Impact and Influence of Macro Environment on Tesco

This report discusses the impact and influence of the macro environment on Tesco, including political, economic, social, technological, legal, and environmental factors. It also analyzes the internal environment and capabilities of Tesco using SWOT analysis, VRIO model, and McKinsey's 7s Framework. Additionally, it applies Porter's Five Forces to determine Tesco's competitive position.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Impact and influence of the macro environment on Tesco..........................................................3
Analyse the internal environment and capabilities of Tesco.......................................................5
Application of Porter’s Five Forces.............................................................................................9
PART B.........................................................................................................................................11
Strategic planning for Tesco......................................................................................................11
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy can be defined as set of actions that are taken by business organisations
to achieve goals and objectives of the organisation. Business strategy involves considering
several factors and their impact and influence on organisation and its objectives. These factors
are within external, internal and competitive environment of the company. This report will
contextualise Tesco, British multinational groceries and general merchandise retailer. Founded in
1919 by Jack Cohen Tesco is headquartered at Hertfordshire, England and products of Tesco are
available in around 10 countries and it operates at 6800 locations. On the basis of gross revenues
Tesco is third largest retailer in world and on the basis of revenue it is ninth largest retailer in
world. Tesco has employed around 450000 employees to carry out all functions of the
organisation and has products like supermarket, hypermarket, superstore, and convenience shop.
This report will discuss about impact of macro environment on Tesco and will involve analysis
of internal environment and its capabilities. This report will also involve analysis of competitive
environment by application of porter’s five forces. Analysis of environment will lead to
determination of strategic directions available along with developing strategic plan for Tesco.
PART A
Impact and influence of the macro environment on Tesco
Macro environment has significant impact on business and its strategies. In order to
understand impact of macro environment on Tesco Pestle Framework is utilised
Political
Political factor involves influence that political conditions of a country or region where
business operates on strategic decisions of the company. Tesco gets influenced by several
political conditions because it is a multinational organisation and become subject to international
political condition (Perera, 2017). Brexit is one of the important elements to influence strategic
decisions of Tesco. Other factors influencing Tesco in political environment involve elements
like taxation policies, different legislations because these are certain elements that differentiate in

every country. Along with this, Tesco also gets influenced by political stability of the countries
where it is operating.
Economical
Economic conditions involve and influence strategic decisions and actions of Tesco
involving finance. This involves impact on cost, profitability and productivity of Tesco. This
involves cost of operations, GDP, per capita income, employment rate, and interest rate in a
country that has direct influence on the strategic decisions of the country. Increasing cost of
operations and raw material has influence on cost of operations of Tesco. GDP and per capita
income has influence on demand of Tesco products and its price strategies in a country.
Increasing middle class income has positive influence on Tesco as this increase their disposable
income and enables them to buy high quality products. However recession has negative influence
on Tesco because this has negatively influenced income and purchasing power of customers.
Social
This factor involves influence and impact of changes in customer and consumer shopping trends
and their product preferences. Tesco offers food items and in this demand has increased for
vegan and natural products that are healthy for customers. The reason behind increasing demand
for healthy food is awareness of people towards health issues and approach towards food is also
changing (Rastogi and Trivedi, 2016). Increasing online shopping also has impact on Tesco as it
requires offering effective online shopping experience to customers. Increasing concern of
customers towards experience while shopping is also requiring that Tesco provide effective
experience to customers in-store, this involve facilitated check-out and other processes important
for ensuring positive customer experience. This is one of the most crucial factor to influence long
term success of organisation and in relation with Tesco it gets influenced by social conditions
and consumer trends of different countries. This means that European customers are different
from Asian and in order to be successful in both markets it requires giving adequate importance
to trends of each market.
Technological

Technology has become centre of success and growth of the organisations. This factor involve
technological development that has influence on Tesco and this also involve technological
development of competitors. Tesco is operating in retail industry and retail industry has made
significant technological development to ensure effective customer experience along with
increasing operational quality. Recent development involves online shopping and self-service
checkout points for convenience and ease for customers. In this factor, Tesco has made effective
growth and Tesco has implemented energy efficiency projects to fulfil long-term objective of
reducing carbon-footprint of Tesco.
Legal
Legal environment involve all those elements that impact and influence governance of the
organisation. This involves different laws and regulations influencing and affecting operations of
Tesco. Although Tesco gets influenced by different laws and regulations of the country in which
it operates but key regulations influencing Tesco involve employee legislation, food safety and
standard regulations, consumer safety regulations, data protection, equality regulations and
environment safety regulations. Regardless of country in which Tesco operate these affect and
influence of operations of Tesco in every country (Nandonde, 2019). In this context food
retailing commission suggested a code of practice to be set up that ban many existing practices of
Tesco. In order to remain out of any legal complication it is highly important that Tesco ensure
conformation to all regulations. Due to increasing environmental issues concern of governments
has increased and this is why it has become very important to conform environmental safety
code and practices.
Environment
Organisations are facing significant pressure from government regarding environment safety and
sustainability. This requires Tesco to follow all environmental rules and regulations. Concerned
with this Tesco also have employed a strategy that aims at reducing carbon footprint of Tesco.
Analyse the internal environment and capabilities of Tesco
SWOT Analysis
Strength

