Impact of Macro Environment on Tesco's Business Strategies

This assignment focuses on the impact of macro environmental factors on Tesco and its business strategies. It includes a PESTLE analysis, evaluation of competitive forces using Porter's Five Forces model, and analysis of Tesco's internal environment and capabilities.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
Impact and influence which the macro environment has on Tesco and its business strategies...1
LO 2.................................................................................................................................................3
Analysis of internal environment and capabilities of Tesco........................................................3
LO 3.................................................................................................................................................3
Evaluation of competitive forces by applying Porter’s Five Forces model.................................3
LO 4.................................................................................................................................................6
Models, theories and concepts to assist with the understanding and interpretation of strategic
directions available to the organization.......................................................................................6
CONCLUSION................................................................................................................................8
RECOMMENDATIONS.................................................................................................................8
REREFENCES................................................................................................................................9

INTRODUCTION
Business strategy can be defined as a set of competitive strategies and actions that can be
used by an organization in order to attract customers, enhance their overall sales and achieve
organizational goals. It is extremely important for organizations to focus on developing business
strategy in order to enhance their customer base, achieve desired goals and expand their business
an appropriate manner (Akter and et. al., 2016). This assignment will focus on preparation of a
formal report on formal report on the existing strategic direction of Tesco. Tesco is a British
multinational retail store founded in 1919 whose headquarter is in England UK. They have shops
in seven countries and has employed more than 450,000 employees globally. They provide
various kinds of products and services such as books, clothing, electronics, furniture, toys, food
products, petrol, software, financial services, telecoms and internet services. This assignment
will further lay emphasis on impact of macro environmental factors on organization, analysis of
internal environment and capabilities of Tesco, analysis of outcomes of Porter’s Five Forces
model in retail sector and strategic choices and directions available to an organization.
Tesco
LO 1
Impact and influence which the macro environment has on Tesco and its business strategies
Mission: The main mission of this organization is to emerge as market leaders and enhance their
business globally (Leonidou and et. al., 2017). They are continuously focusing on bringing
improvement within their products and service in order to gain competitive advantage and
enhance their market share.
Vision: The main vision of the organization is to sell products and services that can fulfil needs
and requirements of their customers in an effective and appropriate manner.
Objectives: Main objectives of Tesco are:
 To enhance their customer base by at least 20 percent in next 5 years.
 To increase their brand image and reputation.
 To bring improvement within their product and services quality by using advance tools and
technologies.
Goals: The main goal of Tesco is to enhance their sales by at least 20 percent in order to increase
their revenue and profit. They also need to bring improvement within their business strategies so
that their can achieve their desired goal.
1

Influence of macro environment on Tesco
PESTLE Analysis
There are various kinds of factors that can impact overall business of organization like
Tesco. These macro environmental factors are important to be focused on because as analysis of
these factors will help Tesco to bring improvement within their business strategy, encourage
their business activities, develop new plans in order to meet their goals and objectives (Johnson,
2016). PESTLE analysis helps in understanding impact of these macro environment factors
upon organization like TESCO. PESTLE analysis focuses on six main environmental factors:
political, economic, social, technological, environmental and legal factors.
 Political Factor: As Tesco operations in many countries, global political factors are the one
that affects overall operations of the organization. Important duty of all kinds of goods can
impact overall Tesco as more than 70 percent of inventory items are imported by Tesco from
outside UK. Government encourages retail sector organizations to create a greater number of
jobs for domestic population in order to enhance employment opportunities for people can
help Tesco is employing diverse workforce.
 Economic Factor: it consists of those factors which are related ot economic g. They include
GDP, inflation rate, currency rate, etc. Any change in these impact on business operations.
Economic factor can impact retail sector organization like Tesco in many ways. Due to
increase in minimum wages cost by 4.4 percent overall operational cost of Tesco has also
increased. Due to global economic crises overall business of Tesco has also been impacted
largely which can slow down overall business operations of Tesco.
 Social Factor: they are those factors related to change in taste and preference, Need of
customers, etc. In last 10 years shopping trend of customers has changed drastically they
either prefer one stop shopping or online shopping which has brought changes within the way
in which Tesco operates (Gattorna, 2017). They have focused on increasing non- food items
for sales within their stores, so that customers can focus on shopping at one place. Today
customers are becoming more health conscious because of which their attitude towards
unhealthy products is changing, Tesco is confusing more on organic products in order to grab
their customers attention.
 Technological factor: Advancement in technology has increased opportunities for Tesco,
with the help of this advancement in technology, Tesco has focused on enhancing their
2

