Market Entry Environmental Analysis

This assignment focuses on conducting an environmental analysis for a business organization entering a new market. The core of the analysis utilizes Porter's Five Forces model to evaluate the intensity of competition, bargaining power of suppliers and buyers, threat of substitutes, and threat of new entrants in the target market. The report aims to provide insights into the external factors that could impact the success of the business in this new environment.

Business Organisation

Table of Contents
INTRODUCTION...........................................................................................................................1
Background of Tesco ......................................................................................................................1
Business environment of New Zealand...........................................................................................3
Analytical approach of this country.................................................................................................5
Data and graphs ...............................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................8

INTRODUCTION
Business organisation means individuals and group of people who collaborates to attain
specific business goals. Some are incorporated to earn profits for owners and few are formed as
non profit institutions. There business includes raising money and utilizing it for social welfare
programs. Organisations consists a specific hierarchy and working culture. Different business
concerns have different policies and objectives. This report is about Tesco which is one of largest
international retailer chain in UK. In this background of this organisation will be discussed
which may include financial information about company, annual reports, market share and
number of workforce in last three years. Business environment of this company also be analysed.
It will also consist identification of internal factors such as strengths and weaknesses and
external factors including opportunities and threats related with business. Porter's five force
model can be used to analyse micro environment of this organisation. It will help in developing
the competition in market place. This study is to identify feasibility of this organisation to enter
in new country i.e. New Zealand.
Background of Tesco
Tesco is an British multinational grocery retailer in UK. It is amongst third largest retailer
company in world and ninth largest in terms of profits. This organisation has its stores in around
12 countries of Asia and Europe. In UK, It is market leader in grocery sector.
Tesco was founded in as an market stall in Jack Cohen in 1919. First store of this firm
was opened in Barnet in 1931. This business expanded very fast and it had around 100 stores all
over the country till 1939. Initially, they were involved in retailing of books, clothing,
furniture, toys, electronics, petrol and software. It is listed in London Stock Exchange.
This company is committed in creating value for shareholders and they are developing
consumer focussed strategies through innovation. They are providing quality products and
services with guaranteed good prices. It is more focussed towards building consumer value and

loyalty towards their brand. They offers standard quality goods with wide range of possible
choices.
Currently, it has around 6,533 stores all over the world. Its subsidiaries are Tesco stores
Ltd, Tesco mobile, Tesco bank, Tesco family dining Ltd. Etc. Main aim of this organisation is
to remain market leader in retail sector by providing good quality services at reasonable costs
and achieve competitive advantages. They also wants to expand their business amongst all those
countries where it has not reached till now. It also aims to develop its online shopping site to
provide easy access to its customers and increase its market range.
Corporate policies- This company makes strategies for its own brand products. It
describes its core business purposes, principles, values and goals. One of their important
corporate strategy includes focussing on people that includes its customers and employees. Their
expansion strategy includes adopting new and innovative technologies in order to achieve
competitive advantages in today's scenario. They are providing services like mobile payment
wallet, barcode technology and payment through mobiles which facilitates ease in buying to its
customers. It is also focussing on Corporate Social Responsibilities which includes providing
some part of its profit for social welfare like education and health issues.
Financial information- Financial position of this firm is quite impressive during last
three years. In 2015, it had annual turnover of approx 55,197 and net profit of approx 54
millions. In 2016, it had turnover of 53,933 and revenue of 129 million. It has been a good year
for this company. There was huge improvement in sales ratio due to which profit has increased.
It had strong performance all over its stores. International sales also grew up by 1.8 % with
constant exchange rate. International profit increased by 11.4 %. It has strong strategies for
investment in financial resources which makes its financial scenario more efficient.
Market share- Tesco has approx market share of 30.2% in UK retail sector. Competition
is very intense in this sector as competitors like Sainsbury and Primark are developing their
business very effectively. Instead of that, it was successful in capturing largest market area due
to its quality standards and strong brand image.
Employees- It has around 476,000 workers employed which makes this company
amongst highest employment providers. There are effective policies and strategies for benefit
and welfare of its staff due to which it has highly motivated workforce working for its growth.