 Large network of stores within limited number of market
 Wide and diversified customer base
 Strong product portfolio
 Strong base of loyal customers of Tesco created through loyalty card
 Strong competitive position
 Strong brand value
Weaknesses
 Failure in key markets like USA and Japan
 Controversies of Tesco
 Participating in many types of retail results in inefficiency
 Lack of innovation (Sarsby, 2016).
Opportunities
 Emerging economies has an opportunity for Tesco
 Growth in international markets
 Strategic alliances with other companies
 Business of Jack’s
 Increasing online customers
Threats
 Increasing competition
 Recession
 Global economic environment
 Rapidly changing consumer taste and preferences (HoLEE, 2020).
VRIO Model
Competencies/Capabilities Valuable Rare Inimitable Organised Competitive
Advantage
Brand image Yes Yes Yes Yes
Sustainable
competitive
advantage

Awareness of brand Yes Yes No Yes
Long term
competitive
advantage
Loyal customers Yes Yes No Yes
Long term
competitive
advantage
Financial resources Yes Yes Yes Yes
Sustainable
competitive
advantage
Human resources Yes Yes No Yes
Long term
competitive
advantage
Patents Yes Yes Yes Yes
Sustainable
competitive
advantage
Distribution network Yes Yes Yes Yes
Sustainable
competitive
advantage
McKinsey’s 7s Framework
Strategy
Strategy is concerned with plan that Tesco has developed in order to gain long term competitive
advantage. In order to gain long term competitive advantage Tesco has developed and employed
several strategies. For its long term sustainable performance and success Tesco has strategies
ensuring high quality product at affordable prices. This means that Tesco ensures products are
available at as possible low prices without reducing quality of product. Other than this, also
employs loyalty benefits strategy to create strong base of loyal customers.
Structure
This is concerned with ways in which business units are organised and this also outline
responsibilities and roles of individual in organisation (Gökdeniz, Kartal and Kömürcü, 2017).

Tesco has functional structure in which there are fix role for every position and individuals are
held accountable on the basis of position and associated responsibilities.
System
Tesco is a retail organisation and in order to ensure that it can give effective experience to its
customer Tesco employs different systems within organisation. Systems of Tesco involve,
inventory management, supply chain management, customers shopping and check-out system.
Shared values
These are concerned with norms and basis that guide behaviour of every individual in Tesco.
Values of Tesco involve no one tries harder for customers, we treat people how they want to be
treated, and every little help makes a big difference. These are some of the values that guide and
become basis of decisions and actions of people in Tesco. This is also one of the reasons that
Tesco has very competent and effective employees willing to make their best effort to serve
customers.
Skills
This is concerned with abilities of employees that are required to ensure that employees perform
effectively. This also involves competencies of employees required to carry out operations of the
company. Tesco is a multinational retail organisation and scope of activities is very big and this
is why Tesco requires employing employees with different skills and competencies that they are
able to perform every function of Tesco (Shaqrah, 2018). This involves competencies for
customer assistance, and store management, and along with these administrative skills like
management, marketing, finance, and other administrative functions.
Staff
This element is concerned with type and number of employees required in Tesco. On the basis of
type Tesco requires every type of employees and on the basis of number staff employed by
Tesco is 450000 employees. They are recruited through different methods of recruitment and are
consistently given training so that they can perform their best and utilise their highest potential
for their job.

