Analysis of Internal and External Environment of Tesco

This report provides an analysis of the internal and external environment of Tesco. It includes VRIO analysis, SWOT analysis, PESTLE analysis, and Porter's Five Forces analysis. The report evaluates the internal capabilities and resources of the organization, key drivers of change in the external environment, and competition in the industry. The report concludes with recommendations for Tesco to gain a competitive advantage.

Strategy, Enterprise
and Innovation

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Analysis of internal environment...........................................................................................3
Analysis of external environment...........................................................................................5
Analysis of competitive forces within the industry................................................................7
CONCLUSION................................................................................................................................9
REFERENCES:.............................................................................................................................10

INTRODUCTION
Business environment is dynamic so it is necessary for the organisations to form effective
strategy. It is necessary for the enterprise to know about the current situation of the external
environment in order to formulate effective strategy (Cherunilam, 2021). It helps the firm to gain
competitive advantage. In this report analysis of Tesco is being conducted. It is a British
Multinational organisations that deals in groceries and general merchandise retailer. The
organisation has its headquarters in London. Tesco is ninth largest in the world measured by
revenue. It comes in big four retail supermarkets. In this report the internal capabilities and
resources of the organisation are being evaluated as they help the firm to gain competitive
advantage. The key drivers of change in the external environment are being evaluated in this
report so as to design appropriate strategy. The competition in the industry is evaluated so that
profitability position of the organisation is identified.
MAIN BODY
Analysis of internal environment
Internal analysis is conducted by business organisations in order to know about the
internal environment of the company. It helps the firm to know about the resources, capabilities,
characteristics, assets, competencies, and competitive advantages.
VRIO Analysis
It is an analytical techniques that helps in evaluation of company's resources and assist
the firm in gaining competitive advantage (Gallego-Posada and Puerta-Yepes, 2018). Herein,
each resource of Tesco is being evaluated in order to know about its contribution in gaining
competitive advantage. The discussion is done below:
Resources Valuable Rare Imitable Organised
Financial Resources Yes Yes No Yes
Employees Yes Yes Yes No
Distribution
Network
Yes Yes No Yes
Patent Yes Yes No No

Valuable
 Financial Resources of Tesco are valuable as they help the firm to invest in market and
get good returns. It helps Tesco to gain advantage over the competitors.
 Employees are valuable resource for Tesco as they work in an effective manner. It helps
the organisation to enhance production and achieve success.
 Distribution network of Tesco is also valuable for the company as it helps the to reach
more and more customers and attain success. Patent is valuable because it helps the firm to sell its products and services without any
interference of competitors.
Rare
 Financial Resources of Tesco are rear as they have attained a strong financial position in
market and that is done by a few organisation.
 Employees of the company are also rear as they are given proper training (Ariyani and
Daryanto, 2018). They have effective skills and knowledge that is not possessed by
employees of other organisations.
 Distribution network is rear as the competitors will require a lot of investment in order
to come up with better network of distribution. Patent are rear as they can not be possessed by competitors.
Imitable
 Financial Resources of Tesco are not imitable as they have attained such a strong
position after prolonged period of time. It is costly for other firms to copy the financial
resources
 Employees of Tesco are imitable. Other firms can also hire the employees by providing
them better pay, work benefits etc.
 Distribution network of Tesco is costly of imitate. The same is developed by company
over years and the other organisations can not achieve it. Patent can not be imitated as it is legally wrong to copy patent of other organisation.
Organised
 Financial Resources of Tesco is organised and capture value to the firm. It is because
they are able to get good return on investment.
 Employees of the organisation are not organised and Tesco needs to work on them.

