Tesco's Global Growth and HRM

This assignment delves into Tesco's global expansion strategy, examining how their human resource management (HRM) practices contribute to their success. The analysis considers various factors such as organizational structure, leadership styles, and employee engagement within the context of international business challenges. Students are required to research and critically evaluate Tesco's HRM policies and procedures, drawing upon relevant academic literature and industry reports.

HRM
IN
ORGANISATIONAL
CONTEXT
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PESTEL ANALYSIS .....................................................................................................................3
PORTERS FIVE FORCE ANALYSIS ..........................................................................................7
KEY ENVIRONMENTAL ISSUES FACED BY TESCO ............................................................9
CONCLUSION .............................................................................................................................11
REFFERENCES............................................................................................................................12
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INTRODUCTION
To keep a business ahead of intense market competition, it is becoming crucial for managers of
business entities to study the external environment. This will further assist organisations in
making continuous modifications in their strategies to meet the changing needs as per the
environment. For that reason, multinational corporations need to study the external environment,
as they need to be successful in the highly competitive global business operations that exist today
(Kew and Stredwick, 2008).
In this report, a critical analysis of the external environment of TESCO PLC will be
provided. Tesco is a giant British public limited company, functioning in the grocery and general
retail industry since 1919. The company is providing valuable retail products and services
through more than 7817 stores (About Tesco, 2013). Tesco has also diversified its operations
through the years into various areas like, electronics, digital, financial services, telecom and
home decor products. Tesco provides a wide range of products and services in the marketplace in
an ethical manner which creates its distinctive image in the marketplace. It has 500,000
employees across 13 countries and it manages its workforce and employees by adopting several
kinds of strategies which in turn can create a competitive edge in the marketplace (Breach of
grocery code, 2013). Here, the organization adopts effective marketing tactics so as to attract
more buyers and meet their expectations in an effectual manner. In addition to this, Tesco group
made £69.7bn worth of sales in 2015 and a profit of £1.4bn (Annual report of Tesco, 2015). In
this report, the impact of the external environmental factors on Tesco will be explained through
the PESTEL analysis. The competition in the retail industry will be discussed by explaining the
selected tools.
PESTEL ANALYSIS
The PESTEL analysis is a key framework used by marketing managers of Tesco to study and
supervise the external environmental factors that can affect the smooth functioning of the
business enterprise (Snape and Redman, 2010). The main objective of utilizing PESTEL analysis
is that it helps in grasping the upcoming business opportunities and giving an advance warning
against important threats. It further helps in structuring competitive business strategies that are
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important for entering new markets in home country as well as foreign countries (Hill, 2008).
The PESTEL analysis of Tesco is as follows:
Political Factors: It refers to rules, regulations and policies framed by the government of the UK
that can impact the functioning of Tesco (Ndungu, 2014). This further involves tax rates, policies
and acts of laws passed by UK and foreign government where the company operates. Thereafter,
it also includes stability of UK. For instance, the government of UK has introduced Employment
policies whereby it encourages the retail organisations to generate job opportunities for the UK
population (Ardy and Umbach, 2004). This will further assist the government in reducing
unemployment rates. In this respect, Tesco is providing a blend of job opportunities ranging from
highly paid, extremely skilled and jobs at central locations (Truss, 2001). Presently, the company
is providing employment to more than 5000,000 employees, many of whom are students who
provide part time services, aged people who don't have other sources of earning and disabled
individuals. Therefore, the company improves the standards of living of various individuals by
generating employment (About Tesco, 2013). Political factor is important for taking decision
with regards to trade barriers and import export policies (Bernard and et.al., 2007). In this
respect, Tesco is intending to enter the Singapore markets, which requires the company to
consider government policies of the target foreign country. For example, one of the policies
implemented in Singapore prevents companies from appointing foreign workers or employees.
Therefore, Tesco while developing new stores in the host country should ensure that it appoints
local citizens of Singapore only. However, due to this factor the company may face shortages in
workers as most of the local citizens prefer working in local companies as they understand their
cultural, social and other needs perfectly. (Successful global growers. 2015).
Apart from this, the intensity of market competition in the retail industry is quiet high.
Tesco is facing direct market rivalry from organisations like Sainsbury, ASDA and Next.
Competition has also increased recently due to the emergence of discount retailers such as Aldi
and Lidl who have presently doubled their market share in the UK. However, Tesco is leading
the market with a 27.9% share, compared to 16.6% for Sainsbury and 16.4% for ASDA (Market
share of retail organisations, 2015). Therefore, Tesco needs to make innovations and develop
unique products and services, in order to maintain its market share.