customers shopping experience by introducing online shopping, home delivery service.
Tesco has also focused bringing changes within technology adopted by them in order to
reduce their carbon foot print and enhance their overall product and service quality. Tesco
has also focused on adopting new technologies in order to enhance behaviour of their buyer
such as: RFID technology in order to keep a track of their inventory and speed up billing
process, self- checkout machines electronic shelf- labelling and many more.
 Environmental factors: Many countries government are focusing on increasing
environmental legislations in order to address environment issues. Tesco is focusing on
bringing changes within their technologies and operations in order to reduce their carbon
footprint (Lyneis, 2020). Tesco is also focusing on collecting unwanted plastic bags from
customers and recycle them. They have also adopted a new strategy for sustainable
consumption, reduce waste production and also reduce damage to the environment. This has
helped them in reducing their carbon foot print and contribute in environmental
sustainability.
 Legal factor: Various kinds of government legislations and regulations directly impact
overall performance of Tesco. If there is change in any kind of legislation it can impact
business performance of Tesco to achieve their desired objectives. Tesco has faced legal
actions for accounting fraud and misleading the investors and had to pay GBP 12 million to
settle the legal action. Latest legislation that has created a new tax on advertisement of highly
processed and fatty food has directly impacted Tesco and their vast range of food products.
Not only this this Fatty tax has also impacted their relationship with their suppliers and their
customers as well.
LO 2
Analysis of internal environment and capabilities of Tesco
The internal environment of firm refer to its within organization. In this the factors can be
controlled by business. There are various models of analysis it which is defined as below
SWOT analysis – it is a model which describes the strength, weakness along with opportunities
and threats. For Tesco is swot is as
Strength
3

Tesco provide a large variety of products to people which enable in giving option to them. Also,
it is having a strong brand name in retail sector. So, company is able to gain competitive
advantage and its products are easily recognized.
It has won many awards in customer service, customer experience etc
They are having a large customer base in UK which makes them biggest retailer.
Its low cost and high product quality has resulted in earning huge profits and retaining of
customers.
Weakness
The company highly depends on UK market for profit generation. So, they have not focused on
other country market
It only focus on low income class people due to which they are not having a hood reputation
among high class people.
Opportunities
Company can expand in other emerging markets which will enable them to increase sales and
profits.
They can focus on using technology in building strong customer relationship. It will be useful in
retaining them.
Tesco can emphasis on online shopping and home delivery of products.
Threats
The major threat is to rise in competition in retail sector due to new entrants. This will result in
stiff competition within companies.
Another threat is of brexit which will highly impact on Tesco growth and development in UK.
McKinsey 7 S model
Strategy- Tesco follow the strategy of cost leadership which enable them to attract people. They
buy products from supplier at low cost and sell it to customers.
Structure- company is having a complex structure which consists of CEO and store staff. Here,
Authority flows from top to bottom. The committee contain total 11 member
System- the firm relies on various types of system to perform daily tasks and operations. They
use performance evaluation system for it to simply process. .
4

Staff- there is diversified staff working in Tesco. Also, there are about 400,000 employees
working in different departments at different position.
Style- It refers to the working style of employees in organization. Tesco uses steering wheel style
which enable them to work in effective way. They focus on 4 areas that are operation, customer,
performance and employees.
Skill- in Tesco the staff hired possess complete knowledge and skills.
Shard value- The organisation has its belief that by increasing the sophistication of management
techniques from being just a simple manufacturing company to a standard value chain.
VRIO
Valuable- Tesco financial assets are valuable as they are having a huge finance which is valued.
Rare- the company financial resources are not rare as other companies can also attain that
resources.
Imitate- Tesco financial resources can be imitated by other retail brand as well.
Organization- there are many other resources which can Tesco must focus on.
LO 3
Evaluation of competitive forces by applying Porter’s Five Forces model
Porter’s Five Forces model
Porters five force model focuses on examining and analysing impact of five forces i.e.
competitive rivalry, supplier power, buyer power, threat of substitutes, and threat of new entrants
upon Tesco and the market in which Tesco operates (Chen, Eshleman and Soileau, 2017).
Porter’s five force analysis model and its impact upon retail sector and upon Tesco are as
follows:
 Threat of new entrant: This threat is low for retail sector and on top organizations like Tesco.
This is because UK retail market has four major leading brands Tesco, Asda, Sainsbury’s and
Safeway that has more than 70 percent of UK retail market because of which it becomes
difficult for new entrant to enter into retail sector and dominate the market. Not only this
Tesco has an aggressive operational tactics and strategies in product development,
promotional activities and distribution of their products and services. Majority of large retail
sector organizations have enhanced their operational power because of one stop shopping
stores and by providing various kinds of other befits such as loyalty cards, additional
5

