PESTEL Analysis and Porter's Five Forces

The provided assignment details a PESTEL analysis and Porter's Five Forces model to evaluate the strengths and weaknesses of an organization. It involves analyzing external factors affecting business growth and development. The assignment is likely related to a business or management course and focuses on understanding the environment in which companies operate.

Business and Business
Environment

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1 ...........................................................................................................................................3
LO1 .................................................................................................................................................3
Different types of organisations .................................................................................................3
Size and scope of the organisations............................................................................................5
LO2..................................................................................................................................................6
Organisation structure and functions .........................................................................................6
TASK 2............................................................................................................................................8
LO3 .................................................................................................................................................8
Apply the PESTEL model to the sector to analyse how macro environment is impacting the
UK retail sector...........................................................................................................................8
LO4 ...............................................................................................................................................10
Apply the SWOT analysis and Porter's five force analysis to any UK supermarket to
determine how they influence decision of the supermarket .....................................................10
CONCLUSION .............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Business environment is the combination of both internal and external factors that affects
business. The external factors and internal factors influences each other and they work together
for running business operations successfully (Andersson, Forsgren, and Holm, 2015). A
company should analyse all factors for ensuring that business tasks and activities are done
efficiently. The business external and internal factors are analysed when the companies start to
expand business in other countries. In this report the company which is considered is Sainsbury
which is a third largest supermarket chain of UK. This organisation was founded by John James
Sainsbury in the year 1869. It has a market share of around 16.9% in the supermarket sector. The
following report discusses about the different types of organisations and size and scope of the
organisation. It also explains the organisation structure and functions alongwith PESTLE and
SWOT analysis of UK retail sector. At last Porter's Five Forces Model is described regarding the
UK supermarket.
TASK 1
LO1
Different types of organisations
There are different types of organisation in the business environment such as profit, non
profit organisation and non governmental organisation. These companies are based on their own
reasons and motives. The following table demonstrated the purpose of these different types of
organisation.
Basis Profit
Organisation
Not for Profit
Organisation
Non Governmental
organisation
Definition
This is a legal
entity that is
operated for
earning profits for
the business
head(Brown,
2018).
A Non profit
organisations is one
which is set up for
providing goods and
services to people and
functions on the
principle that no staff
A Non Governmental
organisation that are formed by
ordinary citizens which operates
autonomously of government.

member will earn
profit or gain loss.
Aim and
Purpose
The purpose
behind profit
organisation is to
earn profits and
money. It can be
in the form of
sole
proprietorship,
partnership firm
or company.
The aim of these
organisations is to
promote art, science,
commerce, research or
any other reason.
The objective of non
governmental organisations is to
work for the betterment of
society and economy. It
promotes awareness of human
rights, women rights and women
empowerment.
Area of
operation
Large Limited Large
Registration
The registration of this
company is under
section 8 of the
Companies Act, 1956.
These organisations can be
registered as a trust under Public
Trust Act or as a society under
Societies Registration Act, 1860.
This can also be registered as a
non- profit company under the
companies Act, 1956.
Business purpose and supply of goods and services
Profit organisation- The main objective of profit organisation like Sainsbury is to
strengthen the retail chains that offers a large variety of food products and it is the largest retailer
with around 600 supermarkets and 800 retail stores in UK. This company offers these products
through food chain or online (Calabrese, and et. al., 2018).

Non Profit Organisation- These organisations do not have a profit motive for business.
These organisations are operated by taking donations and funds from governments, sources and
other businessmen.
Non governmental organisation- The main purpose of non governmental organisation is
that it provides welfare to the society (Charter, 2017). These organisations are basically operated
for well-being of needy people, poor individuals and society.
Size and scope of the organisations
Difference between micro, small, medium sized and large enterprises
Basis Small Medium Large
Definition
Small organisations
need less amount of
finance for doing
business operations. In
such businesses,
business head takes all
decisions.
Medium enterprises
have limited capital
for running of
business. The
decisions are made by
the Chief Executive
Officer of the
company.
Large organisations
are operated by people
in different markets. In
large companies,
decisions are made by
whole organisation.
Aim and objective
Investment in small
companies are made
for survival of
business in market.
The purpose of
medium enterprise is
to establish business
operations effectively
and have position in
marketplace.
The main aim of large
organisations is to
expand business and
capture huge market
share.
Market Share Less Moderate Major
Ownership
The ownership is with
the person who runs
the business.
The ownership is with
private equity head.
The major equity is
with public investors.
Small enterprises
covers less area. Due
Medium sized
businesses have
Large organisations
are expanding globally

