, and VRIO model to evaluate the company's strengths, weaknesses, opportunities, and threats.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1................................................................................................................................................3
P1. Applying appropriate frameworks analyse the impact and influence of macro
environment on a given organisation and its strategies..........................................................3
M1 Critical analysis of macro-environment to communicate strategic decisions..................7
LO 2................................................................................................................................................7
P2 Analyse the internal environment and capabilities of a given organisation using
appropriate frameworks..........................................................................................................7
M2 Critical analysis of internal environment.......................................................................10
LO 3..............................................................................................................................................10
P3 Porter Five Force model to evaluate competitive forces of market................................10
M3 Strategies to enhance competitive advantage and market position................................11
LO 4..............................................................................................................................................12
P4 Strategic planning for organisation.................................................................................12
M4 Strategic management plan............................................................................................13
D1 Interpretation of data to conduct competitive analysis...................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy is defined as the course of actions devised by a company with a view
to gain competitive edge at market place. In other words, it can be said that it is the route map
undertaken by a corporation to reach its goals as well as objectives within due course of time.
Corporate strategy provides assistance to organisations across the globe in enhancing their
market share by leveraging the opportunities presented by business environment (Bell, Bryman
and Harley, 2018). Also, it serves a great deal in ensuring that the firm is able to combat the
weaknesses as well as business threats.
The following report is done to gain an insight into the strategic analysis as well as
management within the confines of TESCO. This is a well renowned retail corporation engaged
in stipulation of products such as apparel, furniture, electrical items, lighting, home appliances,
technological gadgets, beauty care, toiletries, baby toys, sports equipments, travel items and
many more. Owing to its wide product portfolio, the entity enjoys extensive brand image within
the boundaries of United Kingdom. The project contains internal and external analysis of
business environment so as to identify the associated opportunities and threats. Further, the
report consists of industrial analysis of the sector to which the respective firm belongs. Lastly,
strategic management plan is devised for the growth and development of company.
LO 1
P1. Applying appropriate frameworks analyse the impact and influence of macro environment
on a given organisation and its strategies
The business environment in which a company carries out its operations is regarded to be
dynamic and turbulent. In this regard, it becomes important for a business entity to scan and
examine the environment to which it pertains in order to identify the current situation of market.
For this purpose, most of the companies across the globe make use of PESTEL analysis which is
an effective framework that provides a critical overview of the different components of macro
environment. The various elements of PESTEL are recognised to be political, economical,
social, technological, environmental and legal. The examination of all these elements together
provide assistance to a corporation in developing strong strategies which can render competitive
edge to firm. Thus, PESTEL analysis of TESCO is presented as follows:-

(Source: PESTEL Analysis, 2019)
Political Factors: This element encompasses aspects such as political stability, extent of
corruption, foreign trade policies, governmental policies, trade regulations, labour laws and
taxation rules. It is important for administration of TESCO to take into account the political
state of business environment so that the operations of the company stay aligned with it. Positive: The political system prevailing within the confines of United Kingdom is multi
party. Since the year 1920, only 2 dominant parties have been ruling the nation, namely,
Conservative Party as well as Labour Party. This illustrates the consistency in policies of
UK which provide aid to TESCO in gaining knowledge about the same and thereby,
carrying out operations within the constraints of existing political regulations.
 Negative: Since the vote for British exit from EU named BREXIT has taken place, the
political state of UK has been severely affected. As a result of this, the value of pound
has fallen down, shaking the confidence and purchasing power of buyers (Tesco has it
tough enough already without a no-deal Brexit, 2019). This has caused a downturn in all
of the corporate sectors within the confines of UK. Retail sector being one of the most
affected industries hold adverse influence over the demand for offerings of TESCO. To
deal with this, entity should devise a strategy of providing products at affordable prices.
Ill
ustration 1: PESTEL Analysis

