PESTLE Analysis of Tesco Plc: Understanding the External Environment

This report provides a PESTLE analysis of Tesco Plc, a British multinational groceries and general merchandise retailer. The report assesses the political, economical, socio-cultural, technological, legal, and environmental factors affecting Tesco's performance in the UK retail market. The report also answers three questions related to the analysis and provides examples of how Tesco's policies have taken account of the external forces.

Running head: INTRODUCTION TO BUSINESS MANAGEMENT
Introduction to business management
Name of the Student
Name of the University
Author Note

1INTRODUCTION TO BUSINESS MANAGEMENT
Introduction:
In order to enhance as well as maintain the revenue and performance of an organization,
it is highly crucial for the management to assess both external as well as internal performance of
the organization. The chief purpose of assessing the external environment of the organization is
to understand the rate of changes that are happening in the industry and the degree of complexity
associate with it. Clearly understanding the external environment helps the management to
understand the specific needs of the consumers and develop strategies keeping accordance with
it. In this report, the PESTLE Analysis of the Tesco Plc has been conducted. The Tesco Public
Limited Company is referred to a highly reputed British multinational groceries and general
merchandise retailer. The company has its headquarter at England UK. Apart from conducting
the Pestle analysis, three questions related to the mentioned analysis will be answered in this
report.
Pestle analysis of Tesco
In the following paragraphs the Political, Economical, Socio-cultural, Technological and
Legal environment of Tesco performing in the UK retail market will be performed.
Political Environment
Considering the fact that the mentioned company operates in 12countries across the
world, global political factors highly influences the performance of Tesco. The company has to
consider the tax rates, rules and regulations and the political stability of the countries in which it
operates. The political condition of UK is currently unstable. As a matter of fact, the UK
government has enhanced their VAT rate from 17.5 percent to 20 percent that has imposed a
negative impact on the business of the organization (Hammad 2015). The chief purpose of the

2INTRODUCTION TO BUSINESS MANAGEMENT
government is to enhance the annual revenue by 13 billion dollars. However, enhanced tax rate
have decreased the spending of the consumers. Thus it can be clearly understood that the
increment in tax rate in UK have depreciated the overall revenue of the company. Moreover, in
order to control obesity and medical issues associated with it, The UK government have
implemented the fat tax. This act have further decreased the sale of a good number of fast foods
retailed by Tesco.
Economical Environment
The government of UK is still recovering from the financial crisis that happened to the
country due to recession. According to the researchers, the economic growth rate of UK in the
year 2018 is 2.3 percent higher compared to that of the previous year (Rahman 2015). This factor
has imposed a positive impact on the company since higher per capita income will ensure higher
purchasing power of the consumers. Recession had enhanced unemployment in UK which in
turn had decreased the spending power of the organization. However, unemployment has
lowered the labor cost in the nation that has positively affected the company.
Socio-cultural Environment
Like other developed countries like USA and Australia, the population of UK is an aging
population. Decrement in the birth rate and increment in the life expectancy of individual can be
considered as two of the major reasons behind this. This factor has imposed a negative impact on
the supermarket chain of the company. Considering the fact that elderly citizens suffers from
several mobility issues and are thus unable to visit the supermarket on a daily basis, have
adversely affected the sales and revenue of the company. In order to cope up with this threat,
Tesco have implemented online shopping for grocery and household items. This approach have

3INTRODUCTION TO BUSINESS MANAGEMENT
been preferred by the elderly residents of UK which in turn have enhanced the revenue of the
company to a good extent (López López 2017). Moreover, since a good percentage of the
population is suffering from obesity related issues, the residents of UK are getting inclined
towards a healthy lifestyle. Since, majority a good number of food items retailed by the company
contain fat, the health conscious of the UK residents has adversely affected the company.
Technological Environment:
Being a developed country, the technology of UK is highly advanced. Retail
organizations of the nation enjoy excellent transportation facilities, 24*7 internet facility. Since,
Tesco runs online business along with offline business, developed technological infrastructure
has highly facilities the company. The excellent transportation system of UK helps in both
inbound as well as outbound logistic of the company. Timely delivery of products to the
supermarket chain helps the company to maintain its variety of products offered to the
consumers along with ensuring consumer satisfaction.
Legal environment:
Considering the fact that the mentioned organization markets a wide huge of products as
well as services, a good number of laws affects the business of Tesco. For instance, UK
government is currently reforming the agricultural policy of the nation. The government is
revising the direct subsidies that will be allocated to the farmers (Hadi 2012). These measures
have the potential to lower the subsidies which in turn will make it difficult for the farmers to
meet the agricultural standers as well as price set by Tesco. According to the new rules and
regulations of the government, fines will be imposed on retail organizations like Tesco in case
the management forces the farmers to sell product to the organization at a lower price than the