Growth and
profitability
to this, they make less
profit than medium
and large
organisations.
opportunities to
capture larger markets
but they have some
limitations so they are
not able to make larger
profits.
for making huge
profits and increasing
market share of the
company.
Market share, profit share, growth and sustainability of Sainsbury
Sainsbury has failed in becoming the second largest supermarket as Aldi is ahead in
regards to supermarket retail sector. The sales of Sainsbury have dropped by 1.8 %. This has
decreased the market share of the company to 15.3%. Sainsbury is the largest seller of food and
drinks in UK. There was increase in sales of the company at time of Easter and Mother's day.
LO2
Organisation structure and functions
Different kinds of structures relating to size and scope of operations
Different organisations have different size, scope, purpose and objective for operating in
marketplace (Crane and Matten, 2016). There are different structures followed in different
organisations. These are described below-
Bureaucratic organisational structure- Small enterprises adopts this organisational
structure. There are different levels of management present in bureaucracy. These levels are top
level, middle level and lower level structure. Power is with few individuals in a bureaucratic
organisational structure.
Functional organisational structure- This is an organisational structure which has a
hierarchy in which individuals are grouped on the basis of their interests. This group of people is
supervised by a manager or leader who provides instructions and guides the team in achieving
goals and objectives of the company. The main advantage of a functional organisational structure

is that individuals are divided on the basis of knowledge and skills (Deasy, and et. al., 2016).
This helps in achieving targets in less time and better performance of employees.
Matrix organisational structure- A matrix organisational structure is one in which
relationship are set up as a grid or matrix. In this type of structure, employees have dual
reporting relationships. The matrix organisational structure enables to effectively use the
resources. The data and information are transferred across the organisation (Hamilton, and
Webster, 2018). Employees have contact with several other people of the company and this helps
in sharing of information and speeding the decision-making process.
Different functions related to organisation aims and objectives
There are different functions of organisations that must be performed effectively for
efficient and proper operating of business activities. The various organisational functions
consists of human resource, marketing, finance, operations, customer services, etc (Hillary, ed.,
2017). There are different roles and responsibilities of every department. The main objective of
any organisation is to have a proper plan to conduct all business operations effectively and
coordinating among business activities. The different functions of Sainsbury are described are
described below-
Marketing and Sales- The main aim of the marketing department is to identify the the
needs and requirements of customers. A good relationship is important is important for the
company in attracting and retaining customers. Sainsbury uses low pricing strategy to attract
customers and increase the sales of the company. Marketing department helps directly in
achieving the mission as well as objective of the company in given time frame (Hunter,
Saunders, and Constance, 2016). The other functions of the marketing department are collecting
funds for marketing campaigns, promotions and advertisements.
Finance – This is the main function of the company as every other function of the
company requires money to perform activities of the business. Finance department is handling all
money transactions and money related issues that occur in a company. The Finance department
is responsible for making a proper budget for performing different activities of the organisation
(Jenkins, and Williamson, 2015). In Sainsbury, all other departments require help of finance
department for doing business operations and achieving desired outcomes.
Operation function- This function includes the manufacturing of products and services
for fulfilling the demands of customers. The operational function includes designing,

