Impact of External Environment on Tesco: Challenges and Strategies

This report discusses the impact of external environment on Tesco, recognises the key challenges faced by the company using PESTLE Analysis, evaluates the manner an organisation tackles the challenges with regards to its business strategy and provides recommendations. The subject is Business in Context and the course code is not mentioned. The report is based on Tesco, a London based multinational retailer and grocery store.

Business in Context

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Explain the impact of external environment on the company.....................................................3
Recognise the key challenges faced by the company using PESTLE Analysis.........................5
Evaluate the manner an organisation tackles the challenges with regards to its business
strategy........................................................................................................................................6
RECOMMENDATIONS.................................................................................................................7
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
A business, whether it is small or big, has its own internal as well as external
environment which impacts the working of the firm either positively or negatively. External
environment is not in the control of the company and it brings some challenges and opportunities
with it (Vlados and Chatzinikolaou, 2020). An organisation needs to analyse it in time and has to
take required action, otherwise the company may have to face some serious consequences. The
report is based on Tesco, a London based multinational retailer and grocery store. This report
will discuss the positive and negative impact of the external environment on the firm along with
the challenges faced by the company. It also mentions the way, an organisation is tackling the
various problems.
MAIN BODY
Explain the impact of external environment on the company.
The factors affecting the performance and activities of the company from outside its
boundaries are considered as external forces. The corporation do not have control on these
factors but it can handle it with a view to take advantage from it. PESTLE Analysis have been
used to evaluate the impact of theses forces on Tesco.
It is framework which is used to recognise the positive and negative influence of external
forces on an organisation.
 Political- These factors considers the impact of government decisions on the activities of
the company. Due to the signing of the Brexit, Tesco is facing difficulties in availing its
food items in low prices because the company used to purchase its goods from various
sources of EU and now, it has to face custom charges from EU. On the other hand, the
government has asked firms to create new jobs which is beneficial for Tesco. It can open
more stores to recruit them which will help the firm in increasing profits and will also
helps in becoming good in the eyes of government (Bolland, 2017).
 Economical- It involves the taxation structure, inflation rate etc. which affects the
profitability of the firm. The company is facing difficulties on monetary terms as Brexit
has resulted in increase in tariff rates which will tend to increase the price of the goods.
Tesco deals in low price goods, so change in the economical factor do not impact the sale

of the company as the customers will continue to buy goods when they are availing them
in low prices.
 Social- This factor considers the impact of customer behaviour, their choices, their
income and education level etc. on the demands of the organisation. Tesco has analysed
that the customers prefer to buy goods in one go and from the stores which are located
nearby their locations. So, the firm has planned out its stores in such areas which are
easily accessible and consumes less time in shopping. Brexit has divided the customer
base into two countries which is negatively impacting the sales of its few stores (Islam,
Al Mamun and Amanullah, 2017).
 Technological- The advancement or innovation in the technology affects the profitability
and work pattern of the company. Tesco always keep itself updated with the advanced
technology. It introduced RFID technology which helps it in counting the stock and
replenishing it on requirement. The technology can negatively impact the firm if it does
not keep itself informed about the developments in this factor. The competitors will take
advantage of this advancement and will affect Tesco's profit negatively.
 Legal- It considers the impact of laws and policies of the country on the framework of the
rules and regulations of the firm. Tesco will have to change its rules and regulations
according to the UK laws which were earlier as per EU laws. This would create
disruptions in the company. The firm always keep in mind that it is following all the laws
and policies which helps it in preventing from any sort of penalty or fines (Davies and
Rolfe, 2017).
 Environmental- It involve all the factors mentioned above in addition to various
environmental factors like pollution, sources of energy etc. Tesco keeps it in mind that
the firm is not involved in producing excess carbon emissions for which it is using
recyclable plastics and biofuels. This has increased the reputation of the firm in eyes of
the customers and society but it has increased the cost to the company. This will either
lead to increase in the price of goods or decrease in profits. In both the cases, Tesco is in
losses.

Recognise the key challenges faced by the company using PESTLE Analysis.
External environment of Tesco brings lot of challenge with it. It is very important for the
company to recognise these problems in time otherwise they can negatively impact the firm in
the form of reduction in sales or some legal consequences or loss of reputation.
 Tesco used to import its food products from EU. But after Brexit, it has to face custom
issues with the exporting company. This has increased the cost of the products which will
result in the higher prices of the goods which will directly impact its sales.
 Tesco uses modern technology to improve the experience of its customers and ease their
shopping. But this technology demands lot of investment for installation and operation
which the company has to bear from its limited profits. It deals in providing quality
goods in cheaper pricers, so it cannot hike its prices to balance its expenditure on new
technology which results in decrease in its profits (Soprano, 2019).
 The firm is dealing internationally so it has to keep an eye on the changing laws of all
countries, otherwise they can be penalised for the violation of law. This will not only
make the company to pay in cash but also in kind which means loss of reputation and
market share.
 Tesco finds it difficult to tackle the competition prevailing in the market because the
competitors are providing high discounts to the customers and Tesco failed to take
advantage of this situation a sit did not announced sale on right time.
 The firm has to keep itself updated about the emergence of the new technology as if it
failed to do so, the competitors will take advantage of it and the firm will have to face
heavy losses.
 It is very important for any firm to acknowledge the demand of its customers. Tesco has
to analyse the change in demand of its customers on regular basis. If the firm is not aware
about the desires of the buyers, then it will not be able to avail them goods of their
choice. This will result in loss of not only sale or customer but also the image it has
created among the clients (Acharya and et. al., 2018).
 Brexit has created a scenario of change in law and hike in prices. The suppliers of Tesco
are taking advantage of the situation by charging higher prices in the name of Brexit.
The firm is facing difficulty in handling these people and availing goods at old prices.