Risk of financial loss is major threat for every company. It is required to be prepared for
such issues. Tesco is very much focussed towards such risks due to which they have effective
financial risk management. To deal with such contingencies, this organisation is investing its
money in various profitable sources from where they can generate funds when any risk occurs.
Business environment of New Zealand
New Zealand is an small island nation with over 4.5 million population. It is located in
approximately 1,500 km east of Australia and about 1,000 km from pacific island. This is one of
the last nation to be found and settled. Business environment refers to external and internal
forces that will influence a organisation to do its business. These factors are related with political
scenario, legal issues, economy, population rate etc. Main components that are covered in
business environment of this country are as follows-
Governance – It is constitutional monarchy under England . This country governs itself
with parliamentary system with Prime Minister. Voting is conducted in three years to change
government. Two main political groups are the National party and the Labour party. Current
ruling group is National party. Its key policy includes-
 building a stronger economy
 investing in world class infrastructure
 providing better public services
 building a safer country
Population- Two third of its population lives in North Island and remaining in South
Island. Auckland is the largest city in this nation. This city is most ethnically diverse in this
country. Auckland has population of about 1.3 million. Total population of this country is around
4.5 million. People of this nation are known as 'kiwis' which is derived from native bird of this
nation. English is predominant language of New Zealand.
Economy- It has an open economy that operates on free market principles. Fertile soil
and excellent growing condition is the reason behind effective farming method and productive
primary sector. Various primary commodities are exported from here which is important for
GDP of this country. Along with that it has complementing primary production and sizeable
production and service sector. GDP of this country is 30% which is driven from its competitive
economy and export rate (Ford, and Condon, 2011.).

Inflation rate is quite low as monetary policy are managed by Reserve Bank and
independent central bank is charged with maintaining stability of price. Exchange rates are
flexible as there are no controls and restrictions on movement of goods and services. Its
economic indicators are as follows-
GDP ( in million)- Approx 4,596, 700
GDP growth- 3.3%
Unemployment rate- 5.8 %
Inflation rate- 2.2 %
Interest rate- 1.75 %
Crisis handling- This country is experienced in handling crisis. It has faced global
financial crisis in 2008 and that time it faced recession. But, in few years, recovery was done
mainly through exports and strong government.
Recent performance- By December 2016, its annual growth has rise to 3.3 % which is
the fastest rate of growth in last six years. According to New Zealand Treasury it was the
strongest performance till now.
Overview of health system- Healthcare and disability services in this country are
delivered by complex communication system of organisation and people. The minister of health
develops policy and provides leadership to this sector. It is focussed towards providing services
that are efficient and based on quality standards. Ministry has a wide range of roles as it is
principal advisor. It provides funds to national services which includes public health services.
If Tesco has to establish its business in this country then it can face following
challenges-
 Registration of any property can take two days to two steps as they need to obtain land
information memorandum through Land information New Zealand (LINZ).
 Getting electricity is most challenging element to set up new business in this country. Its
procedures takes around 50 days.
 Tax rates are quite high and there are various taxes that can be very time consuming.
 About 30 procedures are involved in enforcing any contract. Cost of attorney amount is
around 22% of claim.
 Dealing with construction permits is another major challenge as to obtain it, around 89
days are required.

Analytical approach of this country
Analytical approach is used to identify and break a problem into the elements to solve it.
This approach is helpful to analyse whether the entry of Tesco in this country will be favourable
or not. This can be done through three methods- PESTLE analysis and Porter's five force model.
PESTEL analysis- It includes external forces that may affect a company to start business
in New Zealand. PESTLE includes identifying following factors-
Political factors- To start business in this country, it is required to consider political
system. Labour laws are strict and workforce is expensive. Lending rates are high due to which
companies has to pay high taxes and it affects their profits. There is trade freedom of business in
this nation so, doing business here is quite easy. Main element is trade policy and regulations of
government. If these factors are stable than less chances of risks are there but in this country such
policies are not constant which may lead to high degree of danger for new companies.
Economical factors- Economic situation is excellent and per capita income is high.
Inflation rate is low and GDP is constantly growing (Singh, 2012). If an new organisation wants
to establish its business here, then, they have to spend a lot of money to earn good profit. It
invests around one fourth to GDP which helps this company to develop. So, people of this nation
has high purchasing power and they can afford luxury goods and services easily.
Social factors- Social system of this country is good. Banking system of this nation is
strong which invites foreign direct investments. This country has less population so it is helpful
in considering social factors in making business policies. People are educated and they have
strong knowledge of latest technology so, if an organisation establishes its business in this
country then they can hire highly effective and skilled workforce. Life expectancy rate is more
and mortality rate is high which is good for this country but not so better from prospective of
organisation. People gets benefits for long time even after retirement, which affects profitability
of company.
Technological factors- There is significant development in technological advancement in
this country. IT technology has been introduced here and internet usage is high in both urban and
rural areas. Modern facilities related with retailer sector are provided by government. Retailer
has to adopt these reforms to do efficient business in this country. It will help this organisation in