redesigning, supervising, monitoring and controlling business operations. The effectiveness of
operation department helps in retaining potential customers for accomplishing goals and
objectives of the company. The operational department is related to marketing department as
goods and products are produced and manufactured at right place.
Complexities of transnational, international and global organisational structures
Transnational Organisational structure
A Transnational organisational structure is organised when business is operated by
analysing different dimensions like product, geographical and functional level (Pearson, 2017).
In this structure, integration is achieved within different product categories or geographical
functions. This type of organisational structure helps in coordinating across all related business
activities. For instance, business may have one division that is based upon geography and other
can be based upon the product.
International Organisational structure
Business is operated in national market but manufacturing of product and services is done
at global level (Schaltegger, Lüdeke-Freund, and Hansen, 2016). Such organisation adopts
matrix organisational as it helps in making quick and effective decisions that help firm in
growing business.
Global organisational structure
The Global organisation structure is used for business operations which are controlled on
geographic factors and not on product basis. The global product divisions consists of domestic
divisions which are allowed to take global responsibility for product groups. These are the
divisions which operates as centres of profit. The main advantage of global organisational
structure is that it helps in managing products, customer diversity and technology. This provides
a coordinated approach for production, marketing and finance.

TASK 2
LO3
Apply the PESTEL model to the sector to analyse how macro environment is impacting the UK
retail sector
PESTLE analysis is defined as the framework or tool that is used by marketers for
evaluating and analysing the macro environmental factors that affects the organisation
(Thompson, J. and McLarney, C., 2017). This analysis helps in evaluating the strengths and
weaknesses of business in operating at global as well as domestic level (PESTLE Analysis of
Sainsbury, 2019). The retail sector of UK is well established and it has many leading companies
within this sector. Retail sector is an industry sector which can survive post economic destruction
by using latest technology and trends. The PESTLE analysis of UK retail sector industry is
described below-
Political
The Governmental policies and rules affects revenue and profitability of retail stores of
UK. The political regulations have a great impact on the economy, consumer buying behaviour
and international trade laws. UK is abiding their political regulations. These regulations affects
which products can be imported, exported and sold in retail stores of UK. For instance, stores
that offers food products like Sainsbury has to comply with health guidelines given by
government. If they are not doing so, the government can take legal actions. When the retail
companies branch into other countries, then they have to follow rules and guidelines of that
country. This is beneficial for companies in avoiding any political claim or conflict. When the
governmental debts and consumer debts were high in UK it had affected the performance of
Sainsbury. This company offers great products quality with competitive prices for sustaining in
UK market.
Economical
If the company has a strong economy then consumers can easily buy products according
to their choice. A good economy attracts more number of investors who can invest in retail
stores. On the other hand, if economy is decreasing, unemployment will increase and investors
will have no interest in investing in retail sector. The retail sector is the only industry which was
able to manage itself at the time of recession in UK. Sainbury was affected by three major

economic issues of UK such as slow economy, increasing unemployment and inflation of food
prices.
Social
The retail industry is affected by social factors like consumer preferences. Consumers
enjoy buying products in bulk and so it is profitable for retail sector. The retail businesses use
market research for identifying buying trends in customer behaviour. Sainsbury set targeted
advertisements to consumers for attracting customers to buy the products. In supermarkets,
various offers and discounts are offered by Sainsbury for increasing it's sales. Sainsbury has
introduced marketing theme of “Cook and Serve” and this promotes easy to cook food items and
allowing customers for stretching the household budget.
Technological
The retail sector uses new technology and trends nowadays. With the advancement in
technology, the supermarkets are adopting new technology like software, database, hardware and
systems for selling of products and billing (Tregear, 2015). For e.g. some stores of UK have
started using computers and iPads instead of maintaining registers. Internet has greatly affected
the retail industry in reaching the target customers and streamlining services. Sainsbury has a
digital catalogue for it's product. The products of Sainsbury are sold online. In UK, Sainsbury
has increased online food delivery and there is a continuous improvement in the food service
offered by this company. This can be concluded by seeing the results of it's sales, they increased
by 25% every year.
Environmental
The environmental factors affects the retail sector of industry. The retail shops offering
food products have to analyse environment factors that affects quality of food products. There
are different tax which are associated with different products. Supermarket chain industry is
starting to use block chain technology in operations (vom Brocke, Zelt, and Schmiedel, 2016).
This will allow manufactures to input information about food products in real time. Sainsbury
ensures that all retail stores have to meet the environmental requirements for employee and
consumer safety. Sainsbury has taken initiative for reducing, reusing, recycling and effectively
managing the waste and packaging.
Legal