Economic Factors: This constitute aspects such as economic growth, inflation rate,
exchange rates, interest rates, disposable income, extent of unemployment etc (Wheelen and et.
al., 2017). It is essential for TESCO to study the economic aspects so as to ensure that the
opportunities can be timely leveraged and adversities can be duly dealt with, to sustain in UK
market for a long period of time. Positive: Being a developed nation, UK provides excellent infrastructural and other
facilities for companies operating within its confines. This renders aid to the market
leading retailer, TESCO, to capitalise upon the developments in the nation and inflate the
existing share of market place.
 Negative: The unemployment rate within United Kingdom is acknowledged to be 3.8%
as of the quarter July - Sept 2019 (Why is UK unemployment still low? We are working
longer hours, 2019). This implies that most of the individuals pertaining to the respective
nation are employed and the remaining skilled ones can be procured by TESCO only by
providing them higher wages. To deal with this, it is important for the respective retailer
to opt for cost effective ways of recruitment and selection so that the overall cost of
operations can still be maintained lower.
Social Factors: This encompasses elements such as population growth rate, age
distribution, career attitudes, safety emphasis, health consciousness, consumer lifestyles,
attitudes etc. This is an important component of business environment which is required to be
examined by TESCO to gain knowledge of the latest as well as emergent patterns and trends of
consumers. Positive: The population of UK has shifted its preference towards one stop as well as
bulk shopping. Looking upon this trend, the management of TESCO has recently
enhanced the quantity of non food items. Also, organic products have been launched in
relation to edible product section. This helps the entity to meet the health conscious
consumer behaviour of a noticeably large segment of UK's population.
 Negative: It is recognised that the population of UK is hyper aware and thus any new
trend is immediately identified by the people of this nation. An adverse shift in the
consumer purchase patterns or lifestyle has an adverse impact over the demand for
offerings of TESCO. To deal with this, the respective retailer needs to constantly

research upon the market and take measures to leverage the latest trends and
opportunities.
Technological Factors: This includes elements such as level of innovation, automation,
R&D, technological awareness etc. This is a factor which facilitates an entity to gain edge over
rival firms pertaining to same sector. It is important for the administration of TESCO to identify
the latest technological trends and implement the same within organisational premises to retain
the top position in domestic market. Positive: TESCO is a well known retail firm which implements the latest techniques,
processes and systems to maintain its superiority over key market players in retail
industry. Looking upon the emergent tech trends, TESCO came up with online delivery
as well as self-service checkout points. Both of these are implemented to ensure savings
of time and facilitation of convenience for the customers.
 Negative: The retail sector in United Kingdom is quite wide and consists of a large
number of top notch firms which pose threat to the market positioning of TESCO. This
inflates the probability of exploitation of an emerging technological trend by competitors
ahead of the respective retailer (Veit and et. al., 2014). To deal with this, TESCO should
constantly implement innovations and new technologies within the operational systems.
This will ensure business efficiency as well as timely accomplishment of corporate goals.
Environmental Factors: This encompasses aspects such as weather, climate,
environmental policies etc. It is significant for each and every firm to conduct activities within
the constraints of environment. TESCO is a multinational company and thus it is imperative for
this form to gain an insight into the positives and negatives of environmental factors. Positive: Looking upon the growing awareness among people regarding environmental
protection, TESCO has initiated to decrease the carbon releases by around 50% by the
end of 2020 and to minimise waste in all of its outlets. This serves as a significant step
towards protection of environment. It leads to increase in goodwill of corporation at
global market place.
 Negative: The step taken by TESCO to undertake environmental friendly initiatives
needs extensive investment on the part of management. To deal with this, it is essential
for the respective firm to assign a proportion of its monthly budget to implementation of
sustainable practices.

Legal Factors: This constitutes laws such as discrimination, anti trust, consumer
protection, employment, copyright and health & safety. Being a globally renowned retailer, it is
significant for TESCO to ensure compliance with all such legislations. Positive: The management of TESCO ensures abidance with all the essential legislations
pertaining to retail sector so that the goodwill of company at global scale does not get
hampered.
 Negative: An instance of non compliance with any of the retail legislations would prove
to be adverse for TESCO. This would harm the goodwill as well as market positioning of
the respective retail firm.
M1 Critical analysis of macro-environment to communicate strategic decisions
The PESTLE analysis of TESCO exhibits that there are certain negative elements linked
to macro-environmental factors. In this regard, Brexit influences TESCO with respect to
political and economical factors. Adverse shifts in consumer lifestyles (social), increased cost of
operations (technological), non-compliance with retail legislations (legal) and extensive
investment requirement to act in an environment friendly manner (environmental) are the critical
influences of other macro-environmental factors upon the enterprise. In this regard, it is
important for administration of respective retail company to devise effective strategies through
which the negative macro environmental influences can be effectively dealt with.
LO 2
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks
In order to effectively conduct evaluation of internal business environment TESCO
undertake use of VRIO and SWOT analysis, as with the help of this company can effectively
helps to gain knowledge related to their internal capability:
SWOT Analysis:
Strength Weakness
 Tesco hold strong brand image in
marketplace due to quality of products
 Tesco lacks in utilising effective and
strong marketing plans as well as
strategies in order to make enhancement

