Analysis of Tesco's Internal Resources and Competitive Forces

This report analyzes Tesco's internal resources and capabilities using the VRIO model, evaluates the impact of key drivers of change in the external environment on its entrepreneurial activities, and assesses the impact of competitive forces on its profitability. The report also provides insights into Tesco's position in the global market and its strategies for maintaining a competitive advantage.

REPORT based on
TESCO company

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Analysis of the firm’s internal resources and capabilities..........................................................3
Identify the key drivers of change in the external environment and evaluate their....................5
impact on the entrepreneurial activities of the organisation......................................................5
Evaluate the impact of the main competitive forces that are influencing entrepreneurial
activities and profitability...........................................................................................................6
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Tesco is a leading multinational company dealing in general merchandise retailer and
groceries. Its headquarter is situated in Welwyn Garden City, Hertfordshire, England. The
organisation has expanded its operations in seven countries across Europe and Asia with leading
market share in Hungary, Ireland and Thailand. The company was established by Jack Cohen in
1919 and its name was first appeared after Cohen had purchased a shipment of tea in 1924. Since
1990, Tesco has globally expanded its business with initially in eleven countries but due to
downfall in market in various countries, it now operates in seven countries. In terms of gross
revenue, the company is third largest retailer across the world and in terms of revenues, ninth
largest in the world (Domański and Łabenda, 2020). This report is based on the study of the
company Tesco, where its internal resources and capabilities shall be analysed using VRIO
model, its external environment shall be analysed through PESTLE and Porter's five forces shall
be used for analysing the impact of its competitive forces on profitability and entrepreneurial
activities.
TASK 1
Analysis of the firm’s internal resources and capabilities
The resources are the real assets for an organisation and the capabilities shall be defined
as a company's ability to make efficient use of the resources in order to give future advantage to
the organisation. For analysing Tesco's internal resources and capabilities, VRIO model shall be
used.
The VRIO framework is a tool for strategic analysis which is designed to help the
company to protect and uncover its capabilities and resource so that competitive advantage shall
be given to the firm for longer time (Lopes and et. al., 2018). It is a four question framework
which includes value, rarity, inimitable and organisation. The VRIO framework for analysing the
internal resources and capabilities of Tesco is discussed below-
RESOURCES VALUE RARE IMITABLE ORGANISATIO
N
Financial Resources YES YES YES YES
Employees YES YES YES -

RESOURCES VALUE RARE IMITABLE ORGANISATIO
N
Distribution Network YES YES - -
Local Food YES - - -
Value- The resources that add value to the company are valuable resources.
 Financial resources- These are highly valuable as it helps in investing the funds in
external opportunities that may arise anytime. These resources help in combating the
threats which are externally available so that it does not harm the goodwill and position
of the company.
 Employees- For Tesco, its workforce are its valuable resources as they are highly trained
which gives productive output to the company (Indartono and Wibowo, 2017).
 Distribution network- It is also regarded as its valuable resource because it helps in
reaching large audience quickly. This helps the company to generate more profit and
revenue by converting its promotional activity into sales. Local food- Another valuable resource includes its local food product which are highly
differentiated and gives more competition to the competitors.
Rare- These comprises of those resources which are rare and puts company in competitive
parity.
 Financial resources- Tesco have the rare and strong financial resources which add to its
capability in order to take a competitive edge in the market.
 Employees- They are considered as rare resources as they are highly skilled and trained
which are not available in other companies. Tesco ensures that it provides healthy
environment to its workforce in order to keep them consistently. Distribution network- Tesco has got the distribution network as its rare resource
because every company struggles to get a better distribution channel and invests a lot of
time and money into it. Tesco is possessed with the rare distribution channel that can
reach its target audience (HoLEE, 2020).
Imitable- These include those resources which cannot be imitated easily.

 Financial resources- These resources cannot be easily imitated by the other firms as the
company has acquired it after great hard work and prolonged profit. Employees- The workforce of Tesco are not imitable as every Human resource is
different from the other and possess different capabilities. The loyalty of the employees
hired in Tesco gives it competitive advantage in order to succeed in market.
Organisation- These include those resources which are organised in the company and gives
better competitive advantage to the firm.
 Financial resources- These resources of the company is organised as these are
strategically invested by the organisation at the right place for grabbing the opportunities
and combating the threats (Yan Kang, 2017).
Identify the key drivers of change in the external environment and evaluate their
impact on the entrepreneurial activities of the organisation
In order to analyse the external environment of Tesco, Pestle analysis shall be used which
will help in identifying the key drivers for change. PESTLE analysis is the tool which is used to
monitor the macro environment factors which may impact the performance of the organisation. It
includes six factors which are discussed below in context to Tesco company-
 Political- It includes the extent of the government intervention on the company or in the
economy. It is the influence of the government on the company. In context to Tesco, the
company operates globally in different countries so it has to comply with the regulations
of different locations (Policy, 2018). Apart from this, it has to keep a check on the
political circumstances which may change anytime. For instance, the political instability
of any country may impact the organisation and its performance as it has to re-update its
policies.
 Economic- These include the factors which may affect the performance of economy.
Tesco offers wide range of products across the world and economic factors may affect the
consumption of these products. For instance, the organisation has to keep an eye on the
economic changes which occur in the country which may affect its profits and revenue.
Factors like inflation may affect the purchasing power of the people which will have
direct impact on the sale of the company. In-fluctuation in the foreign exchange rate also
affect the revenue of the company (Chatzoglou and et. al., 2018).