This has increased stress for the company as high cost raw material would lead to hike in
the prices of the final products.
Evaluate the manner an organisation tackles the challenges with regards to its business strategy.
It is very important for Tesco to face the challenges effectively so that it can take
advantage of them or at least prevent them from negatively impacting the organisation. The firm
can use its strengths held by different departments to tackle these challenges.
 Human Resources- It is the most important section of a firm to tackle any challenge
because humans are the one who controls the functions of the whole firm. Tesco has
trained its staff in very effective manner which helps it in retaining its customers. The
firm can educate its workers to reduce the wastage of resources and time during
production which will decrease its cost of operations leading to increase in profits. Tesco
can ask its manpower to conduct research on the choices of people by interacting with
them during sales or by taking feedback from them after sale. It will help them in keeping
themselves updated (Jacobsen, 2021).
 Marketing- It means to promote its store or product among public to attract them towards
it. Tesco can make such a marketing strategy through which it can aware the customers
about the products available with it. It can also boost its sales by offering discounts and
sales. The firm can also display its offers on various social media sites so that more
customers get attracted towards it. The club card system of Tesco proved to be a big
success for the company. This technique attracts more people which helps in combating
with the low price competition prevailing in the market. It can also use some more
technologies like self billing system to improve the experience of its customers.
 Financial Management- It deals with managing all the finances of the company. It is very
important that a company invests right amount, in good pace and at proper time. Tesco
can educate its team about the techniques required to bargain with the suppliers , so that it
can avail its raw material at the minimum cost. The company can work with the
government to organise a efficient imports and custom structure so that is does not have
to spend extra on the taxes. The company can also innovate some methods which
consumes less amount for implementing its policy of minimum carbon emission. While
investing in any new asset, it must conduct a proper research before buying that product,

so that finances are not wasted in wrong acquisition (Govindan, Shankar, and Kannan,
2020).
 Information System- It involves the data handling system used by the company. Tesco
can very efficiently use this system to tackle its various problems. The RFID technology
used by the firm help it in keeping a track on the stock of goods available it and assists in
timely replenishment of it. This will help the company in satisfying its customers who
can get irritated on the non availability of goods. The firm should keep itself updated
about the emergence of the various technologies so that it can take the decision to adopt
that technique in time. If the company has a good hold on its information system then it
can help it in making prompt decisions.
RECOMMENDATIONS
Tesco is various various challenges which it needs to tackle in time of it wants to sustain
in the market. Here are some of the recommendations to handle these situations:
 The company needs to conduct a search for new suppliers in domestic market to avoid
import of those products which attracts custom duty.
 It should start maintaining high inventory levels to overcome the risk of delays at custom
ports and in additional border checks.
 Tesco should try to create partnership with government so that new regulatory
environment could be flexible for food retailers.
 The firm should keep its information system updated so that it is aware about the change
in technology and choices of the customers.
CONCLUSION
It can be concluded from the above report that external environment has a great impact
on the behaviour of a company and its operations. Confirmation of Brexit deal created a lot of
uncertainties in the minds of the people as well as the workings of the Tesco company. The deal
also changed the legal scenario of the company as it needs to change is rules according to the
new UK law. On one side, the deal forced the firm to pay custom charges on its imports from EU
and on the other side, it has to face the unacceptable prices demanded by the suppliers in the
name of Brexit. At the same time, the deal has also created some opportunities of growth for the
organisation. Parting of the country has left many people jobless and the government wants the

companies to create job opportunities for them. This brought up a chance for the firm to open
new stores which will demand more workforce and will also give rise to the profits of the
company.

REFERENCES
Books and Journals
Vlados, C. and Chatzinikolaou, D., 2020. Methodological Redirections for an Evolutionary
Approach of the External Business Environment.
Journal of Management and
Sustainability. 9(2). pp.1-25.
Bolland, E.J., 2017. Internal and External Analysis. In
Comprehensive Strategic Management.
Emerald Publishing Limited.
Islam, F.R., Al Mamun, K. and Amanullah, M.T.O. eds., 2017.
Smart Energy Grid Design for
Island Countries: Challenges and Opportunities. Springer.
Davies, G. and Rolfe, H., 2017. Facing the future: tackling post-Brexit labour and skills
shortages: policy report.
Soprano, R., 2019. Brexit and the EU–UK free trade agreement: dos and don’ts when drafting
rules of origin.
Journal of International Trade Law and Policy.
Acharya, A. and et. al., 2018. Big data, knowledge co-creation and decision making in fashion
industry.
International Journal of Information Management. 42. pp.90-101.
Jacobsen, D.I., 2021.
Organizational change and change management. Vigmostad & Bjørke.
Govindan, K., Shankar, K.M. and Kannan, D., 2020. Achieving sustainable development goals
through identifying and analyzing barriers to industrial sharing economy: A framework
development.
International Journal of Production Economics. 227. p.107575.