(PDF) Report On A Contemporary External Strategic Environment

REPORT ON A
CONTEMPORARY
EXTERNAL STRATEGIC
ENVIRONMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................1

INTRODUCTION
Strategic external environment refers to a process of conducting research on company
and its main strategy to formulation of organisation and brings the important information and the
evaluating the inside and outside of the organisation is called as strategic analysis. Aldi is a
multinational company established in Germany dealing in retail industry founded in 1962
introduced by the two German brothers. TESCO is an international company which is
established and situated in England, United Kingdom with the third largest retailer in the world.
TESCO is dealing with groceries and general merchandise, founded in 1919 by jack Cohen as
group of market stalls. In this report, an analysis has been presented on the external environment
of these two companies and with reference to the article selected appropriate inferences and
implication have been drawn.
MAIN BODY
External Strategic Environment is basically concerned with the strategies that a
company adopts while operating in external environment. There are a variety of factors that
impact an organization while dealing in external environment and it is crucial for every
organization to take this aspect into consideration in order to compete and perform in the market
in a better manner.
The selected article compares the economic environment in which the two major
competitors in the retail industry operate i.e. Aldi versus Tesco (The Aldi effect: how one
discount supermarket transformed the way Britain shops, 2019). This article takes into purview
the economic environment in which the company operates.
Comparison of the economic environment of both the organizations
ALDI: When Aldi first opened its stores in UK, it was perceived as a failure because customers
of UK were perceived to be less price sensitive and more quality oriented. In a period of two
decades, as recorded on 2009, the company was found to be holding only 2% of the entire
market share. This was then compared to the data recorded in 2017 which boasted about the
magnificent rise upto 20% of UK and Ireland’s market share (The Aldi effect: how one discount
supermarket transformed the way Britain shops, 2019). Aldi has developed themselves from a
failing store to one of the supergiant taking down retail super power of UK i.e. companies like
Tesco etc. Despite some of the controversies in which Aldi has been involved related to
copyright etc., the company adopted a hard core discount strategy to establish themselves in the

British economy. They adopted the policy of giving discounted products manufactured under
their own brand name rather than selling the cheap products manufactured by other brands since
UK being a rich and wealthy country focusing more on quality rather than quantity. This helped
them in establishing their brand in earlier days and setting a particular manner in which the
customers expected the store to operate. Another major economic measure adopted by the
company was considering wage as an important factor. Rather than m employing on a job
specific basis, Aldi utilised the number of hours worked strategy to establish themselves, i.e. an
employee could perform the duty of a clerk as well as a cleaner according to the need of the
hour. This helped them in controlling wage expenses which is a major cost of operating stores in
UK. By adopting these strategies, the company was able to root themselves in the economy of
UK in a manner that they became confident of their eventual success.
TESCO and SAINSBURY: Tesco and Sainsbury, two of the leading retail stores of UK were
the most preferred spots by consumers providing the flexibility of one stop shopping providing a
vast range of products catering to multiple needs of the consumer. When Aldi entered, they were
mocked by the managers of Tesco and Sainsbury claiming that Aldi was going to fail. These
giants impacted the economy in a vast manner since they employed over 300000 people (Tesco)
being largest private sector employers (The Aldi effect: how one discount supermarket
transformed the way Britain shops, 2019). Ultimately, they had to copy the strategies adopted by
Aldi like formulating their own brands under which products were cheaper but of greater quality.
Unlike, Aldi; they failed to study and evaluate their market regularly and this led to crashing of
these two superpowers. Further, the inflexibility in the prices that Tesco and Sainsbury purported
while consumers shopped in their organization s was another additional feature in ultimate
failure.
Therefore it can be concluded that success of organization like Aldi beating retailers
Tesco and Sainsbury is credited to the extremely resourceful economic strategies adopted by the
company itself.
Strategic Implications of the strategies adopted by Aldi
There were some major points that Aldi incorporated in its establishment and expansion
strategy throughout UK which if they had been adopted by Tesco, it would not have led to its
ultimate failure:

 Aldi created its own private label and brand for almost all of the products that it intended
to sell in its store (Roberts, 2018). This helped them in targeting and conquering the
consumers based on their own brand so that their revenue as well as reputation was not
depended on other brands. Since the company adopted this strategy form its initial days,
the company was able to maintain this strategy even after its success. This assisted the
company in adopting discounted pricing strategy without compromising on the quality of
the products sold by them (Hamilton and Webster, 2018). Tesco was extremely late in
formulating such far fetched goals and aims for the company and by the time they
launched their own brand, the market became too saturated for them to success.
 Rather than focusing more on the display and glamour, Aldi store targeted the
consumer’s ease in shopping and rummaging between the aisles. By placing their super
discounted products in the “Middle Aisle” made the brand extremely famous and
popular earning names like “Wonder Aisle”, “Aisle of Shite”, “Treasure Aisle-land” etc.
which gave free marketing and popularity to the company (The Aldi effect: how one
discount supermarket transformed the way Britain shops, 2019). Tesco and Sainsbury
failed to incorporate these strategies and rather focused on the glamour and display of the
company (Crafts, 2016). The massive expenditure on advertisements done by these two
companies was an additional cost that they were incurring.
 Location was an additional feature used by Aldi where they ensured that their stores were
easily accessible to the public. They also used a brilliant strategy of opening their store in
cheaper location in the initial period so that cost could be minimized. Tesco failed to
incorporate such strategies and therefore the company who perceived their consumers to
be weekly visitors who bought all the necessary items in one visit was proved wrong.
Aldi highlighted the fact that despite weekly visit there are many things that a consumer
buys from a nearby vendor (Leitner, 2016).
The wider context in terms of trends, drivers and prevalent discourse of the company
 E-commerce is the major trend in retail sector, there are many firms which are
providing services online. Statistical records show that there is rise in 3.2% in sales which
is about worth of 22.9 bn (The Aldi effect: how one discount supermarket transformed the
way Britain shops, 2019). As online sales of Asda has been raised to great extent which
has resulted in raising overall profit of company to great extent.

 Economic of scale is considered as important driver that contributes well in the
success of business unit. If the firm has good funding capacity or have great
financial resources, then it helps in expanding business to great extent. Over a period of
time Aldi’s strategies have created threats for other retail organization which has affected
the entire retail industry to great extent (Gilbert, 2015). Aldi has revealed that it will not
get affected by competition, if competitors make changes in their pricing strategies then
also Aldi will not make changes in its existing prices tactics. Aldi has emphases on needs
of consumers and offer them products and services as per their requirements. Aldi wants
to provide 15% basket discount to its potential buyers. This driver has changed the
situation of Aldi to great extent (The Aldi effect: how one discount supermarket
transformed the way Britain shops, 2019). Due to having high competition Aldi has
raised its sales as compare to other competitors.
 Shoppers of Aldi are well aware with its pricing strategies hence prefer to buy
such products from its retail stores. Whereas prices of products of Tesco is higher than
other competitors. Due to discounting strategies of Aldi all other retailers were forced to
decrease their prices which have affected their profitability badly (Tse, And et.al., 2016).
Aldi has implemented the strategy to keep the rates of goods low and give major benefit
to shopper only. Price is the major driver which has influenced the operations of entire
retail industry to great extent.
Consideration of entire Industry and specific organization that has been selected i.e. Aldi
Industry as a whole includes the entire retail industry of UK and when this is considered.
Initially, there were only four major retailers operating in the retail industry of UK and all of
them worked on similar models having low competition amongst themselves (Kim, Hallsworth
and Kim, 2019). Instead of adopting a differentiated pricing strategy, all of them focused on
incorporating a variety of product range under their own store and ensure that no desire of the
consumer goes unattended. Since customers of UK are perceived to be rich, they focused not on
the price but on incorporating best quality products in their store. This created redundancy in the
retail industry and there were no major modification or trends. Further, instead of modifying and
concentrating on their home country, the companies were focusing on international expansion
and many of the churning issues in economy o9f UK were ignored (Wang, Sanchez Rodrigues
and Evans, 2015). For e.g. in 2008, along with inflation the all the major retailers also increased

their prices and this increase in prices forced the consumers to seek other options where good
quality products could be purchased at cheaper prices and this is when Aldi gained maximum
advantage. Further, due to decreased sales, the retail companies began looking for other income
sources and entered into advertising business as well and meanwhile fail to notice the structural
shift in UK’s economy. All these factors collectively paved way for the success of Aldi.
When Aldi entered, the big four of retail industry did not feel threatened and they rather
mocked the company (Norman and Kabwe, 2015). This was another drawback and rather than
studying the policies of Aldi, they were unconcerned. Aldi, ultimately with their new and
revolutionary prices along with extremely well researched and formulated strategies were able to
conquer the retail industry of UK. They recognised the cultural norms of UK like aspect of food
eating habits where the basic meal of a postman was similar to that of a fund manager and
therefore they launched their own products in every brand and product type which helped them
in targeting their consumers in an effective manner (Efstratiadi and et.al., 2019). Also, since the
strategies adopted initially were extremely similar to each other, the company was able to
incorporate the intended change in the entire retail industry if UK. The major revolution of the
retail industry occurred when Aldi decided not to merge with the other retail super powers and
formulated their own methods to be adopted.
Theoretical framework and its comparison for both the companies
The article mention in the Guardian shows that the Aldi used marketing strategy to attract
customers by putting on single advertisement for it arrival of the new product in the markets.
This, shows that it focus on the strategic environment and by using PESTLE analysis as a
framework, company determine different external factor that affect the business. Therefore, these
factor are as mention below:
Political factor: The factor mainly deals with the laws related to government and it is
analysed that Aldi, focus to provide best products at low rate and that is why, On the banners the
price were kept lower then other rivals such as Tesco in the markets due to which Aldi is able to
get competitive advantages in the markets (Nandonde, 2019).
Economic factor: The factor mainly deals with economy of the country and inflation
rate, exchange rate etc. As Aldi has its brand image at market, the sudden fluctuation in the
economy create direct impact upon the business and its rivals as well, i.e. Tesco also uses

