Business Strategy: Tesco's Macro Environment Analysis, SWOT Analysis, VRIO Framework, and Porter's Five Forces

This report analyzes Tesco's business strategy through a macro environment analysis using PESTLE, SWOT analysis, VRIO framework, and Porter's Five Forces. It identifies the strengths, weaknesses, opportunities, and threats of Tesco, as well as its competitive position in the market. The report also provides recommendations for improving Tesco's competitiveness and market positioning.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Macro Environment (PESTLE) Analysis of Tesco Affecting Its Strategies.....................1
TASK 2............................................................................................................................................4
P2 SWOT Analysis & VRIO Framework to Identify Capabilities of Tesco.........................4
TASK 3............................................................................................................................................7
P3 Porter’s Five Forces to Evaluate Competitive Forces and Strategies to Improve
Competitiveness and Market Positioning...............................................................................7
TASK 4............................................................................................................................................9
P4 Range of Theories, Concepts and Models (Ansoff Matrix, Gap Analysis and Situation
Analysis) to Interpret and Device Strategic plan for Tesco...................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
A business strategy can be explained as a plan of detailed actions and decisions that an
organisation formulates for achieving its objectives and goals. In the field of management the
business strategy involves strategic management that focuses on forming and implementing the
goals, objectives and initiatives of the organisation taken on behalf of its stakeholders (Sparks,
2019). A business strategy is important because it helps to develop competitive strategies and
plans that can help the organisation to move forward, attract maximum customers, successfully
compete in the market and strengthen its performance. The following report will provide a
description of the macro environment factors that affect the business strategies of Tesco. Tesco is
a retail supergiant that is headquartered in Welwyn Garden City, UK and was established in the
year 1919. SWOT analysis and VRIO framework will be demonstrated for identifying
organisational capabilities weaknesses, structure and skill set that can provide competitiveness to
the organisation. In this context, Porter's 5 forces for evaluating competitive forces and Market
positioning of the organisation is also given in the report. In the end various theories, concepts
and models like Situation analysis, Gap analysis and Ansoff Matrix will be demonstrated to
interpret and devise a strategic plan for the organisation
TASK 1
P1 Macro Environment (PESTLE) Analysis of Tesco Affecting Its Strategies
PESTLE analysis is an effective strategic tool that is used for analysing external
environment factors that affect the activities of an organisation (Alanzi, 2018). The PESTLE
analysis analyses the macro environment factors in the unpredictable environment that affects the
company's performance and business strategy of Tesco.
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Figure 1: PESTLE Analysis
Source: https://business-docs.co.uk/scenario/how-do-i-do-a-pestel-analysis/
 Political factors are those factors that include economic conditions like unemployment
rate, political situation, impending legislation, tax rates etc. within an economy where the
organisation operates. With headquarters in the UK, Tesco functions across many nations
globally. It is among the largest retailers in the world and it is necessary that all
mandatory regulations must be followed by the organisation for ensuring safety and
compliance of its services and products. The major political factors that affected the
organisation were during the Covid-19 crisis lockdown, Brexit and US-China trade war.
These political factors largely affect the business strategy of Tesco and the company
needs to understand the changing political conditions throughout the globe so that it can
operate effectively throughout various countries.
 Economic factors are those factors related to the level of income, inflation or deflation,
cost, exchange rates etc. (HIREMATH, S., 2021). Tesco deals in a variety of products
and services and economic factors play a very important role in the consumption of a
variety of goods and services. There are many changes throughout the UK as well as
other countries that affect the delivery model of the organisation and this may incur
additional costs on the business. Tesco should focus on various economic aspects that
affect its business strategies like prices of products, income of consumers, inflation or
deflation conditions, etc. so that it can generate higher revenue. It is very important that
Tesco must be aware about taxation policies, prevailing economic conditions, cost in the
market etc. so that it can gain competitive advantage.
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 Technology factors are those aspects which are related to the embracing, developing and
acquiring Technology within the business to improve customer experience. The trends in
the market are changing at a very rapid speed and it is important to upgrade technology in
the business to stay competitive (Whittington, 2019). The rapid change in technology and
the advancement of e-commerce and digital technology has given a new opportunity for
growth to the organisations throughout the world which is also affecting the business
strategies of Tesco. Tesco must manage to shift the trends of shopping to online and must
develop, acquire and embrace such Technologies that can provide competitive advantage
to business.