Style
Style element of the framework is concerned with style and approach that management utilise to
manage the organisation. This also involves style of top-level managers, way of their interaction,
actions they take and symbolic value. Style of Tesco and its management is known as democratic
style of management also known as participative management style. This style is one in which
leaders and managers invite ideas and opinions of their subordinates and employees of the
organisation. Managers are responsible for saying final word, but employs are encouraged to
share their ideas and creative and innovative opinion (Gökdeniz, Kartal and Kömürcü, 2017).
This enables managers to get benefit of knowledge and competency of staff and employees and
at the same time retaining decision making power to with them.
Application of Porter’s Five Forces
Porter’s five forces model is a tool with help of which organisation can identify their
competitive position in the industry they are operating. This model involves and analyse five that
affect and influence competitive position of the company. These forces are as follows-
Threat of New Entrants
This force of competitive environment is concerned with threat because of entry of new
organisations within industry and this is a threat because entry of new organization is likely to
affect position of Tesco. Threat of new entrants gets influenced by entry barrier, entry barriers
refers to those factors and elements which restrain and create difficulties for new organisations to
enter into the industry. These entry barriers are in form of resources and investment required,
economies of scale, competencies required, government and legal regulations. In relation with
Tesco it has moderate power and position in this force of competitive environment. Reason
behind moderate position is that Tesco is a big organisation and this is why entering to level and
competition of Tesco is very difficult and a new organisation cannot enter to this level. However
Tesco operates in retail industry and considering this Tesco requires to compete with small
organisations as well and entering at small level in retail industry is less difficult and entry
barriers are also less.
Threat of substitutes

This is another force in competitive environment of Tesco (Lewis, 2017). This threat is
from the organisations and companies who are providing products that can be utilised to fulfil
needs and requirements of same level. This means customers of Tesco can utilise those products
to fulfil their requirement rather than Tesco’s product. This force gets influenced by number of
competitors, value being provided by them, cost of switching and on the basis of this it can be
said that position of Tesco in this force is weak. This position is weak because there are large
number of substitutes available to fulfil the need of same order and cost of switching is also less
and insignificant, there are certain substitutes available that are cheaper compared to Tesco and
this is why overall position of Tesco is weak in this force.
Bargaining power of suppliers
Suppliers are those parties who supply requires resources and input for the company and
that are utilised by the company to create output. Bargaining power of suppliers gets influenced
and affected by number of suppliers in industry, products being supplied by them and cost of
switching suppliers. These are elements that affect suppliers’ power and these elements suggest
that position of Tesco is strong in this force of competitive environment. The reason behind
strong position is this that there are several suppliers in retail industry and cost of switching is
also insignificant. On the basis of this Tesco can easily switch its suppliers. Although it is very
important that organisation maintains effective relations with suppliers but this strong position
enables Tesco to utilise several opportunities through suppliers.
Bargaining power of buyers
Bargaining power is buyers also refers to bargaining power of customers is another
important element to be considered in competitive environment of Tesco (ÖNEREN, ARAR and
YURDAKUL, 2017). In present customer based business environment, customers of Tesco hold
and strong power but in relation to competitive force, power of customers gets influenced by
number of sellers and number of buyers. High number of sellers and fewer buyers indicate strong
power of buyers. But in this force of competitive environment position of Tesco is at moderate
level. The reason behind this is that Tesco operates in retail industry and this is why there is high
number of buyers for Tesco but at the same time there are high number of sellers available in
industry as well. This influence and affect decisions of buyers while buying from Tesco because

there are competitors of Tesco and other organisations from where they can buy required
product.
Industry Rivalry
Industry rivalry is concerned with competition among existing firms and organisations
within a industry. This is one of the important forces of competitive environment and gets
influenced by above mentioned factors and forces of competitive environment. Industry rivalry
and strong industry rivalry gets affected by number of firms within industry and their
competitive position and in relation with Tesco, there are several organisation operating in retail
industry and have strong competitive position. Some of the competitors of Tesco include M&S,
Sainsbury’s, and Asda. Even though there are several competitors of Tesco with strong
competitive power, position of Tesco in this force is strong because of position of Tesco in retail
industry.
This analysis outlines that Tesco is operating in an competitive environment that involve
factors that contribute in determination of Tesco’s position in retail industry (Moreno-Izquierdo,
Ramón-Rodríguez and Perles-Ribes, 2016). There are forces like threat of substitute and power
of buyers in which Tesco has weak and moderate power. But there are forces in which Tesco has
strong power and these can also be utilised as opportunities and strengths of Tesco.
PART B
Strategic planning for Tesco
Vision
 Wanted and needed around the world
 A growing business full of opportunity
 Modern, innovative and full of ideas
 Winners locally whilst applying our skills globally
 Inspiring, earning trust and loyalty from customers, colleagues and communities
Mission
“Creating value for customers to enable them to earn their life loyalty”

Objectives
 Increasing market share by 3% in UK current financial year
 Increasing profitability of the Tesco by 4% in current financial year
 Increasing global market share by 6% in current financial year
 Reducing operating cost by 10% in current financial year
Strategic Directions available for Tesco
Porter’s generic Strategies
Figure 1 Porter's Generic Strategies
This model outlines four strategies directions for the company based on cost and differentiation.
Cost and differentiation are source of competitive advantage (Loredana, 2017). Another element
in these strategic directions is scope of the company or extent and customers on which Tesco
implement these strategies. Strategic directions are as follows-
Cost Leadership