The retail store has to meet legislative conditions before starting business or operating a
shop. This includes abiding by labour laws, taxation laws and selling taxes. When the business
is operated globally, international taxes and laws are followed. If laws are not followed properly,
legal troubles such as foreclosures or bankruptcy can happen. Sainsbury follows all legal rules
and regulations for protecting itself from any trouble.
Affect of external factors on the decision making of managers
The decision making of managers is affected by different external factors especially when
companies are expanding business in foreign markets. The government rules and regulations for
every country are different and so Sainsbury has to make changes in it's business operations
according to these. The tax system policy and National policies for trade and export affects the
way of performing business activities.
LO4
Apply the SWOT analysis and Porter's five force analysis to any UK supermarket to determine
how they influence decision of the supermarket
SWOT Analysis of Sainsbury
STRENGTH WEAKNESS
 Sainsbury always made right expansion
moves. It started with a small retail
store and now it is operating top 4
supermarkets in United Kingdom.
 The business philosophy of Sainsbury
is to help it's consumers to live well at
less.
 Sainsbury has adopted low cost strategy
on it's products for attracting and
restraining it's customers.
 This company does Brand Match
promotion where each product is sold
by brand and it is compared to
competing brands from Aldi and Tesco.
 Sainsbury experiences a lot of risk due
to Brand switching.
 Sainsbury is cutting down it's costs and
keeping lower prices than it's
competitors. This gives rise to low
margins.
 For continuous growth and
development, Sainsbury has to involve
spacious aisles, multilevel parking,
educated and salesperson and this is
extra expense to the company.

This signifies that are offering cheapest
prices of products.
OPPORTUNITY THREAT
 Rural people are also using branded
products nowadays. This is an
opportunity for Sainsbury to establish
supermarket culture in rural villages
and remote areas.
 New marketing strategies should be
made for competing in the market.
 The main threat to Sainsbury's profit
and company is the market competition.
The main competitors of Sainsbury are
Aldi, Tesco, Lidl, etc
 Recession and inflation will affect
profitability and market expansion of
the company.
Porter's Five Forces Analysis
This analysis consists of five factors which determine the profitability of business. The
Five forces analysis model was given by Michael Porter. According to him, rivalry in market is
due to five variables or main forces – rivalry level, bargaining power of customers and suppliers,
threat of new entrants and substitute products. These five factors for retail sector of industry are
described below-
Bargaining power of buyer
In retail sector, customers have high bargaining power. Customers are attracted towards
low price and availability of online retail products. Products have slight differentiation and these
are standardised. In context of Sainsbury, the prices of products are very low as compared to
competitors.
Bargaining Power of supplier
In the retail industry, suppliers have enough power to regulate the industry. The suppliers
acts as managerial operations and they demand a certain amount of price for goods and products.
When retailers don't pay price, they do not get products or goods to sell.
Threat of substitution
Retail industry suffers when a new product or service meets a same need of customer in
different ways. The threat of substitute is high when the company offers a value proposition

which is uniquely different from the existing offerings. Sainsbury increases it's switching cost for
customers in order to tackle threat of substitution.
Threat of existing competitors
When the rivalry among the existing competitors in retail industry is intense then
Sainsbury will reduce prices and decrease the overall profitability of the organisation. Sainbury
has different competitors like Tesco, Aldi, etc. and thus, several strategies are adopted by the
company for long term profitability.
Threat of new entrant
There are possibilities of having new entrants in retail industry. The new organisations
having new innovations and new strategies of operating business is a threat to Sainsbury. Thus, it
adopts low pricing strategy, new value propositions and reduce in costs for retaining customers
and market share.
CONCLUSION
It has been concluded from the above report that there are different types of organisation
like profit, not for profit and non-governmental organisations. Business has different size and
scope for attaining position at marketplace. Different organisations follow different structures
and functions for operating efficiently. A PESTEL analysis can be used by organisation to
evaluate it's strengths and weaknesses. Further a SWOT analysis and porter's five forces model
helps in analysing the external factors that affects the growth and development of company.

REFERENCES
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Online
PESTLE Analysis of Sainsbury, 2019 Avalilable through <https://pestleanalysis.com/pestel-
analysis-of-retail-industry>