they offer to customers with innovative
techniques that have been used in the
manufacturing process (Lawton, 2017).
 With the effective positioning in online
market company effectively increase
their revenue and profit in best effective
manner.
in their consumer base and further
increase sense of loyalty among them.
 Organisation also lacks in effective
initiative as to increase high-stakes
within Marketplace.
Opportunities Threats
 Tesco have ability to conduct
expansions in unexplored and unique
geographical locations with the help of
which customer base can be
significantly increased along with high
source of revenue generation.
 Tesco hold the potential to undertake
effective and strong marketing plans in
order to maximize their profitability as
well as sales ratio as to gain more
competitive image.
 Tesco significantly have capability to
make introduction of innovative as well
as new products that further lead them
to gain more developing opportunities
as to significantly make enhancement in
their profit and revenue ratios.
 Tesco face threat of other competitive
Rivals in retailing sector that focusing
on increasing their competitive presence
such as Marks and Spencer, John
Lewis, ALDI, LIDL and more.
 Products and services that have been
offered by Tesco have close substitute
within Marketplace this lead rivals to
sell their products and services at
reasonable price that mainly attracts
loyalty of customers.

VRIO Model:
Resources Valuable Rarity Inimitable Organized What is the
result?
Global
presence
Global
presence
- - - Competitive
Disadvantage
Products Products Products - - Moderately
competitive
Software Software Software Software - Competitive
advantage on
temporary basis
Employees Employees Employees Employees Employees Competitive
advantage
To ascertain the internal capabilities of TESCO., four resources have been duly considered,
namely, global presence, products, employees and software.
Valuable
Global presence: Tesco hold exceptional Global presence in international market with
the help of which they gain more competitive edge as compared to their rivals.
Products: Company offer qualitative products and services to their customers with the
use of innovative Technologies to ensure their trust for long duration of time.
Employees: Workforce within TESCO operates business operations in well effective
manner that simultaneously aid company to accomplish their goals and objectives in best
effective manner.
Software: Company undertakes use of Paragon’s Live Management software as to
effectively manage their business operations in well defined manner as to further increase their
workplace efficiency.
Rarity
. Global presence is not rare for TESCO as there are many firms within the retail sector which
possess a global presence

Products: Products and services that have been offered by Tesco such as General
merchandise and groceries are according to the lifestyle of people and current trend within
market place; these products are hard to be copied by competitive Rivals.
Employees: Tesco have workforce who have unique skills, competency and knowledge
that are hard to be copied by other individual firm.
Software: With undertaken of software Tesco effectively conduct their operation and
manage their business with the help of which they satisfy customers need in Unique Manner.
Inimitable
Products do not hold this characteristic as the unique and advanced technologies used to
design these can be utilised by rivals also.
Employees: Competency, skills and knowledge of employees within Tesco are unique as
they have strong educational background and attain high end training within enterprise that
makes them to perform in best effective manner that can further not be easily copied by
competitors.
Software: With the help of Paragon’s Live Management software organisation fulfil
business demand which is hard to be copied.
Organised
Company ensure that the software within organisational structure are updated on
continuous manner according to the market trend and customer demand in order to fulfil their
needs in well effective manner.
Employees: With the assistance of skilled, efficient and competitive employees Tesco
effectively conduct their operations in global Marketplace that lead them to ensure long
sustainability in market. It also aid company to make significant increase in their sales and profit
ratio.
M2 Critical analysis of internal environment
It has been identified that internal advancement of Tesco provides numerous form of
advantage and shortcomings. In relation with employees it has been identified that they are the
most important resource of organisation as workforce of company is valuable, rare, inimitable
and organised (Davies, A., 2016). Organisation mainly lacks in undertaking best effective
marketing initiative as well as strategic market plans in order to increase their sale of reach. In