In this strategic direction Tesco requires to be lowest cost producer in industry and this
allows benefits to Tesco to get high profit margin and company also enables to sell product at
comparatively less price.
Strategies for this involve-
 Production at large scale
 Effective utilization and exploitation of economies of scale
 Using bargaining power with suppliers to acquire resources at lower price
 Effective use of technology
Differentiation
This is another strategy in which Tesco gets competitive advantage through
differentiation in its product that is completely distinct from products of competitors of Tesco.
This allows benefits in terms of premium pricing based on differentiation and superiority of
product. Strategy that can be adopted for differentiation-
 Superior brand quality
 Innovation in product making them differentiated
 Branding
Cost focus
This strategy is like cost strategy the difference in this is that Tesco seeks lower-cost
advantage in selected market segment (Martins, 2020). This means that product can be similar to
high price or market leader product. Tesco is a multinational organization and through this
strategy they can seek lower cost advantage in selected geographical segment.
Differentiation focus
Differentiation focus is another strategy that is similar to differentiation but focus of
Tesco in this strategy remains limited to selected market segment.
In order to determine strategy direction for Tesco another strategic model can be applied, this
model is-

Bowman's Strategic Clock
This model outlines 8 strategic directions that are based on price and perceived value to
consumers. These strategic positions are-
Figure 2 Bowman's Strategic Clock
Low price and low added value
This is not a competitive position as in this position because perceived value by
customers is low even when price of the product is low.
Low price
In this strategy perceived value by customer is moderate and cost minimization is
required to increase sales of the product. Profit margin in this strategy is low.
Hybrid
Hybrid position in this model involves relative to competitors and also element of
differentiation (Echchakoui, 2018). By this strategy business communicate their product has
good value for customers at reasonable price.
Differentiation

This is a position in which business ensures that their product offering has highest
perceived value by customers. This is one of the best position an organization is placed at
because this allows benefit of relative prices and added value.
Focused differentiation
This position and strategy is adopted by luxury brands because in this position product is
at highest price levels and customers buy product because of high perceived value. This position
allows brands to achieve premium price benefits.
Risky High Margins
This is a position in which organization has high margin even when they offering does
not has anything in relation with perceived value by customers.
Monopoly pricing
This is position in which perceived value by customers is low and still company has high
price for its product. As per this strategy company having monopoly pricing does not consider
customer satisfaction.
Loss of market share
This is a strategy in which perceived value is low and price is relatively higher and at this
position organisation starts losing their market share.
These are strategic directions available for Tesco and on the basis of evaluation of
strategies and environment in which Tesco is operating it can be suggested that Tesco can adopt
market development strategy. This is because even though Tesco is one of the most successful
retail organisation in world but its existence is limited. Along with this Tesco has highly valued
brand image and this is an important element in market development.
Monitoring and Evaluation
Monitoring is concerned with assessment and evaluation of strategy employed by
organisation and its success (Tawse and Tabesh, 2020). Monitoring is concerned with checking

progress of the strategy implementation and evaluation is concerned with success of strategy
implementation and to what extent strategy has achieved objectives of organisation.
Monitoring can be done through observation and survey regarding implementation and progress
of strategy.
Evaluation is done by measuring KPI and standard outcomes with actual outcomes of the
strategy that has been implemented. Comparison of actual result with objectives is also an
effective way to evaluate success of strategy.
CONCLUSION
On the basis of above discussion, it can be concluded that business strategy play very
important role in overall success of the business. This strategy of the business gets influenced
and affected by several factors and all these factors are in internal, external and competitive
environment of the organisation. This report involved analysis of internal, external and
competitive environment of Tesco. In order to analyse external environment pestle analysis was
utilised and this outlined that Tesco is operating in a highly unpredictable competitive
environment. In order to analyse internal environment of Tesco three frameworks were applied
these are Swot analysis, VRIO framework to analyse competency and capability of organisation
and further involves discussion over McKinsey’s 7s framework. Later in order to analyse
competitive environment Porter’s 5 forces model was applied and on the basis of analysis of
different environment strategic management plan was developed for Tesco based on identified
strategic directions.

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Online
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https://www.tescoplc.com/about/how-we-do-business/core-purpose-and-values/>.
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<https://www.smartinsights.com/marketing-planning/marketing-models/mckinsey-7s-
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