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Economic factors: It refers to economic policies, interest rate, exchange rate etc. It
further involves inflation, GDP, GNP and disposable income that impacts the business decisions
of Tesco (Ndungu, 2014). For instance, the recession in 2008 in UK adversely affected the
functioning of Tesco and it further affected the demand of high end products offered by the
company. Presently, the interest rate of UK is 0.5% which means the company can borrow funds
at a lower interest rate and invest in expansion projects and other growth activities (Economic
policy, 2015). This will further help the company in gaining a competitive advantage over its
rivals. Further, the gross domestic product “GDP” of the UK has increased up to 2.7% which is a
positive indication (Monetary policy, 2015). Therefore, the growth in economy will result in
growth in the retail industry and more business opportunities for Tesco to enhance its
productivity and profitability. In addition to this, unemployment rates are reduced and it is
currently at 5.3% which is a low percentage compared to past years (Economic policy, 2015).
This has further provided more purchasing power in the hands of customers. With this aspect, the
company is now able to offer more goods and services to its customers. However, to meet the
needs of customers in a better way, Tesco is required to be innovative and to develop new
technologies and design products in a creative manner In this respect, company have started a
interactive 3D store that will assist business in integrating online shopping experience with
traditional store shopping experience. In addition to this, Tesco have launched smart phone
applications so customer can do shopping anytime at any place (Tesco innovation in retail,
2014).
Another factor which can affect Tesco’s business is the negotiation power available at the
suppliers’ end. The suppliers of Tesco enjoy a low bargaining power due to the fear of losing
their business contracts with the giant retailer. Tesco’s strong reputation in the market, the large
number of suppliers of food products in the UK, in addition to the company’s ability to import
cheap raw material from neighboring countries, all of these factors influence suppliers to stay
associated with the company. Therefore, the costs associated with replacing suppliers are low for
Tesco PLC (McEvily, Perrone & Zaheer, 2003). However, the company is required not to exploit
the suppliers and force them to sell below the market prices. If the company does so, it will be
violating policies of the competition act and lead to strict governmental actions (Snape and
Redman, 2010).
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Social factors: They involve social and cultural aspects of the country where the
company is offering its services. They also involve the population growth, age distribution and
considerations of health problems of the targeted customers (Nelson, 2015). The change in terms
of tastes, fashion and preferences in the social trends of the UK indicates that customers prefer
bulk buying at centralized locations, therefore, Tesco is trying to offer diversified ranges of
products through its convenience stores (Yang and Lin, 2009). With this aspect, the company has
also increased the quantity of non-food items provided for sale. The recent analysis of the
population in the UK states that the number of retired individuals is more than youngsters.
Therefore, to ensure convenience to elderly people, the company is providing its services
through an online medium. In addition to this, the company also started providing free home
delivery services recently and with such services are still not provided by many retailers and thus
they are giving Tesco a competitive advantage. For instance, John Lewis Partnership firm
charges £2 for orders less than £30 (Delivery at John Lewis, 2014). Further, with the growing
health consciousness among customers in the UK, the company is now providing organic food
products (Snape and Redman, 2010). Being operational in the retail industry, the company faces
an increased threat of substitution of products and services. Customers no longer believe in
loyalty to one brand, therefore, they can easily switch to rivals’ products and services (Toh,
Morgeson and Campion, 2008). To minimize the threat of consumers substituting Tesco’s
products with rivals’ products, it is important for the company to improve the quality of its
products. This will provide a competitive advantage to the company (Meyer and et.al, 2002). It
can use technology to improve marketing activities and thus boost the sales of the business. For
that reason, the company has also diversified into non-food products where the threat of
substitution is lower (Fernando, 2011). This further assists the organization in ensuring
convenience to target customers by providing a wide range of products at one centralized
location. Further, to overcome the threat of substitution, Tesco reduces the cost of its products
and also provides attractive offers to gain the attention of prospective customers. It also markets
its products and services to create a sense of loyalty among customers (Bloom and Michel,
2002).