addition with is there is an immense rivalry within retailing sector of companies like Marks and
Spencer, John Lewis, ASDA and ALDI that create threat of sustainability for Tesco.
LO 3
P3 Porter Five Force model to evaluate competitive forces of market
It is significant for an organisation to take into due consideration the competitive forces
of market in order to develop strategies in accordance with it. In this relation, the administration
of TESCO is making of Porter Five Force analysis which will provide information about the
extent of rivalry prevailing within the confines of retail sector.
Porter Five Force Analysis
This is a simple yet effective business tool that is applied by an enterprise with a view to
gain comprehensibility of the magnitude of rivalry within a sector (Laudon and Traver, 2016).
This model provides aid to an entity in identifying the forces of industrial environment which
tend to have a significant impact over the profitability of corporation. It is as per this that a firm
can make adjustments in the corporate strategy. Looking upon this, TESCO has conducted
industrial analysis which is presented as follows:-
Threat of new entrants: The magnitude of this force with respect to retail sector is
acknowledged to be low. This is because extensive investment is required in the form of capital
to gain entry into this hyper competitive industry. In addition to this, there are several retail laws
as well as legislations which need to be abided by the enterprises pertaining to this industry.
Thus, TESCO can leverage the advantage of launching new products at rapid intervals to
significantly appeal to customers and thereby the existing level of revenues as well as profits.
Threat of substitutes: With respect to the concerned corporate sector, it can be
acknowledged that the extent of this factor is quite high. This is because of the presence of
several companies which deal in similar product line, such as Sainsbury's, Marks & Spencer,
John Lewis and many more. With their strategy of offerings products at low cost, such top notch
retailers can solicit the individuals belonging to loyal base of customers for TESCO. This
implies that the respective retailer needs to diversify its offerings on a regular basis in order to
inflate its durability at market place.
Bargaining power of customers: The magnitude of this force in relation to retail industry
is high. This is because a large number of companies dealing in similar products prevail within

the confines of this sector. This gives potential buyers the option to switch to another brand in
case they find the prices of TESCO higher. This inflates the risk for respective retail firm as its
offerings can be substituted by those of another company.
Bargaining power of suppliers: The extent of this factor is recognised to be low in retail
sector. This is because the key market players within the concerned sector, such as TESCO,
leverage strong networking with a number of vendors. This provides them with the opportunity
to negotiate prices with suppliers or switch them with others if they do not agree to lower down
the prices of materials.
Competitive rivalry: The magnitude of this force in relation to retail sector is regarded to
be immensely high. This owes to the presence of key market players such as Marks & Spencer,
ALDI, LIDL, Morrisons, H&M, John Lewis and Sainsbury's. All of these companies render
products and services to customers at affordable prices. This tends to pose threat to the
sustainability and leading market position of TESCO within the domestic territory.
M3 Strategies to enhance competitive advantage and market position
On the basis of above discussion done over industrial analysis, it can be said that the
promotion and marketing practices of TESCO have not been much effective in establishing a
strong connection with the people at market place. This implies that the entity can leverage the
application of robust marketing strategies as well as techniques to enhance its positioning at
global level. In this regard, the most effective strategy for the respective retail firm would be
social media marketing which would allow the company to create awareness among the
population about the unique and diversified offerings of TESCO. Yet another strategy that can
be capitalised upon by this entity is promotion by way of using broadcast media such as TV,
radio etc. Further, to gain competitive edge over rival firms within the confines of retail sector,
TESCO can launch new products by incorporating new technologies and innovation within
them.
LO 4
P4 Strategic planning for organisation
Ansoff matrix is a strategic planning tool with the help of which an organisation can able
to frame and formulate best effective form of strategies in order to ensure more business growth.
Four strategy of this Matrix has been further evaluated in relation with TESCO:

Market Penetration:
It is a growth strategy that focuses on the provision of existing products within current
market of organisation. With the help of this Tesco acquire strategic edge as they already have
large base of loyal customers in UK those who are not willing to switch to other substitute
products. With the help of market penetration organisation can effectively increase their market
shares.
Market expansion:
It is also termed as marketing development. Market expansion strategy aims towards
offering existing products within new market place. With the help of expanding market areas
company can effectively able to attract new customers towards their organisation that further
ensure high sales and profitability.
Product expansion:
Product expansion strategy is focused on new products in existing market place. With the
help of product expansion Tesco can effectively satisfy needs and demand of individual in
existing Marketplace and further ensure their long-term sustainability. That lead organisation to
increase their goodwill and sales ratio in market. TESCO can undertake product expansion
strategies as to gain access into perfume segment as with the help of this company can make
significant increase in the customer base within UK.
Diversification
Diversification growth strategy tends towards new products within new market. It is a
risky strategy in which company may lead towards failure (Cavusgil and et. al., 2014). This
strategy further may prove to be expensive for Tesco as in this company is required to conduct
marketing plans and campaigns as to make promotion of new product offering of organisation in
new market place.
As per according to the above define strategy it has been evaluated that market
penetration strategy turn out as an most effective strategy for Tesco in order to attain long
sustainable business growth, as organisation already have loyal customer base thus, with the
help on focusing on their existing products within current market place lead Tesco to gain more
developing opportunities in order to ensure more market shares as well as revenues.