 Distribution network is organised as the company is able to reach the customers
effectively and provide them quality products and services on time.
 Patent is not organised as the company is unable to use it to their full potential.
SWOT Analysis
This model helps the organisation to know about the internal strengths and weakness.
Along with that opportunities and threats are being analysed so that they are able to get prepared
for the future.
Strengths
 Market share: It is seen that Tesco
has around 29.6% share in the market
of Britain. That helps the company to
earn profits.
 Adaptability: The organisation is
adaptable to changes and switched to
digital technology so that they are able
to serve customers effectively.
Weakness
 Shortage of products: The company
faced the issue of shortage of products
in pandemic situation (Cong, Kang and
Guo, 2019).
 Quality control: There are certain
complaints filed by the company in
regard to quality of products offered by
Tesco.
Opportunities
 Growth of online grocery sales: The
company has switched to online
platform and that helps the firm to
enhance sales.
Threats
 Competition: It is seen that there are
major competitors such as Asda,
Sainsbury's and Morrisons that is a
threat for the customers.
Analysis of external environment
There are various factors that are present in external environment and have impact on
functioning of the organisation. It is necessary to note that these drivers must be checked on
regular basis so that the business firm is able to take actions accordingly (Sun, 2020). Analysing
the external environment is necessary for the company so that they are able to attain advantage
over the competitors.
PESTLE analysis

This is a framework that helps an organisation to know about the impact of all the
external factors on performance of the organisation. It is important to note that Tesco has
operations in international market. So, it is important for the company to know about all the
external factors and formulate suitable strategies. All the drivers of change and their impact in
regard to Tesco are as follows:
Political factors: Political factors includes the taxation policy, act of legislation and other
policies formulated by the government. It is necessary to note that political factors have impact
on the performance of the company. It is analysed that there is political stability in UK and the
headquarters of Tesco are in UK. It helps the company to operate in an effective manner. The
stable political conditions of UK assists Tesco to expand the operations and trade in a smooth
manner.
Economic factors: It is analysed that the world is facing issue of Covid-19. This has
negative impact on the economic condition of all the nations. Tesco, has started working through
online mode in order to reach the customers (Jelassi and Martínez-López, 2020). At the same
time the company did not fired the employees and provided them employment opportunities.
Social factors: It is important to note that the organisation works to satisfy the needs and
wants of the customers. Customers are important part of society. In this regard, Tesco work
according to the needs and wants of their target customers. They provide all the products under
one roof so that the customers get conveyance. Along with that they are aware about the health
issues of the customers so provide quality goods.

Technological factors: Tesco uses latest technology and it helps them to serve the
customers effectively. There are self-checkout points at Tesco that are necessary at the present
time. The company also uses digital technology in an effective manner.
Legal factors: The laws and legislations are necessary to be followed by the company. It
is seen that Tesco assures that they follow the code of practice given by Food Retailing
Commission (FRC) in 2004. Along with that they take follow all the applicable employment
laws so as to retain employees in the company.
Environmental factors: Tesco works to use the resources in an effective way and reduce
the wastage (Ibrahim and Harrison, 2020). It is seen that they also work to reduce carbo
footprints so as to take proper care of the environment.
It is analysed that Tesco works according to the political and legal condition of the
nation. The company take proper care of needs of society and make sure that they do not harm
environment. Along with that using latest technology helps the company to serve the needs and
wants of customers in an effective manner.
Analysis of competitive forces within the industry
Competition is present at each and every level. A business organisation must work in
such a manner that helps the company to attain advantage over the competitors. It is necessary
for the company to formulate such strategies that help them to attain advantage over the
competitors.
Porter Five Forces
It is a model that helps to know about the 5 forces that have impact on the company. It is
seen that the level of competition keeps on changing. The five forces and their impact on Tesco
is discussed below:
Bargaining power of the buyers: Tesco serve a lot of customers daily. Bargaining power
of buyers is Tesco is low. The customers are unorganized in UK. No doubt there are direct
competitors of Tesco present in the market. But the customers are loyal for Tesco. By providing
discounts and offers present in the market so that the customers become loyal for the company
(Yasa and et.al., 2020). It is seen that the company must work more on the brand image so that
they are able to be the market leader and serve the customers in an effective manner.
Bargaining Power of Suppliers: The bargaining power of suppliers is low to moderate. It
is seen that there are huge number of suppliers that are present in the market. The company has