Another social factor is the negotiation power available in the hands of customers, as it might
reduce the proficiency of the company (Porter and McLaughlin, 2006). With the increasing
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number of competitors in the retail sector, such as ASDA, Sainsbury and Aldi, this has benefited
buyers as their bargaining power has increased. The products of any company can easily be
replaced (Kew and Stredwick, 2008). Therefore, Tesco gives a proper consideration to the
satisfaction of its prospective customers. It keeps affordable prices and also uses promotional
activities such as discount, rebate and coupons that help in increasing customer satisfaction. It
also offers ClubCards that help the company in gathering information about purchasing patterns
of consumers. Therefore, Tesco can use customer data and information to develop new products,
make innovations in existing products and fulfill the emerging needs of customers in a better
way (Toh, Morgeson and Campion, 2008).
Technological factors: Such as research and development activities and technical
changes that are important for the company to survive in the long run. To keep an edge with
competitors, it is important for the company to upgrade its technology and adopt new processes.
This improvement in technology is also providing new opportunities for the company (Snape
and Redman, 2010). The evolution of the internet shopping accompanied with home delivery is
the best example as the company is now able to provide effective services to target customers.
This has further reduced problems of over-stocking and under-stocking and provides services to
customers round the clock (Wright, Snell and Dyer, 2005). Technology has also allowed Tesco
to provide self-service points, this is another example of the effective use of technology that is
resulting in a reduction in labor outlay and enhancing comfort to target customers. It also allows
the company to use digital platforms to market its products to a wider audience and boost its
sales (Porter and McLaughlin, 2006). In this aspect, the company can develop new shopping
applications which enable customers to use mobile applications for buying products and services.
Furthermore, the company can invest in new technologies regarding projects on energy
efficiency which will further assist the organization in attaining its mission to minimize carbon
footprints (Snape and Redman, 2010).
Environmental factors: These include the environmental aspects that can impact the
functioning of Tesco’s business activities. With the increasing concern among government and
society regarding environment conservation, it has become important for Tesco to consider
environmental factors properly (Lynch, 2009). In this respect, the company is investing
significant amounts of capital in energy efficiency projects that will help in reducing carbon
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footprints. Also, the company currently operates six stores generating zero-carbon, out of which
four are functioning in the UK. This has helped Tesco utilize 66% less energy than other outlets.
In addition to this, Tesco PLC uses rainwater harvesting methods and utilizes the same source of
water for cleaning purposes to maintain its good position in the marketplace (Tesco innovation in
retail, 2014). It is also implementing a Passive InfraRed lightning system which senses
movements inside the stores and disconnects the electricity when all employees and customers
have left. Further, the company is using Co2 in refrigerators rather than other gases that are more
harmful for the environment (About Tesco, 2013). Tesco is investing in energy control systems
that reduce the redundant use of energy. It is also taking significant steps for reducing waste
produced in its stores by enhancing ethical production in the marketplace (Porter and
McLaughlin, 2006). Constantly keeping the environmental perspectives in mind, Tesco is also
installing renewable energy processes like, solar panels, wind turbine, and ground source heat
pumps. It facilitates to make the environment clean and safe for local community (Wright, Snell
and Dyer, 2005).
In recent years, Tesco has been encouraged to reduce all the negative impact of its
operations and activities on the environment. It has also been forced to use more sustainable
practices. The issues which have been faced by the organization are related to energy saving,
climate change, forest conservation, farmlands and marine conservation. These issues are
mentioned below as:
 Climate change- The global warming, due to activities and operations of businesses, is
considered as one of the biggest threats to the environment (Mason, 2007). Tesco has
been forced to use more sustainable practices and to lower its rate of carbon emission
 Farmlands- The retailer is also facing issues related to the adoption of more sustainable
practices during agriculture. This includes products from livestock to other non food
agriculture products(Gabriel, 2004) (Gabriel, 2004).
 Forest- Another major issue which has been faced by Tesco PLC is the cutting of trees.
The retailer has been forced to use practices which do not promote or lead to any kind of
a deforestation. This led Tesco to revise all of its plans and policies and aim at achieving
zero net deforestation (CSR report of Tesco. 2015.).
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It can be stated that the retailer is required to ensure its operations do not impact the
environment negatively, and to conduct corporate social responsibility initiatives toward
the society. However, with the intense competition, achieving a competitive advantage is
not easy in such situations. Therefore, Tesco PLC should introduce sustainable practices,
to save the environment; avoid violating the law and to promote these practices to
enhance its reputation and market share (McEvily, Perrone and Zaheer, 2003). This will
create a sense of satisfaction among customers as well as employees, which in turn will
enhance Tesco’s brand and employer image (Toh, Morgeson and Campion, 2008).