M4 Strategic management plan
TESCO devised strategic management plan as to communicate new business strategic
growth to the stakeholders which is further been discussed below:
Aim: To increase the overall level of business operation in domestic market place.
Vision: To ensure their number one Positioning within global Retail Industry for long
duration of time.
Mission statement: To provide high quality products and services along with value
addition as to further satisfy people with best.
Goals and Objectives: The short term goal that has been undertaken by Tesco is to give
due consideration to price and quality of products. While long term goal that has been hold by
company is to maximize their Global positioning in emerging markets.
Strategies: Tesco will undertake market penetration as to make enhancement in
profitability and sales ratio in domestic market.
Tactics: Tesco launch their new products along with Value additions and further offer
them to customers in affordable price range that are available to all income groups.
D1 Interpretation of data to conduct competitive analysis
Illustration 2: Leading 10 retailers based on sales in the United Kingdom (UK) in 2017/18
(Source: Leading 10 retailers based on sales in the United Kingdom (UK) in 2017/18, 2019)

According to the above mentioned graph it has been identified that Tesco, leads the index of
growing retailers based on sales in UK. As the overall ratio of sales that has been generated by
this organisation in the year of 2017- 18 was £38.7 billion. This states that market penetration
strategy that has been undertaken by Tesco effectively aid entity to make enhancement in their
profitability and sales ratio in domestic market (Brewster, C., 2017). This further benefit them to
ensure their No 1 position in retailing business sector for long duration of time. Further
company can make introduction of new products by undertaking tactics of value addition that
can effectively able to attract large base of customers in domestic market. In addition with this,
with help of before-mentioned strategy as well as strong marketing strategies Tesco can ensure
their number one place for long duration of time in retailing business index.
CONCLUSION
As per the report it has been concluded that, business strategy effectively aid organisation to
gain more competitive edge within marketplace as compared to their rivals. It is a route map that
benefits entity to accomplish their goals and objectives in well defined manner in perfect
framework of time. With the help of best effective form of business strategy organisation can
ensure their long term sustainable growth. There are different type of Framework such as pestle
analysis, VRIO and SWOT with the help of which organisation can identify their strength and
weakness and further apply strategy through which they can attend high end business growth.

REFERENCES
Books and Journals
Bell, E., Bryman, A. and Harley, B., 2018. Business research methods. Oxford university press.
Brewster, C., 2017. The integration of human resource management and corporate strategy.
In Policy and practice in European human resource management (pp. 22-35).
Routledge.
Cavusgil, S. T. and et. al., 2014. International business. Pearson Australia.
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.
Davies, A., 2016. Best practice in corporate governance: Building reputation and sustainable
success. Routledge.
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
the area of civil engineering. Applied Mechanics & Materials, (678).
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
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.
McCahery, J. A., Sautner, Z. and Starks, L. T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance. 71(6).
pp.2905-2932.
Mittal, S. and Dhar, R. L., 2015. Transformational leadership and employee creativity:
mediating role of creative self-efficacy and moderating role of knowledge sharing.
Management Decision. 53(5). pp.894-910.
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).
pp.45-53.
Wheelen, T. L. and et. al., 2017. Strategic management and business policy. Pearson.

Online
Tesco has it tough enough already without a no-deal Brexit. 2019. [Online]. Available Through:
<https://www.theguardian.com/business/2019/sep/28/tesco-no-deal-brexit-
supermarkets-hard-border-uk-eu>.
Why is UK unemployment still low? We are working longer hours. 2019. [Online]. Available
Through:<https://www.theguardian.com/business/2019/sep/28/tesco-no-deal-brexit-
supermarkets-hard-border-uk-eu>.