 Legal factors are those factors that are related to the changing government policies, rules
and regulations of business etc. that directly affect the operations, objectives and
strategies of business (Adamyk, 2019). Tesco needs to follow local as well as
international market rules and regulations so that it can carry out its business operations
smoothly and can achieve greater competitiveness in the long run. Legal factors largely
affect the business strategies of an organisation because these laws, rules and regulations
must be compulsorily adhered to by an organisation while continuing their activities.
Tesco must understand various legal aspects so that the credibility of business improves
positively.
 Environmental factors are those aspects that focus on maintaining the good health of
nature and creating ecological balance along with the activities of business. In this era the
people are more aware about the changing climatic conditions and rising catastrophes
throughout the world, in which organisations play a very important role. The
environmental factors are affecting the business strategies and for this the businesses are
trying to create more sustainable businesses that can improve ecological balance and
growth. Tesco must focus on improving its business activities so that it can create
sustainable business strategies that support optimum growth and performance.
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TASK 2
P2 SWOT Analysis & VRIO Framework to Identify Capabilities of Tesco
SWOT analysis is a strategic tool that is used to identify the internal strengths and
weaknesses as well as extrinsic threats and opportunities in a given aspect (Landmann, and et.
al., 2020). The SWOT analysis of Tesco is given-
Figure 2: SWOT Analysis
Source: https://www.projects4mba.com/example-of-swot-analysis/2328/
Strengths Weaknesses
 Tesco is among the biggest retail
supergiant in the UK.
 Tesco has the highest market share with
almost 28% of market coverage in
Britain.
 Tesco's outlets and stores count up to
4500 which is continuously growing.
 Diversified market, stores and product
ranges offered by Tesco provides
higher competitive advantage.
 Tesco is among the biggest private
employers across Europe that
 Tesco has failed to operate in many
countries like Japan, US and China.
 Declining operational profits of Tesco
is leading to decline in its total worth.
 Tesco is also sued for certain unlawful
activities like fraud accounting, selling
expired food products, unfair business
practices, unequal wage pay etc. that
declined it's brand image.
 Tesco has adopted a low cost strategy
that reduces its overall profit margins.
 Tesco has also obtained a lot of
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comprises more than 360000
employees.
 E-commerce, digitalisation and use of
superior Technology has enabled the
continuous growth of organisation.
 Tesco's supply chain network is highly
effective and efficient.
negative publicity like its exploitative
labour policies, greedy labour etc.
 Failure in global markets like Malaysia,
Thailand, China etc.
Opportunities Threats
 Expanding in new markets
 Chances for innovation have increased
for Tesco due to the upcoming of latest
technologies like e-commerce, digital
business etc.
 Strategic alliances and creation of joint
ventures can help Tesco to improve its
business performance and achieve
success in the markets where it failed.
 Emerging markets throughout the world
like Turkey, South Korea etc. can
provide opportunities for expansion.
 Advancement of digital payment, card
payments and cashless economy can
help Tesco to achieve greater levels of
success.
 Legal threats to the organisation due to
increasing chances of legal threat.
 Issues due to pandemic-like situations
may affect the activities of
organisations in the future (Liu, 2020).
 Competition from E-Commerce
business is like Walmart, e-kart, etc.
 Chances of economic crisis and credit
crunches due to changing government
regulations, laws etc.
 Increasing costs and rising expectations
of the business.
VRIO Framework
The VRIO Analysis of Tesco Plc examines intrinsic resources gradually to understand
their competitiveness (Nam and Yi, 2020). The VRIO Analysis of Tesco Plc describes at each
stage the need for improvement in the resources that can help to develop competitive strategies.
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Figure 3: VRIO Framework
Source: https://fourweekmba.com/vrio-framework/
 Value: Monetary assets of Tesco Plc are profoundly significant as these assist in putting
into external opportunities emerging, Goods and services are an important asset as these
are exceptionally differentiated, workers are a significant asset to the firm, licenses and
patents are a significant asset as these permit the firm to sell its items without obstruction,
supply chain network and distribution network is a significant asset; its cost structure,
innovative work at Tesco Plc are not a significant asset since innovative work are costing
more than the advantages it gives as development.
 Rare: Strong financial resources, local food products result in competitive parity for
Tesco Plc, better compensation and work environment ensure employee retention and
loyalty, patenting and licencing of products makes the company’s products and services
unique (Chatzoglou and et. al., 2018).
 Imitable: Financial resources of Tesco Plc are rate making it costly to copy, products by
Tesco Plc provide it with a temporary competitive advantage, company can develop
better workplace for the employees, distribution network of Tesco Plc is also very costly
and competitors would require a lot of resources to form competitiveness with the firm.
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 Organisation: Financial resources of Tesco are made in organised form to capture higher
value, the patents and trademarks of Tesco are not organised because the organisation
does not uses them to full potential, and supply chain and distribution channels of Tesco
are well organised to provide maximum profits.