4INTRODUCTION TO BUSINESS MANAGEMENT
cost price. Apart from this, since Tesco offers several financial services to it consumers like
credit cards, loans and savings, the company has to follow the Financial Service Act (Felgate and
Fearne 2015).
Environmental factor:
In order to reduce the global worming rate, the UK government is imposing high emphasis on
the environmental sustainability of the nation. Being a well-reputed organization, the
management of Tesco is implementing several steps in order to protect the environment. For
instance, in the year 2016, Tesco has committed to reduce energy consumption and green house
gasses (Steger 2015).
Questions and answers:
1. Which of the external forces you have identified has most implications for the business?
While all of the external sources that have been identified imposed immense impact on
the business of the company, the most impactful environmental factors that impose immense
impact on the business is the Political, economical and socio-cultural environment of UK (Steger
2015). Considering the fact that the political rules and regulations impose high impact on the
business of the nation, the instability in the UK political environment of UK is resulting in
decrement of the revenue of the company. Similarly, the economic environment of UK, which is
slowly gaining stability, is also influencing the company to a great extent.
2. To what extent has the organization’s policy taken account of these forces?
In order to deal with the above mentioned issue associated with the external environment
of the company, the management of the organization have implemented several strategies. For

5INTRODUCTION TO BUSINESS MANAGEMENT
instance, one of the major issues faced by the company includes excessive inclination of the
consumers towards a healthy lifestyle. Moreover, as being discussed earlier, the government has
implemented fat tax on food products that contains fat. Al this have greatly decreased the
revenue of the company. In order to deal with this, the management has reduced the importation
of fast food items and enhanced the importation of organic food items. Moreover, in order to
clear out the remaining stock, the management has implemented a discount of more than 20
percent (Stümke 2017). Considering the fact that the nation is suffering from ageing population,
the company was facing labor issues. In order to deal with the issue, Tesco had implemented the
policy of exporting labors from corporately cheap labor markets like China and Australia.
Considering the fact that recession has lowered the capacity of the consumers to buy household
items, Tesco has implemented the policy of offering seasonal discount in order to encourage
consumers to buy products.
3. How should managers decide which of the many factors identified in a PESTEL analysis
they should attend to?
In order to make effective decision about which strategy needs to be implemented after
the PESTLE analysis, managers of TESCO should go through the pestle report thoroughly. This
will provide the managers with the overall overview of the external environment. The second
step that should be taken by the organization includes segregating the factors that are
implementing positive and negative impact on the organization. In the case of Tesco, The factors
that impose positive impact on the company are the Technological and Environmental
environment (Biscaro et al. 2012). The rest three factors that is the Political, Economical and
socio-cultural factor imposes several negative impacts on Tesco. In the third step exact issues

6INTRODUCTION TO BUSINESS MANAGEMENT
associated with the company should be identified so than effective solutions of the issues can be
developed.
If they have to be selective, what is the value of the PESTEL method? Referring to your
chosen organization, you are to elaborate with examples.
In order to analyze the external environment of company, several tools like PESTLE
Analysis, Porter’s five model and others can be used. Out of the tools, Pestle analysis can be
considered as the most crucial tool that provides an detailed overall picture of the industry as
well of the country. For instance, the management of Tesco has been able to identify the issue of
aging population of UK. This in turn has helped the organization to successfully eradicate the
mentioned issue.

7INTRODUCTION TO BUSINESS MANAGEMENT
Reference List
Biscaro, B., Lindvall, O., Tesco, G., Ekdahl, C.T. and Nitsch, R.M., 2012. Inhibition of
microglial activation protects hippocampal neurogenesis and improves cognitive deficits in a
transgenic mouse model for Alzheimer’s disease. Neurodegenerative Diseases, 9(4), pp.187-198.
Felgate, M. and Fearne, A., 2015. Analyzing the Impact of Supermarket Promotions: A Case
Study Using Tesco Clubcard Data in the UK. In The Sustainable Global Marketplace (pp. 471-
475). Springer, Cham.
Hadi, S., 2012. Retail supply chain a study of business models of select players from India and
developed countries.
Hammad, A., 2015. Strategic Change and Its Management to Expand Business Through
Implementation of Models: A Case Study of Boots UK.
López López, N., 2017. Different ways to assure the continuity of the business.
Rahman, M.M., 2015. Critical analysis of the influence of discount retailers on Tesco plc in the
UK.
Steger, J., 2015. Strategic Management of Mars Inc. A Combination of an Innovative
Management Philosophy and Familial Eccentricity.
Stümke, L.I., 2017. Business Diplomacy: The elucidation to ease multinational corporation’s
business risk in developing countries and conflict-prone zones (Master's thesis, University of
Twente).

8INTRODUCTION TO BUSINESS MANAGEMENT