Therefore, it can be stated that in order to survive and grow in the market, the retailer is
required to overcome all the environmental related issues which it is presently facing
(Cini and McGowan, 2008).
Legal factors: The legal factors include all the legislative policies that have a direct
impact on the functioning of Tesco PLC’s operations. It involves various laws generated by UK
government, such as employment, competition, health and safety and consumer protection law
(Kew and Stredwick, 2008). Therefore, the company is also required to consider various laws
applicable for the retail industry. In this respect, the Food retailing commission has generated
guidelines for retail companies under which an organization cannot modify its prices before
giving a prior notice to its different stakeholders (Meyer and et.al, 2002). This competition
policy is preventing Tesco from increasing the prices of its goods and services, otherwise buyers
are likely to shift towards the offerings of its rivals (About Tesco, 2013).
It is also creating rivalry and fierce competition between Tesco and other retailers, forcing them
to indulge in and abide by healthy trade practices (Yang and Lin, 2009).
The competition policy also includes other policies, such as the grocery code of practice.
The main objective of this policy is to protect grocery retailers from unethical practices and
enables them to work by considering well being of general communities and related
stakeholders. However, the company is accused of breaching the grocery code of conduct and
therefore it is liable to pay a penalty up to 1 % of its gross turnover (Breach of grocery code,
2013). This breach has caused a negative impact on the reputation of the company. Another legal
factor is the health and safety law, it is important for Tesco to maintain health standards of
employees by providing a safe and healthy work environment. In this respect, the company
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maintains the hygienic levels of its stores and ensures they are cleaned regularly with
disinfectants. Furthermore, considering the discrimination policy, Tesco is required to provide
equal employment opportunities for women, men and disabled individuals. Therefore, the
company cannot discriminate on the basis of gender, religion and nationality etc (Bloom and
Michel, 2002). This encouraged the company to pay special attention to its recruitment and
selection programs and ensure equal opportunities are provided to all the competent candidates
(Cini and McGowan, 2008).
Such as new firms that can enter the retail industry and perhaps increase the competition
for existing organisations. The company faces a low threat of new local entrants due to the high
costs of setting up retail stores. Here, new firms find it difficult to get economies of scale and set
business in cost effective manner. Owing to this, Tesco can effectively work in the direction of
growth and success (Gabriel, 2004). However, due to policies such as liberalization and
globalization, the company may face a threat of foreign retail companies entering the UK market
(Bloom and Michel, 2002). Tesco PLC has been operating in the retail industry for the past
ninety-six years, its good reputation may therefore reduce the threat of new entrants, as it enjoys
brand recognition among its customers and this is a benefit which is not available to new entrants
(McEvily, Perrone and Zaheer, 2003). The main advantage available to Tesco is its capability to
buy in bulk quantities, which assists in providing competitive prices (Bloom and Michel, 2002).
Taking the above in consideration, Tesco PLC is investing in its services and products to meet
the needs of target customers and to enhance brand loyalty (Fernando, 2011).
Hence, from the aforementioned external factors, it is evident that the company is
makings constant modifications through its processes. By adapting to the changes as per the
environment, Tesco can survive in the long run. This adaptation can enable it to design
competitive business strategies which will assist in enhancing productivity and profitability
(Truss, 2001).
CONCLUSION
It is evident from the above analysis that organisations cannot achieve success without
using their external environments to their advantage. Through analyzing the external factors
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affecting Tesco PLC’s operations, it can be concluded that the company may achieve a
competitive advantage, through constructing a business strategy which caters to all these external
factors. The PESTEL analysis provides a better understanding of the market, in which the
company is functioning, as well as the legal, environmental, social and political situations and
constant changes in the UK which organisations must take into consideration. Considering the
political factors it is important for company to consider various policies like, competition,
employment etc to avoid government intervention. Thereafter, economic policies have overall
positive impact on organisation therefore, it can grab the upcoming business opportunities
(Porter and McLaughlin, 2006). Further, social factor states that online shopping trend in
increasing among customers, therefore, more products should be offered online. Considering the
technical factor, company is engaged indifferent technical innovations like, developing 3D
stores, shopping apps etc. Thereafter, with growing environment concern among society
company is paying more attention on environment perspectives. Furthermore, various laws
generated by Food retailing commission and UK government are considered by company
effectively while operating (Ndungu, 2014). As,Nnot abiding by the law in terms of business
operations can be costly and may lead to violations and penalties.
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