shopping points, discounts and various other kinds of offers. Not only this these large retail
sector organizations provide lower cost products with high defined quality with warranty
period as well which helps them at attract a greater number of customers and reduce power of
new entrant as well (Yuliansyah, Gurd and Mohamed, 2017). There are various kinds of
barriers for new entrant to gain sustainability such as economies of scale and differentiation
which has been adopted by all large retail sector organizations.
 Bargaining power of suppliers: Power of this force is also low for Tesco as these supplier’s
fear losing business to such retail organizations like Tesco. Tesco also leads and negotiates
price with their suppliers in order to gain pricing advantage. Suppliers of Tesco are required
to provide material in lower price as Tesco is one of the major sources of business for them.
Mostly, it can be said that suppliers feel threatened by the growing ability of these large retail
sector and their increasing source of products from abroad at a much lower price and cheap
deals. Relationship of suppliers with the organization can impact their profit margin. Not
only this there are and large number of suppliers available in the market who can replace the
current suppliers because of which competition within the market among the suppliers also
increases.
 Bargaining power of Customers: Threat of this factor is high as today most of the products
available in the market are of similar cost and undifferentiable because of which switching
cost for buyers decreases and increases bargaining power of customers. But however, loyalty
card of Tesco helps them to retain their customers. In order to retain their customers they
focus on providing enhanced quality products to the customers, ensure that customers needs
and requirements are meet and fulfilled, excellent service is provided to the customers, better
and vast variety of choices are provided to the customers and constant in-store promotions
are being carried out so that they can successfully retain their customers. Tesco also need to
focus on enhancing their customers shopping experience by adopting changes within
customers shopping way like today most of the customers prefer high quality healthy food
products (Olson and et. al., 2018). Tesco need to focus on providing high quality organic
food products to their customers in order to retain their customers.
 Threat of substitutes: Threat of this factor is also high as switching cost for buyers is lower.
Retail industry is one such industry in which consumers can fulfil their needs and
requirements easily as there are various kinds of products available for them of different
6

brands. Due to this threat of substitute product increases for Tesco. Retail sector need to
continuously focus on introducing new products and services or bring continuous
improvement within their products and services in order to meet changing needs and
requirements of their customers. This can help large retail sector organizations like Tesco
reduce threat of substitute products and services.
 Bargaining power of competitors: Threat of this factor is moderate as there are many top
retail organizations along with Tesco that dominate the retail market which increases
competition for Tesco. However, this threat is moderate because it is difficult for new entrant
to sustain within this competitive environment and compete with organization like Tesco.
Retail sector is one of those industries in which competition among the organizations is
extremely high. Organizations that have already established themselves at national or
international level need to bring continuous improvement within their products and services
in order to retain their customers and reduce bargaining power of competitors. Tesco need
either need to focus on this increasing competition level and need to bring changes within
their products and services and gain competitive advantage.
Ansoff Matrix
It is a strategic planning tool that helps in devising strategies for future growth (Holotiuk
and Beimborn, 2017). Tesco needs to focus on various kinds of activities in order to expand their
business, enhance their market share. Ansoff matrix consist of four main strategies based upon
products and market.
 Market penetration: Using this strategy organizations focuses on selling existing products
within the existing market. Risk in this strategy is least. Tesco can use this strategy to retain
their existing customers.
 Market development: using this strategy Tesco can focus on introducing their top existing
products in new market segment. This strategy can help Tesco to enhance their customer
base and increase sales chosen product.
 Product development: using this strategy Tesco can focus introducing new product within the
existing market segment in order to expand product portfolio so that customers can get more
options to choose from.
 Diversification: It is one of the riskiest strategies as in this strategy
7

 new product is introduced to new market segment. Using existing experience or achieving
economies of scale in this strategy is difficult as in this a completely new product is been
sold to completely new customers.
LO 4
Models, theories and concepts to assist with the understanding and interpretation of strategic
directions available to the organization
Porter’s generic strategies
It is one of the most commonly used frameworks which is used by organizations for
gaining competitive advantage and interpret strategic direction which is available to the
organization. These strategies help organizations to choose appropriate and correct strategies so
that they can gain competitive advantage (Razak and et. al., 2016). This framework focuses on
three main types of approaches: cost leadership, differentiation and focus strategy.
Cost leadership: It is one of the most commonly used strategy in which organizations provide
their products to customers at lowest prices. It is one of the main generic strategy which is used
by Tesco for most of their consumer market segment. Tesco can focus on targeting middle class
customers and provide lower cost products to them (Soltanizadeh and et. al., 2016). This will
help them to enhance their market share as most of the customers of Tesco are of retail sector.
Tesco can also focus on increasing easy availability of products all across the globe for their
customers which will further lead to increasing brand awareness among their customers.
Differentiation: It is another most commonly used strategy that can be used by Tesco in order to
gain competitive advantage. It is a combination of cost leadership strategy that can be used by
Tesco in order to achieve their desired and defined objectives. Using this strategy Tesco can
focus on introducing unique features within products in order to enhance their customer base and
increase their overall sales. Using this strategy Tesco can focuses on bringing innovation within
their products and services in order to fulfil their customers needs and requirements in a much
better an enhanced manner.
Focus strategy: this strategy focuses on concentrating on a small market segment and use
differentiation of cost as a strategy applicable on a chosen market segment. This strategy helps
the organizations to gain competitive advantage in niche market (Moseley, 2017). Using this
strategy Tesco can focus on providing best offer products in lower cost to a particular segment in
order to fulfil needs and requirements of the niche market segment in the lowest possible cost.
8