The SWOT analysis and VRIO framework of Tesco explains that the organisation is highly
competitive and it have abilities to stand in the market. There are many opportunities in the
market of which advantages can be taken by Tesco and certain threats that must be eliminated by
the organisation. It is obtained from the SWOT analysis that Tesco have much strength as
compared to some weaknesses that organisation can overcome with certain efforts. With the help
of VRIO framework it is identified that Tesco’s products and services are highly precious for
their customers.
TASK 3
P3 Porter’s Five Forces to Evaluate Competitive Forces and Strategies to Improve
Competitiveness and Market Positioning
Porter's 5 forces of Tesco provides an examination of the impacts of 5 forces that are threat
of new entrants, competitive rivalry, threat of substitution buyer power and supplier power
(Singh, 2019), that affects comparative position of Tesco in the UK market.
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Figure 4: Porter's Five Forces
Source: https://praxie.com/porters-five-forces-model-framework-online-template/
 Bargaining power of customers or buyers (Low): Tesco provides goods and services to
millions of customers throughout the world from its online and in store shops. The
bargaining power of buyers is low across the various markets because of unorganised
customers who are unlikely to switch to competitors like Sainsbury's and Asda for higher
satisfaction from Tesco products.
 Bargaining power of suppliers (low): Tesco works with more than 2500 suppliers all
across the UK and many more suppliers throughout the international boundaries. Due to
this, the bargaining power of suppliers is very low in front of Tesco and the organisation
negotiates compulsively with the suppliers for gaining higher profits.
 Threat of new entrants (low): Threat of new entrants to enter into the UK supermarket
sector is comparatively lower than other nations because of the huge capital requirement
for this form of business (Wellner and Lakotta, 2020). Tesco is a very huge supermarket
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retailer that is beyond the reach of any new entrants, so it should enjoy economies of
scale and develop higher competency.
 Threat of substitute products (Moderate): Tesco deals in many products and services and
most of them are entirely branded in the name of Tesco that really have any substitutes in
the market. The products that are commonly available within different grocery stores may
possess a threat of substitution but the company's brand loyal customers buy products
from Tesco.
 Competitive rivalry (Intense): Tesco is the largest and the most powerful competitor
among the retail industry across the UK. The competitors of Tesco like Aldi, Sainsbury's,
Asda, Lidi etc. spend millions to stay competitive in the market. These brands provide
intense competition to Tesco in its retail business.
Tesco is among the biggest competitors in the market across the UK which has a very huge
brand image due to its effective marketing strategies and positioning in the market. Tesco is a
highly competitive brand in the UK and across 10 other Nations where it operates. In order to
strengthen its competitiveness Tesco has adopted cost leadership and differentiation strategy
where it provides goods and services with cheaper rates (low cost strategy) and highly
differentiated products that attract maximum consumers. These strategies help Tesco to stay
competitive in the market while also generating greater profits.
TASK 4
P4 Range of Theories, Concepts and Models (Ansoff Matrix, Gap Analysis and Situation
Analysis) to Interpret and Device Strategic plan for Tesco
Ansoff Matrix
Tesco has implemented diversification, market development, and market penetration and
product development strategies for many years for attaining competitiveness and expanding its
business (Mckeown, 2019).
 Market penetration strategies: Tesco is expanding its business since inception and has
used market penetration strategy for selling its existing products into the existing market
through competitive pricing, offers etc. (Dawes, 2018).
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 Market development strategies: Tesco is selling its products and services across various
regions in multiple Nations throughout the world. Tesco has expanded into many new
markets like Thailand, Ireland and Czech Republic etc.
 Product development strategy: Tesco has developed many products with its own brand
name that has provided better opportunities for the organisation to cater the specific needs
of customers (Martins, 2020).
 Diversification strategies: Tesco used diversification strategies in locations where it tried
to serve New Market locations and new customers with completely new products that
were very difficult to manage. In certain locations like the US, China and Japan Tesco
has failed with its diversification strategies but it has also diversified in many areas like
insurance, credit card, mortgage, hotel business etc.
Gap Analysis and Situational Analysis
Gap analysis is a tool used to compare actual performance with the desired performance
of the organisation (Ulberth, 2020). The gap analysis of Tesco is provided to identify the
difference between their standard performance and current performance with the available
resources. Situational analysis of Tesco is provided with the help of SWOT analysis that is
elaborated.