 Social- It represents the demographic characteristic, custom, norms and value of the
people within which the company operates. In context to Tesco, the demand of the
population nowadays depend upon the societal influence. The changing trends in the
culture needs to be assessed by the company so that it can meet the demands of its
customers. Employment is such factor which impacts Tesco it is now focusing on hiring
the local employees in order to generate employment opportunities in the international
country (Lam, 2018).
 Technological- It includes the technological changes in the environment. Tesco is
working towards experimenting with the technology and worked towards expanding its
business online in order to influence the customer with technological benefits (Shokeen,
2016). This has impacted the company and resulted in raising its revenue from both
offline and online shopping.
 Legal- It includes the legal requirements which affect the companies. As Tesco is a
global company, it has to comply with different nation's policies and laws by following
domestic and international laws for its smooth functions. This impacts the company's
operations as it has to comply with each country's law so that it can maintain its
reputation.
 Environmental- This factor have come into front due to scarcity in resources and the
impact on environment from the industrial operations. Tesco has to work towards
improving the environment so that a sustainable society is created. For instance, the use
of plastic bags has been prohibited which impacted the company due to which it brought
a change by initiating removal and reduction of non recyclable plastic (Anand and
Mantovani, 2019).
Evaluate the impact of the main competitive forces that are influencing entrepreneurial activities
and profitability
Using Porter's five forces, Tesco can find out its competitive forces which influence the
entrepreneurial activities and its profitability. It is a model which helps in analysing and
identifying the competitive forces which gives shape to every industry and determine the
strength and weakness of the company (Min, Liangwen and Yue, 2018). The analysis of Porter's
five forces in context to Tesco are-

 Threat of new entrants- It refers to the force which may affect the company by new
entrants which comes into the market to capture the market share of established
companies.. The power of this force is low as Tesco is a global brand which cannot be
affected by any entrant as it requires major cost and time to establish the brand value that
Tesco has created in the market. The barriers to enter into retail industry are less but it
involves large cost to establish its enterprise in the market.
 Threat of new substitute- Close substitutes may enable the customers to switch their
preference to new alternative in case when price increases. The company Tesco sells
wide variety of products which are highly comprehensive (Lewis, 2017). The power of
this force is high as the supermarket offers variety of substitute products which may
enable the customers to shift to other substitute.
 Bargaining power of suppliers- It refers of the force which drive suppliers to increase
the price. Tesco has a numerous suppliers and the power of this force is low as suppliers
avoid to switch the cost. The dominating suppliers may negotiate the price but Tesco has
hundreds of suppliers which don't negotiate on the prices (McAran and Manwani, 2016).
The company uses its bargaining power for delay payments but does not allow its
suppliers to bargain. This impacts the competitiveness of Tesco in low manner.
 Bargaining power of buyers- Customers often demand more. Tesco has large number of
customers which make the power of this force moderate. It gives opportunities to the
company to increase their sales (Meyer and Cohen, 2018). The company deals with large
customers which requires the company to bring offers and discounts in order to retain
them. This impacts the competitiveness of the company which affect the profitability of
Tesco.
 Rivalry among existing competitors- The competitors in the supermarket chain are in
numbers. It may result in lowering the profitability of the company due to price issue.
The power of this force is moderate as people tend to shift to such alternatives which
brings low price strategy. The company spends huge funds on promoting its products
which impact the competitiveness of it.

CONCLUSION
From the above report, this is concluded that Tesco is a leading global business in
groceries and retail industry. It has acquired this position in the global market by combating the
threats and adopting the opportunities existing in the market (Martínez-Ruiz and et. al., 2016). In
order to analyse the internal resources and capabilities of the company, VRIO model is used
which gave the analysis that the valuable, rare, imitable and organised resources of the firm gives
the company competitive advantage which makes it stronger in the market. For the analysis of
external environment, PESTLE model was used which resulted that the social and technological
factors create a positive impact on the company whereas the political, economic, legal and
environment creates a negative impact on the profitability of the company. In order to evaluate
the impact of competitive forces, porter's five forces is used as a tool to see the competitive
impact on the firm. Tesco is a well established brand with cannot get affected from the
competitive forces. The threat of new entrants has the low power to impact its position while the
threat of substitute may affect the company's profitability as its power is moderate. The
bargaining power of suppliers is low and the buyer's bargaining power is high which affect its
entrepreneurial activities and profitability. At last the rivalry among the competitors act in
moderate power which may affect the revenue generation of the company. Hence, it can be said
that Tesco has a established brand value which cannot get influenced from the external or
internal capabilities. It cannot get affected by the new competitors easily.

REFERENCES
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