Strategic plan
Strategic vision
Increase overall revenue and brand reputation of Tesco
Goal Objectives Action plan
Increase overall
sales of the
organization
 Introduce new clothing range
for their customers
 . Attract a greater number of
customers and increase
loyalty within their
customers towards the brand.
 Manufacturing new product range
for the customers in order to attract
them and increase sales.
 Attract a greater number of
customers, increase loyalty within
them and eventually increase their
overall sales by providing loyalty
card or shopping points to the
customers
 Bring changes within their cost
strategies in order to attract more
number of customers.
To enhance overall
brand image
 Focus on enhancing in-store
products and services
promotion.
With the help of sales promotion,
promotion of the brand can also be
done which will further help in
enhancing overall brand image of
Tesco.
To bring
improvement within
overall quality of
their products and
services.
 Automate product
manufacturing process in
order to enhance their
products overall quality.
 Focus on bringing improvement
within quality check of final
products and services in order to
enhance their overall quality.
9

CONCLUSION
It can be summarized that business environment has become complex. There are many factors
which is affecting on operations of Tesco such as political, social, technology, etc this has also
impacting on growth and development of business. However, Tesco strength is they aee having
strong brand image in UK, low price products, etc weakness is dependent on UK for profit,
opportunity is of expand in emerging markets and threats is rise in competition. Moreover, in
Porter five force threat of new entrants is high. Furthermore, Tesco can follow Ansoff matrix and
porter generic strategies for expansion.
RECOMMENDATIONS
There are some recommendations as well which company can follow. They are
They should also focus on high class people and develop product according to their needs. This
will enable in attracting them and generating more sales and profits.
Tesco can start online delivery of products in other countries as well. It will be help them to
create a customer base in that market. Moreover, with change in technology and way of doing
business company can focus on online business.
It should implement AI in their stores to provide a new shopping experience to customers. It will
help in attracting more customers and gaining competitive advantage in retail sector.
Company can launch a mobile which provides all products and services to people. It will be easy
for them to order and get it delivered to their home.
10

REREFENCES
Books and journals
Akter, S., and et. al., 2016. How to improve firm performance using big data analytics capability
and business strategy alignment?. International Journal of Production Economics. 182.
pp.113-131.
Leonidou, L.C., and et. al., 2017. Internal drivers and performance consequences of small firm
green business strategy: The moderating role of external forces. Journal of business
ethics. 140(3). pp.585-606.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Gattorna, J., 2017. Strategic supply chain management Creating shareholder value by aligning
supply chain strategy with business strategy. In Strategic Supply Chain Alignment (pp.
32-52). Routledge.
Lyneis, J.M., 2020. Business policy and strategy, System Dynamics Applications to. System
Dynamics: Theory and Applications, pp.179-207.
Chen, Y., Eshleman, J.D. and Soileau, J.S., 2017. Business strategy and auditor
reporting. Auditing: A Journal of Practice & Theory. 36(2). pp.63-86.
Yuliansyah, Y., Gurd, B. and Mohamed, N., 2017. The significant of business strategy in
improving organizational performance. Humanomics.
Olson, E.M., and et. al., 2018. The application of human resource management policies within
the marketing organization: The impact on business and marketing strategy
implementation. Industrial Marketing Management. 69. pp.62-73.
Holotiuk, F. and Beimborn, D., 2017. Critical success factors of digital business strategy.
Razak, N.A., and et. al., 2016. Theories of knowledge sharing behavior in business
strategy. Procedia Economics and Finance. 37(1). pp.545-553.
Moseley III, G.B., 2017. Managing health care business strategy. Jones & Bartlett Learning.
Soltanizadeh, S., and et. al., 2016. Business strategy, enterprise risk management and
organizational performance. Management Research Review.
11