their own supplier and they maintain good and effective relation with them. It helps Tesco to get
the products on time and deliver them to the end users. It helps the company to serve the
customers with quality goods and services and maintain relation with supplier. It is seen that they
provide timely payment to the suppliers so that they are able to get the products on time.
Competitive Rivalry in the Market: It is important to note that the competitive rivalry
present in the market is high. It is due to direct competition that is faced from Sainsbury,
Morrison and Asda. It is seen that Tesco is leader in the market. The customers can switch the
products if they will get better options. So, Tesco must maintain good and effective quality of
products so that they able to serve the needs and wants of the customers in an effective manner
(Alexander, 2020). The company can not reduce the competition present in the market so they
must form strong strategies that help them to gain competitive advantage.
Threat of substitutes: There are various players that working in retail sector. The
customers have fixed that they prefer to buy from Tesco. It helps the company as there is less
threat of substitute products in the market. It is important for the company to maintain this image
and serve more and more customers without threat of substitutes.
The Threat of New Entrants: The new players like to enter the industry and market
where they are able to earn more revenue. There is low threat of entrants faced by Tesco. They

company has established strong image in market that is due to their operation (Jonah, 2018).
They have attained the image by working from prolonged period of time.
It is important to note that Tesco must work on quality of goods in order to gain edge
over the competitors. It is also important for them to give offers and discounts to the customers
to retain them.
CONCLUSION
From the above report, it is analysed that an enterprise must conduct overall analysis in
order to work effectively. There are various internal factors that have impact on the functioning
of a company, they are part of this report. External analysis helps the company to make changes
and achieve them successfully. External analysis is integral part of this report. In the end of this
report competitive analysis is conducted as it helps the company to form such strategies that help
them to gain edge over the competitors.

REFERENCES:
Books and Journals
Alexander, I.N., 2020. The influence of technological innovations on organization's competitive
advantage: Case study on Irish food retail company (Tesco) (Doctoral dissertation,
Dublin, National College of Ireland).
Ariyani, W. and Daryanto, A., 2018. Operationalization of Internal Analysis Using the VRIO
Framework: Development of Scale for Resource and Capabilities Organization (Case
Study: XYZ Company Animal Feed Business Unit). Asian Business Research Journal,
3, pp.9-14.
Cherunilam, F., 2021. Business environment. Himalaya Publishing House Pvt. Ltd.
Cong, Y., Kang, H. and Guo, T., 2019. Planar multimodal 1: 2: 2 internal resonance analysis of
cable-stayed bridge. Mechanical Systems and Signal Processing, 120, pp.505-523.
Gallego-Posada, J.D. and Puerta-Yepes, M.E., 2018. Internal analysis and optimization applied
to parameter estimation under uncertainty. Boletim da Sociedade Paranaense de
Matemática, 36(2), pp.107-124.
Ibrahim, E.B. and Harrison, T., 2020. The impact of internal, external, and competitor factors on
marketing strategy performance. Journal of Strategic Marketing, 28(7), pp.639-658.
Jelassi, T. and Martínez-López, F.J., 2020. External Analysis: The Impact of the Internet on the
Macro-environment and on the Industry Structure of e-Business Companies. In
Strategies for e-Business (pp. 49-95). Springer, Cham.
Jonah, U.I., 2018. The Influence of Transaction Costs on the Business Performances of Tesco
Supermarket. International Journal of Business and Social Science, 9(5).
Sun, R., 2020. Fault detection in multimode processes through improved nonlinear external
analysis regression. IEEE Access, 8, pp.11208-11218.
Yasa and et.al., 2020. The role of competitive advantage in mediating the effect of promotional
strategy on marketing performance. Management Science Letters, 10(12), pp.2845-
2848.

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