competitive pricing strategy in order to attract wide range of customer in order to maintain the
economic stability (Reuer, 2019).
Social Factor also affected the business such that by adoption of discounting strategy the
customers are able to get reward due to which the company is getting customers satisfaction. As
discounting Strategy helps the company to get pool of customers for purchasing of product and
clears all the inventories of the company. But on contrary, its rival such that Tesco also uses
different strategy and uses innovation in order to satisfy the need of their customers.
Technological factor: It deal with the advance technique and in this modern era, every
business wants to be competitive and in the same way, Aldi also uses digital techniques in order
to let people know about the discounting strategy adopted by the firm. As a result, it helps the
company to increases its sale in the market. On contrary Tesco uses AI as an advance technology
in order to reduce their employee workload.
Legal Factor also affected the business such that with the help of discounting policy the
customers purchases product in bulk which creates the customer loyalty for the company and it is
quite essential for the firm to comply all the laws and regulation as well. On contrary, even if
other firm did not follow then also (Brandsma, 2018).
Environmental factor: it deals with the protection of environment from getting harm.
Such that Aldi focus on sustainability while implementing the strategy. In comparison with other
company such as Tesco, from the article it is reviewed that these dominated the British Grocery
sector with variety of products and that is why, Aldi uses promotional discounts which offers
temporarily advantages to the company for maximising its sales, revenue and profitability of the
company. As a result, it uses the strategy that did not affect the environment in negative way.
CONCLUSION
From the above study it is concluded that different contemporary strategies help the
organization in attaining the prescribed goal and competencies. By analysing different
strategically factors the TESCO and ALDI can achieve the targeted goal effectively along with
the profit maximization. Different factors among the business activities and their effective
utilization helps the company to compete with other competitive rivals and emerge globally. This
play a significant role in the utilization of external forces and implementing better business
practices so that they can avail through better business practices through technological
advancement.

REFERENCES
Books and journals
Nandonde, F. A., 2019. A PESTLE analysis of international retailing in the East African
Community. Global Business and Organizational Excellence.38(4). pp.54-61.
Reuer, J., 2019. Small retailers surviving in a world influenced by global players and
digitalization.
Brandsma, A., 2018. Digital marketing influence in the Dutch retail industry: Developing a
business plan for a digital marketing agency specialized in retail.
Efstratiadi, M. And et.al., 2019. Analysis of a closed-loop water-cooled refrigeration system in
the food retail industry: A UK case study. Energy. 174. pp.1133-1144.
Norman, A. and Kabwe, C., 2015. An Investigation into the perceptions of employee
performance management in the UK retail industry. Journal of Research Studies in
Business and Management. 1(1). pp.210-235.
Wang, Y., Sanchez Rodrigues, V. and Evans, L., 2015. The use of ICT in road freight transport
for CO2 reduction–an exploratory study of UK’s grocery retail industry. The
International Journal of Logistics Management. 26(1). pp.2-29.
Kim, W., Hallsworth, A. and Kim, H., 2019. On being local and being successful in Korea: Tesco
and E‐mart. Area. 51(3). pp.461-469.
Tse, Y. K. And et.al., 2016. Insight from the horsemeat scandal: Exploring the consumers’
opinion of tweets toward Tesco. Industrial Management & Data Systems. 116(6).
pp.1178-1200.
Gilbert, S. J., 2015. Strategic offloading of delayed intentions into the external environment. The
Quarterly Journal of Experimental Psychology. 68(5). pp.971-992.
Leitner, I., 2016. STRATEGIC DIAGNOSTIC ANALYSIS SERVICES OF WATER AND
SANITATION IN ROMANIA. EXTERNAL ENVIRONMENT ANALYSIS. Scientific
Bulletin Series D: Mining, Mineral Processing, Non-Ferrous Metallurgy, Geology and
Environmental Engineering. 30(1). p.71.
Crafts, N., 2016. The Growth Effects of EU Membership for the UK: a Review of the Evidence.
University of Warwick CAGE Working Paper, 280.
Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University
Press.
Roberts, J., 2018. Multinational business service firms: development of multinational
organization structures in the UK business service sector. Routledge.
Online
The Aldi effect: how one discount supermarket transformed the way Britain shops. 2019.
[Online]. Available through: <https://www.theguardian.com/business/2019/mar/05/long-
read-aldi-discount-supermarket-changed-britain-shopping>
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