providing quality goods and services and create a good image amongst people. This could lead
to growth and survival in long run.
Environmental factors- This country has adopted various new technologies to deal with
garbage which does not allows it to pollute the environment (Ranjan, and Bhatnagar, 2011). It
has taken new initiatives to keep surrounding safe and free from dust and pollution. Tesco has to
keep these factors to get established in this nation. Apart from this, there are high risk of natural
disaster. So, companies can face loss due to such factors and it is not good for new firm.
Legal factors- International companies are invited to start business here as there is wide
scope to develop. International business community has full legal influence in this country due to
which Tesco can operate here without fear of legal implications in its activities. It can run its
operations in legal and lawful manner which could also lead to strong reputation of company.
Porter's five force model- This analysis is very important to identify the micro
environment which will assist in analysing company's power to enter new country. It is helpful in
knowing competition and threats in New Zealand which may affect working of Tesco. This can
be done in following manner-
Competitive rivalry- The rivalry in healthcare industry in this country is very intense
between retailing firms because there are so many grocery supermarkets in this country. This
force helps in identifying what is the intensity of competition and also determines number of
competitors available in market. Rivalry is mostly seen in advertising, and pricing strategies
which has high impact on any business.
Bargaining power of customers- Customers generally demands high quality products with
low costs and personalized customer support. Due to this competition is increasing in this sector
to satisfy these needs and demands. But some factors can reduce their bargaining power such as
high cost of switching, lack of substitutes available etc. Such forces helps in identifying how
much control a business can have on pricing. It determines number of competitors in same field.
If these are lower then firm has more power and business is in good position.
Bargaining powers of suppliers- Service providers are also involved in this scenario. It
results in increased prices of raw material which leads to less profitability to new entrants. It also
results in huge competition (Zairi, 2012). This scenario looks at the ways in which consumers get
affected by pricing and quality. If they are not satisfied with services of particular organisation
then they have power to switch to other service providers.

New entrants-New entrants are also increasing the competition level. Some market
players are taking advantages of it and entering in this market to give tough competition to
existing organisation in healthcare sector. This force helps in determining the risks of new
entrants and how they could affect business's market share.
Substitutes- It provides customers choice to fulfil their demands from other service
providers. High conversion cost and low value perception to convert can reduce this threat. It
looks at number of competitors and their prices and quality as compare to own business. It is
important to make an organisation's services better than others so that consumers will not switch
to other rival firms. This helps in retaining customers for long time which is good for company's
growth and profitability.
Data and graphs

CONCLUSION
From the above report it can be concluded that ,to set up business in New Zealand, this
company Tesco need to know everything about the country (Foss,and Knudsen, 2013). It is
required to study complete background information of the nation so that it will get easy to
operate there. Analysing economic conditions, population, GDP, inflation rate, interest rate is
very essential to get familiar with working conditions of this country. To know the feasibility of
success in new country it is required to identify strengths and weaknesses of organisations and
opportunities and threats available in the new country. PESTLE analysis is also necessary to
know the business environment of different market place. This report consists environmental
analysis to facilitate the organisation in knowing external forces. Porter's five for model is done
to analyse the competition and other threats related with new country.
REFERENCES
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Ford, C. and Condon, M., 2011. Introduction to “New governance and the business organization”
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Online
Porter's Five Forces .2017. [Online]. Available through
:<http://eopoku3.blogspot.in/2011/03/porters-five-forces-healthcare-industry.html>.
[Accessed on 15th November 2017].