Figure 5: SWOT Analysis
Source: https://www.projects4mba.com/example-of-swot-analysis/2328/
Strategic Plan
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It may be focused on the utilisation of resources without wastage so that optimum results
and highest performance can be achieved. Human resource gap analysis of Tesco helps to
develop human resource strategy for organisation. There are more than 350000 employees within
Tesco who are skilled and contribute to effective growth of the business. Tesco can use these
strategic plans for improving their overall performance:
Improving Supply Chain: Operations of Tesco are highly improved by its supply chain
that provides greater competitiveness to the organisation.
Adaptability: The Company is also able to recognise the change in trends in the market
and swiftly adapt to the changes due to its research and development team that provides greater
insight of the market so that the company can stay competitive in the long run.
Large Market Coverage: It has been obtained that it does have great competitiveness
because it is among the biggest retailers in the UK, larger market coverage, etc., but it also needs
to focus on improving its operational profits, costing strategies etc. for achieving better
competitiveness as in the market.
Innovation and expansion: The Company must also take advantage of expanding into
new markets and innovating new ideas and Technologies for achieving greater levels of success
in the extrinsic market (Stevens and et. al., 2021). Moreover, Tesco must take the threats
seriously and develop measures for achieving higher competitiveness and profitability in the
market.
Cost leadership and Differentiation strategy: In order to strengthen its competitiveness
Tesco has adopted cost leadership and differentiation strategy where it provides goods and
services with cheaper rates (low cost strategy) and highly differentiated products that attract
maximum consumers. These strategies help Tesco to stay competitive in the market while also
generating greater profits.
CONCLUSION
It has been concluded from the above report that business strategy is important because it
helps to create strategies and plans that can provide competitive advantage and improve
performance of the organisation. The following report has been describing the macro
environment factors with the help of PESTLE analysis consisting of political, legal, economic,
environment and social factors that affect the business strategy of the organisation. Moreover, it
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has provided SWOT analysis and VRIO framework analysis for identifying the capabilities of
the organisation. SWOT analysis helped to analyse and understand strengths, weaknesses,
opportunities and threats the organisation, and VRIO framework analysed intrinsic resources of
the organisation that can provide competitive advantages. Furthermore, Porter's 5 forces have
been demonstrated to evaluate competitiveness of the organisation and its Market positioning.
Finally, Ansoff Matrix, gap analysis and situation analysis has been demonstrated that can be
helpful to develop strategic plans for the organisation.
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REFERENCES
Books and Journals
Adamyk, K., 2019. PESTLE Analysis on Tesco PLC.
Alanzi, S., 2018. PESTLE Analysis. Project Management.
Chatzoglou, P. and et. al., 2018. The role of firm-specific factors in the strategy-performance
relationship: Revisiting the resource-based view of the firm and the VRIO
framework. Management Research Review.
Dawes, J., 2018. The Ansoff matrix: A legendary tool, but with two logical problems. But with
Two Logical Problems (February 27, 2018).
HIREMATH, S., 2021. PESTLE ANALYSIS OF ORGANIZED RETAILING IN INDIA.
Landmann, E., and et. al., 2020. Customer integration through virtual reality implementation: a
SWOT analysis in the area of production systems. In Augmented Reality and Virtual
Reality (pp. 253-266). Springer, Cham.
Liu, R., 2020, December. Research on the Export Development of Small and Medium-sized
Enterprises Cross-border E-commerce: Based on SWOT analysis. In 2020 International
Conference on Big Data Economy and Information Management (BDEIM) (pp. 112-
115). IEEE.
Martins, A.M.., 2020. Scenarios and Ansoff Matrix: an application to the future of hotel
investment in Portugal (Doctoral dissertation).
Mckeown, M., 2019. The strategy book. Pearson UK.
Nam, E.Y. and Yi, W., 2020. The Internal Resources of Chinese Internet Primary Banks Based
on the VRIO Framework: A Case-Study of WeBank. e-비비비비비비, 21(1), pp.33-52.
Singh, P.E., 2019. Impact of Market Forces on Engineering Consulting Industry. International
Journal of Management, IT and Engineering, 7(11), pp.190-193.
Sparks, L., 2019. Tesco: how supply chain strategy supports retail success. The Business &
Management Collection.
Stevens, R.E. and et. al., 2021. Marketing planning guide. CRC Press.
Ulberth, F., 2020. Tools to combat food fraud–a gap analysis. Food chemistry, 330, p.127044.
Wellner, S. and Lakotta, J., 2020. Porter's Five Forces in the German railway industry. Journal of
Rail Transport Planning & Management, 14, p.100181.
Whittington, R., 2019. Opening strategy: Professional strategists and practice change, 1960 to
today. Oxford University Press.
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